Kilzi vs. the Syndicate of the co-owners of # 10,400 boul. Acadie, 2001 (C.A)
Appeal of a judgement of first instance - Recourse of a co-owner to cancel a regulation of a building on renting - Power of the syndicate to restrict the exercise of the right of a co-owner to rent his fraction - Question of commercial nature about renting activities - Justification of the restriction of the rights of the co-owners because of the destination of the building
• In first instance, the co-owner has tried, without success, to have canceled a regulation, adopted by the syndicate, which limits his right to rent his apartments and he appeals.
• In the beginning, the building of the syndicate is built as a residential rental building. In 1982, it is transformed into a co-ownership comprising 132 privative units for residential use.
• The co-owner, his wife, his daughter and a company under his control are owners of eight apartments acquired between 1990 and 1993.
The co-owner occupies with his family one of the apartments and the other apartments are rented.
• In a general way, the Kilzi group tries to rent its apartments for one-year periods, but when that is not possible, it agrees to do it for shorter periods of time.
• Several co-owners were dissatisfied with the renting activities of the Kilzi group seeing there a threat to the peace on the premises and, consequently, a reduction in the value of their apartment.
• The syndicate has adopted, in April of 1994, a regulation on the renting.
• This regulation hinders the activities of the Kilzi group in three instances:
◦ No renting of less than one year will be allowed (except for particular circumstances and more or less discretionary permission of the administrators of the syndicate);
◦ Important restrictions apply to any renting for the apartments by exceding of the first three in the case of an owner who has more than three units (the renting is then allowed only for close members of the family);
◦ A company cannot rent its apartments to third parties.
• The declaration of co-ownership specifies that the destination of the building is one of residential dwelling.
commons and the distribution of the cost of these works;
• At the time when the declaration of co-ownership was signed and recorded, the Civil code of Lower Canada was in force. During the adoption of the regulation on renting, the Civil code of Quebec was in force. The Court specifies that it is thus necessary to take account of the relevant provisions of the two Codes as well as of the transitional provisions of the Act on the application of the reform of the Civil code:
JUDGEMENT IN FIRST INSTANCE
• To adopt the Regulation on renting, the syndicate has based itself primarily on the commercial character of this renting, as one can notice in the preamble. The Judge of first instance was of the opinion that she could deal with this case without sticking to the commercial character of the activities carried out by the Kilzi group;
• The Court of first instance was of the opinion that the regulation was valid since it did not modify the “destination” of the building. For this purpose, it wondered about the expectations of the co-owners and “the history” of this building, by comparing it in particular with a nearby rental building built at the same time by the same promoters;
• The Court of first instance also drew aside the arguments of the appellant founded on partiality, discrimination, the intention to harm and the attack on acquired rights. All the while recognizing that the regulation had been adopted to counter the activities of the Kilzi group, the Court judged that the administrators of the syndicate had acted in good faith in the interest of the co-owners, and in respect of the law and the provisions of the Act of co-ownership;
CLAIMS OF KILZI IN APPEAL
• the Act of co-ownership does not contain any restriction relating to the renting of the privative portions; quite to the contrary, it expressly envisages the right to rent its apartments and governs the modalities thereof;
• At the time when the eight apartments were acquired, no restriction was imposed on the renting of these apartments. The syndicate can thus not deprive it of the rights which fall on it by the Act of co-ownership and its contracts of purchase;
• Kilzi takes again the arguments based on discrimination, the intention to harm and the attack on its acquired rights, and also claims that the regulation did not obtain the majority required by the act of co-ownership.
CLAIMS OF THE SYNDICATE IN APPEAL
• According to the syndicate the purchase of several apartments and their renting constitute a commercial activity prohibited by the Act of co-ownership, and the syndicate was thus perfectly justified to prohibit these commercial activities;
• The regulation was adopted in good faith and in the general interest; it is in conformity with the “destination” of the co-ownership.
ANALYSIS BY THE COURT OF APPEAL
• All the prohibitions or restrictions imposed by the regulation rise from this alleged commercial nature of the activities of the Kilzi group, whereas co-ownership has a residential vocation;
• The Syndicate is undoubtedly right to claim that the Kilzi group carries out commercial activities by buying seven apartments to rent them. It is not difficult to show the commercial nature of these activities, within the meaning of the old Code, or to affirm that they constitute the running of a Company, within the meaning of the new Code.
• On the other hand, it is not a question to determine if the detention of several apartments constitutes a commercial activity, but rather to examine the activities inside the apartments to know if they lead to a residential or commercial occupation;
• The act of co-ownership aims at prohibiting the commercial activities inside the apartments and not at preventing that a “merchant” is owner of an apartment when one writes: “the exclusive portions (units of housing) will not be used for the exercise of any trade or commercial undertaking”;
• The activities of the Kilzi group cannot be prohibited for the reason that they would constitute, within the meaning of the act of co-ownership, “the exercise of a trade or a commercial activity”;
• In theory nothing is opposed to the right of the co-owner to rent his fraction. Like any owner, he can use it and enjoy it freely (1063 C.c.Q.). The above-mentioned provisions from the Civil code of Lower Canada as well as from the Civil code of Quebec explicitly arrange the rules to guide the triangular relations between the co-owner-the tenant-and the syndicate. Moreover, the deed of partnership of the co-ownership refers explicitly to the renting. Lastly, it should be said that the regulation aimed at does not prohibit all renting;
• If, in theory, the right to renting does not raise a difficulty, the situation is quite different concerning the limits imposed on this right. This difficulty draws its origin from one of the legal markers installed to control the exercise of it: the destination of the building;
• The destination of the building is the factor used at the same time to limit the prerogatives of the community and the individual rights of the co-owners. Let us take again articles 1056 and 1063 of the C.c.Q. ;
• All the while making this notion a fundamental pivot of the mode of co-ownership, the Civil code of Quebec abstains however from defining it, and the notion of the “destination of the building” is at the centre of a doctrinal controversy;
• The important role that the legislator has reserved for this measure of control as regards co-ownership orders the recourse to the widened concept of the notion. Failing this, it will be impossible to determine the legality of the conduct of a co-owner or of the validity of the restrictions which one wants to impose on him;
• It is thus necessary to apply in this case the “widened” notion of the destination of the building.
• The regulation does not cause to modify the destination of the building; it rather fits in the prolongation of this destination. Consequently, its adoption did not require the unanimity of the co-owners;
• The validity of the regulation will be maintained in as much as it does not deny the right to the renting, but as it arranges the exercise of it by rules which are justified by the destination of the building;
• The regulation in question aims at three different situations: the renting by a legal entity, the property of more than three units, and the short-term renting;
• The article of the regulation bearing on the renting by a legal entity causes to deny a right to rent rather than to govern the exercise of it and it must thus be declared invalid. The legal entity of private law cannot rent to third parties and that practically causes to prevent it from renting its privative
portion;
• The article of the regulation limiting to three the number of apartments that a physical person or entity can have; it cannot be justified since it denies the right to rent, rather than to lay down the methods of its exercise.
• The three other articles have the aim of prohibiting the renting for periods shorter than twelve months, except for exceptional circumstances;
• The basis called upon for the adoption of the regulation is not retained (the commercial character) but the destination of the building made it possible to impose restrictions on the short-term renting. The Court does not have to substitute its appreciation for that of the majority of the co-owners to suggest a different period: three months, six months or nine months;
• These restrictions confirm the residential character of co-ownership and aim at ensuring a reasonable exercise of the right to rent. The co-owners, in the majority, share this point of view and the articles in question could legally be the object of a regulation and they were legally adopted by the syndicate;
• The argument of Kilzi based on partiality and the intention to harm was not retained by the Judge of first instance and Kilzi did not prove that the first Judge was wrong on this subject.
• Given that the regulation specifies that the nullity of an article does not necessarily involve the nullity of the others and given that the various restrictions are distinct, it is necessary to accommodate the appeal partly in order to cancel the articles relating to the renting when the co-owner is a legal entity, as well as the one limiting the number of apartments that a person or entity can have;