Tuesday, June 23, 2015

Residential Tenancies: Common Misconceptions

I've dealt with Residential Tenancies Act matters from time to time, and there are a number of common practices which are not entirely compliant with Ontario law.

Most (though not quite all) residential tenancies in Ontario are covered by the RTA, which sets out a large number of obligations for landlords and tenants, which they cannot contract out of.  As a result, it's not uncommon to be able to look through a residential lease and list off a whole pile of clauses that can't be enforced.  Note, however, that there are exceptions - tenancies to which parts or all of the RTA do not apply, and therefore legal advice should be sought in respect of particular circumstances.

Security of Tenure

There are certain reasons that a tenant can be required to leave the rental unit.  There are quite a number of circumstances, but an important note is that the expiration of the lease is not one of them.  When you sign a 12-month term lease, then the default is that it will convert to a month-to-month lease at the end of the 12 months and continue until and unless somebody terminates it in accordance with the RTA.

A landlord can pursue an order evicting a tenant at any time on a 'for cause' basis, such as non-payment of rent, undue damage to the rental unit, interfering with the reasonable enjoyment of the rental complex by others, or illegal acts in the rental unit.  (This is not an exhaustive list.)  Even if you're on a year-long lease, you can be evicted at any time even before the end of the lease on such bases.  (This makes sense:  Fail to pay your rent; get kicked out.  The idea is that you have violated the terms of the lease by engaging in such conduct, such that your landlord might be relieved of its obligations.)

There is another set of reasons permitting the landlord to obtain an order evicting the tenant at the end of the term.  (So, if you're on a 12-month term lease, these can't be triggered during the running of the term...if you're month-to-month, they just have to give you a certain number of months of notice.)  These reasons include that the landlord (or a purchaser of the property) personally requires the unit (for himself or members of his family), among others.  But in the absence of such a reason, the lease continues.

The tenant, on the other hand, can terminate the lease at the end of the term at will - but on appropriate notice.  (Tenants usually do have to give notice.  Just walking away at the end of the 12 month term could result in you being on the hook for additional rent.)

Alternatively, the landlord and tenant can agree at any time to end the tenancy.  However, the RTA expressly provides that such an agreement entered into at the start of the tenancy is not enforceable.  (In other words, if you're renting a place from me, and when signing the lease I require you to sign off on an agreement to terminate the tenancy at the end of 12 months...tough for me, I can't enforce it.)

Most of Ontario's residential tenancy legal regime is built around meaningful protection for security of tenure - protecting tenants against being forced out by the landlord.

Leases Do Not Expire

This is kind of a re-statement of the above, but it is really important for tenants to know.  It seems pretty natural to expect that, when your 12-month lease is up, you either need to agree to re-rent, or just move out.  I only signed a 12-month commitment, and the lease says nothing about continuing beyond the 12 months; why should I need to notify the landlord that it won't continue?  This is not correct.

If you fail to give appropriate notice of termination, then the law deems the tenancy to continue, and you can be on the hook for additional rent.  It does happen.

"No Pets" Clauses

A landlord is entitled to advertise for "no pets", and generally to vet (no pun intended) prospective tenants to rule out pet ownership.  There's not even anything strictly wrong with including a "no pets" clause in the lease...except that it can't be enforced.

There are a handful of circumstances in which a tenant can be evicted due to pet ownership - namely, if the pet is causing problems (damage, allergic reactions, noise, etc.) or if the animal is inherently dangerous.  Aside from that, a tenant can't be evicted on the basis of pet ownership.

There's a bit of a complication with condominiums, however:  Condo corporations often have by-laws regarding pet ownership, and tenants can (and should) be bound to the condo by-laws.  The "No Pets" clause in the lease may be void, but the requirement to abide by condo by-laws may be enforceable, as may be the 'no pets' language sometimes contained in those by-laws.

Damage Deposits

Another common practice, particularly when dealing with pets, is to require tenants to provide a damage deposit up front.  Landlords are entitled to require a deposit, but it's limited to 'last month's rent', so to speak.  (Even less, in rare cases.)  And it does have to be applied against the last month's rent, which makes it pretty useless as a damage deposit.

It's actually an offence for a landlord to collect an additional deposit.  The maximum penalties are pretty steep - up to $25,000 for an individual, or up to $100,000 for a corporation.

Post-Dated Cheques

A tenant can't be required to provide post-dated cheques.  It shouldn't be in the tenancy agreement at all.  (In practice, there's not a lot a tenant can do to protest this sort of thing before taking possession.  However, it does put the tenant in a pretty good position to resist providing additional groups of cheques.)

On the other hand, post-dated cheques are relatively convenient for all involved.  There's nothing actually wrong with providing post-dated cheques; it just can't be required.

Rent Increases

There are a lot of restrictions on rent increases.  And exceptions.  It's a nuanced area.  The general rule, however, is that a rent increase requires at least 3 clear months' notice, can't be made more than once every twelve months, and can't be in an amount greater than the 'guideline' - basically an inflationary figure published by the government each year.  By way of example, the 2015 Guideline is 1.6%.

You can charge a new tenant whatever you can get someone to pay.  (Usually.  There are exceptions.)  But once they're in, you can only raise rent in accordance with the guideline.  Practically speaking, it's an effective protection of security of tenure:  You can't raise rent to a level that the tenant can't afford to get them out.

And there's a logic to it, as well:  Let's say I'm looking for a place to rent, and I'm pretty cost-sensitive.  Your place is $1400 a month; all the equivalent places are $1500 a month, so I pick yours.  After the year lease is up, the 'market' rate increases by 5% (so other places now cost $1575 per month), but you raise my rent by $300 per month, to $1700 - well above market rate.  I can leave, sure, but that means finding a new place, paying first and last again, paying to move, probably moving my kids to a different school...  There's 'value added' in having already made a place a 'home', and it doesn't make economic sense to allow landlords to capitalize on that value added.  Most Provinces have some sort of control in place, with the exception of Alberta...which may well change in the near future.

On the other hand, with the housing market appreciating at a much higher rate, landlords run into problems with long-term tenants paying well below market rates:  As the cost of housing has tended to increase at a faster rate than the guideline, the gap between the rent you can charge and the actual market rate grows over time.  (This leads to landlords trying all sorts of shenanigans to try to get long-tenure tenants out, when they can re-rent at much higher rates.)

As well, landlords argue that their costs increase at a rate not necessarily reflected by the Consumer Price Index - from which the guidelines are taken.

Breaking the Lease

Fixed term leases are regarded as providing protection to landlords.  You rent out for a period of a year, and that means that you don't have to re-rent for another year, right?  So a lot of landlords want to sign year-long leases annually.

Not only is a landlord, as noted above, not entitled to insist on signing a new lease, but it's probably not that helpful to a landlord.

If a tenant 'breaks' a term lease (or walks away without appropriate notice), the landlord is entitled to damages...but that's not necessarily going to be the full outstanding balance of the lease.  The landlord has the obligation to 'mitigate' his loss by seeking a new tenant.  In practical terms, it's rare to see a landlord get much more than a month or two of lost rental income.

So getting a couple months' notice of termination, as under a month-to-month lease, is probably just as good.

That said, there may be a 'moral' strength to a term lease.  A good tenant is a lot less likely to break the lease than to give two months' notice on a month-to-month tenancy.

It might also be noted that, in Ontario, there is such a thing as a 'yearly' tenancy - i.e. one which can only be terminated on the anniversary of its start date.  I've never seen a properly-drafted yearly lease, and I've never seen the LTB deal with situations where a yearly tenancy was terminated other than on its anniversary.

Suffice it to say that they're rare, and I think the down sides outweigh the up sides, for all involved.  For a landlord, terminating a tenancy can be tricky.  If you don't know what you're doing, if you don't cross all the t's and dot all the i's, if you don't properly serve a notice, if you miss the timeframe by a day, the notice is likely to be regarded as void.  On a month-to-month tenancy, that means that, if you mess up the termination application, you start fresh, for a later month.  For a yearly tenancy, you'd be stuck for another full year.  Not to mention that many end-of-term terminations require at least three months' notice.  If you decide, a little over 9 months into your yearly tenancy, that you want to move into the rental unit yourself, you need to wait until the end of Year 2 to do it.

It very much ties the hands of the landlord, and at the same time doesn't help the landlord much at all.

Repair Responsibilities

The responsibilities on the parties in terms of repair obligations are set out pretty straightforwardly in the RTA itself.

Section 34:  "The tenant is responsible for the repair of undue damage to the rental unit or residential complex caused by the wilful or negligent conduct of the tenant, another occupant of the rental unit or a person permitted in the residential complex by the tenant."

Outside of that, under s.20, the landlord is responsible for, among other things, maintaining the rental unit "in a good state of repair".

You can't contract out of that.  You can't enter into an "as is" lease - the landlord doesn't get relieved of that responsibility just because the tenant knew about the issues before moving in.

I've seen a lot of residential leases, and one of the more creative ways of dealing with repair issues involved something akin to a deductible:  The tenant pays the first $50 to the cost of each repair call.  (The person who drafted the lease argued that it's a 'standard term'.  It really isn't.)

The trouble with such a clause is two-fold:  Firstly, it probably isn't enforceable, because the Act is pretty straightforward on these responsibilities.  Secondly, it is a really bad idea.

The logic is that you don't want the tenant calling the landlord over 'every little thing'.  If it'll cost $50 for me to fix, as a tenant, then firstly I need to evaluate whether or not I really want it fixed, and secondly I need to figure out if it's something I might as well just get done myself.

On a practical level, I'm a big fan of tenants taking some responsibility for their own homes:  If the drain is clogged, forget getting the landlord to call in a plumber; just walk down to Canadian Tire and pick up a bottle of drain cleaner.

On a legal level, however, I'd never actually recommend tenants take a DIY approach for things within the landlord's purview of responsibility:  If you do it wrong, you're on the hook for the resulting damages.

But if I, as a tenant, am assessing what's worth my money to fix, when it isn't my property, then I'm operating on a different set of priorities than the landlord.  The faucet drips.  Whether I want that fixed will obviously depend on whether or not I'm paying for my own water bill.  The dishwasher has a leak underneath.  Well, it isn't *my* stuff getting damaged by the accumulating water - why should I pay to get it fixed?

The house, and every part of it, is a capital asset of the landlord.  There's no cogent reason why the tenant should have to contribute to repairs to that capital asset (at least, unless the tenant caused the damage), and most tenants...simply won't.  With the result that, when it comes time to re-rent, the landlord is going to find that maintenance issues have accumulated, and sometimes been exacerbated by the delay.

Other Frequent Errors

By Landlords:

Increasingly, the rental market is dominated by small-scale landlords who own an investment property or two, perhaps condos.  Without a great deal of professional experience as landlords, they often don't realize that there are formal requirements for giving notices (including notices of rent increases), or various technical requirements at the outset of the lease.

One of the most common mistakes I've seen is that landlords frequently fail to provide the Landlord Tenant Board's mandatory "Information for New Tenants" brochure, which s.11 of the RTA requires Landlords to provide to tenants on or before the date the tenancy begins.  The consequences of failing to do so are questionable.  The Board has found on at least one occasion that there's no remedy available against the landlord for that failure.  (Furthermore, by definition, the LTB will never see a Tenant Application by a tenant who is not already aware of his or her rights, so the prejudice to the tenants who actually go before the LTB will naturally be non-existent.  It's the tenants who *don't* know their rights and remedies who are prejudiced by the failure to provide the information.  As it stands, therefore, it's pretty much a totally toothless provision in the RTA.)  That being said, when it's coupled with other failures of the landlord, it might be a moral factor in pressing the Board to assess a higher rent abatement.

Regardless, it's pretty handy information for the landlord to have.  Many of the smaller-scale landlords will find the brochure informative for their own reference.

Likewise, I have seen it happen that landlords will fail to provide their address to the tenant, which is one of the very few circumstances in which a tenant is justified in withholding rent.  (That said, once it's remedied, the landlord is entitled to recover the withheld rent.)

And finally, Notice of Entry:  Most people are under the impression that entry by the landlord always requires 24 hours' notice.  Most folks, if they thought about it, would probably expect exceptions for emergencies, and consent entries, as well.

But there's a much bigger exception, which many people don't realize:  24 hours' notice is not required to show a unit to prospective tenants, once one side has given notice of termination.  Instead, the landlord's notice obligations are more limited:  Before entering, he or she must inform, or make a reasonable effort to inform, the tenant of the intention to enter.  (In other words, showing up unannounced is still probably not okay.  But 24 hours' written notice?  Not required.)  However, I've seen landlords integrate the right of entry into language in the lease, stating that 24 hours' notice of entry is required.  If the lease says so, it's quite possible that the landlord would be bound to that expectation.

When starting out as a landlord, it's worth getting professional advice to understand your obligations, and to get help drafting your lease.  While outside of my primary area of practice, I am nonetheless able to assist in this area.  Some residential leases that you can find or buy online are better than others, but even the relatively good ones have problems - for instance, trying unsuccessfully to create a yearly lease, or tying the landlord to more onerous obligations than they should.  (One of the best leases I've seen was simply out-of-date, including a term that the landlord had to pay interest on the last month's rent deposit at a rate of 6%.  That was required under the applicable statute until January 2007, but since then the rate of interest has been tied to the guideline, which probably averages around 1.5-2%.)

I can't say it enough:  Have a lawyer review your lease.  Even if you're using a realtor for the transaction, that's no substitute for having legal advice on contract terms.  Indeed, some of the absolute worst residential leases I've ever seen have been realtor-drafted.  You think you're paying them for their transactional expertise, but the truth is that you're lucky if your realtor knows more about the RTA than you do.  Even in Agreements of Purchase and Sale, which realtors are certainly more experienced with, I urge people to get legal advice before signing, particularly if there are substantive terms in Schedule "A" outside of the 'usual' conditions [like financing and home inspections].  However, I've seen entire leases built into the Schedule "A" of OREA's Form 400 (Agreement to Lease), with nobody getting legal advice.  Formula for a lot of unpleasant surprises.

By Tenants:

It's very common for tenants to express their dissatisfaction with landlords, say, for failing to properly repair the property, etc., by withholding their own rent.  There's a certain logic to it:  You're not fulfilling your end of the lease agreement, so we're going to hold back on our end.

That doesn't go over well.  There are only a handful of situations where the tenant is entitled to withhold rent, and those are very limited rights.

You're better off bringing a Tenant's Application to the LTB - do it yourself, or get a qualified lawyer or paralegal to assist you with it.  Because the alternative of withholding rent will merely put you on the defensive at the LTB, facing an eviction application for non-payment of rent.  And no, "He didn't fix the broken electrical fixture" is not a defence; you'll still need to bring your own Tenant's Application if you want an order to get that fixed.


This blog is not intended to and does not provide legal advice to any person in respect of any particular legal issue, and does not create a solicitor-client relationship with any readers, but rather provides general legal information. If you have a legal issue or possible legal issue, contact a lawyer.

The author is a lawyer practicing in Newmarket, primarily in the areas of labour and employment law and civil litigation. If you need legal assistance, please contact him for information on available services and billing.

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