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Supportive Housing Litigation

Published in the August 2006 issue of Litigation Notes - View Article

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In a judgement released on August 18, 2006 the Ontario Superior Court of Justice dismissed the plaintiff’s action based on the cancellation of his contract to supply supportive housing for mentally ill individuals in Toronto.

The case has an interesting backdrop, which is the process of de-institutionalization which has taken place with respect to psychiatric patients in Ontario over the last several decades. This process required the provision of supportive housing in the community and to that end, Mental Health ProgramServices of Metropolitan Toronto, also known as Habitat Services was incorporated in 1989. Its purpose was to channel funding from the City of Toronto and the Province of Ontario for the purposes of providing subsidies to owners of rooming houses for eligible residents. In return for these subsidies, the owners would enter into contracts with Habitat Services, whereby they would adhere to certain standards relating to living conditions and the provision of services.

The plaintiff, Mr. Muhammad was the owner of two boarding homes, one on Maynard Ave. (“Maynard”) and the other on Dunn Ave. (“Dunn”), which he had operated as Habitat houses for about six years.

In 1996 the defendant, Alison Guyton became the Executive Director of Habitat. In August of 1996 Mr. Muhammad stopped making mortgage payments on the Maynard property. The mortgagee commenced re-possession proceedings, a fact which came to the attention of Habitat in January of 1997. This was a violation of Mr. Muhammad’s contract with Habitat, which required that his mortgage be kept in good standing, and was of concern to Habitat, which did not want to see a vulnerable population have their living arrangements disrupted.

When Ms. Guyton inquired of Mr. Muhammad whether or not the mortgage was in good standing, he stated that he was in negotiations to sell the property to a Ms. Loretta Chan, who would be seeking to obtain an assignment of his contract with Habitat.

However, the amount that Ms. Chan was prepared to pay would have left a $300,000 shortfall in the amount owing to the mortgagee. Consequently, the mortgagee proceeded to take possession of the property and sold it to Diversicare, a boarding-home operator.

Mr. Muhammad’s action against Habitat and against Ms. Guyton was based on the arguments that Habitat should have given him a reasonable period of time within which to conclude his arrangements with Ms. Chan, that Habitat breached a duty of good faith owed to him in failing to do so and that its actions were inspired by a personal animus held by Ms. Guyton with respect to Mr. Muhammad.

The Court rejected all of his arguments. The court found that Mr. Muhammad had essentially brought his problems upon himself by failing to pay his mortgage. Habitat had no obligation to deal with Ms. Chan and its contract with Mr. Muhammad permitted it to deny an assignment unreasonably if it chose to do so. However in this case, the transactions were not unreasonable. Ms. Chan’s application was incomplete in a number of respects and furthermore, it was unlikely that the mortgagee would have sold to Ms. Chan and accepted a $300,000 shortfall. There was no personal animosity held by Ms. Guyton with respect to Mr. Muhammad, as was evidenced by the fact that while the issues relating to the Maynard property were under consideration, Habitat renewed his contract with respect to the Dunn property.

Unfortunately for Mr. Muhammad, the situation with respect to the Dunn property proceeded to deteriorate. Staff at the house complained to Habitat about the pay that they were receiving and raised various concerns about the maintenance of the house and the food being provided to the residents. They also complained that the brother of the house manager regularly appeared at the house in an inebriated state and brought prostitutes to the house for himself and the residents.

Ms. Guyton attempted to arrange a meeting with Mr. Muhammad, which he refused to attend, preferring instead to respond with “self-serving letters containing veiled threats”.
These events, led Habitat to advise Mr. Muhammad that it would not be renewing his contract with respect to the Dunn property. This could be done on 30 days notice for cause, provided that the cause was set out in the letter of termination. Alternatively, it could be done on 90 days notice. Habitat chose to terminate without cause but provided a notice of only 54 days before the end of the contract. The Court found that Habitat had breached its contract with Mr. Muhammad in this regard. However, the information provided by Mr. Muhammad with respect to his loss of profit was so incomprehensible that the Court concluded that he should only be entitled to nominal damages in the amount $100.