Monday, December 28, 2015

Rent Deposits Confuse Most Small Ontario Landlords

Almost every time I am retained by a new small landlord, there is confusion about rent increases and last month rent deposits.  I will leave rent increases for another day, but let me describe how the deposit system is supposed to work, and then how it's being handled by many small landlords.

WHAT THE LAW SAYS ABOUT RENT DEPOSITS

Rent deposits are permitted under the Residential Tenancies Act.  Damage deposits are not.  Last month's rent deposits (LMRD) can be equal to one month's rent, but not more.  They are negotiated prior to entering the tenancy, and paid prior to move-in.

Landlords are required to pay interest on the last month's rent deposit at the same percentage rate as the annual provincial guideline that's in effect at the time the interest is due.  So for instance, if a tenant moved in February 1st of last year, then January 31st of 2016 will be the end of the year, and interest is due immediately after.  If rent was $1,500, then the landlord owes 2% interest as that's the 2016 guideline.  So the landlord would owe $30 to the tenant.  The landlord can pay cash or write a cheque.

But there is another way of paying interest on the deposit rather than  actually paying by cheque.  In s.106(7) the Residential Tenancies Act allows a landlord to "top up" the LMRD with the interest owed.  So here's an example.

The monthly rent is $2,000.  The LMRD is also $2,000.  It's anniversary time (a year since move-in or a year since the last increase).  The landlord served an N1 notice of rent increase effective February 1st, 2016.  It should have been served in October 2015, since there is a 90 day notice requirement.  The rent will go up 2% as that's the 2016 provincial guideline.  So rent goes to $2,040.  Interest on the LMRD is owed on February 1st, also $40, as the percentage interest rate is the same.  But the Act permits the landlord to take the $40 and ADD IT to the LMRD, effectively making the deposit $2,040 instead of the rent.  No money changes hands.  It's a book entry only.  The rent and LMRD stay in sync.

Now remember you can ONLY do this top-up if you raise the rent by the guideline, since you are not permitted to have a LMRD equal to more than one month's rent.  This method of "topping up" the LMRD is the way almost all professional property managers handle rent deposits.  Sometimes a tenant thinks they were ripped off as they never saw a cheque.  I think it's important for good relations to let the tenant know that you've topped up the LMRD with the interest owed.  I have a nice letter in the forms package on my website that I suggest landlords give to tenants when raising the rent annually which explains how the deposit works.

So what happens with the LMRD you collected prior to move-in?  According to the Residential Tenancies Act, the rent deposit stays with the landlord forever until the tenant moves out.  When the tenant leaves with proper notice, the landlord APPLIES the last month's rent deposit to the last month of the tenancy.


HOW IT'S SUPPOSED TO WORK 

Too often, landlords and Realtors who assisted them in getting into a tenancy don't understand rent, rent increases and rent deposits.  I teach Realtors at various real estate boards, and I'm shocked at the misconceptions about rent and rent deposits.  The confusion lies in the difference between lease TERM, and the tenancy.  Term is an artificial construct, usually one year, that may (but doesn't have to be) included in a residential tenancy lease.  Leases can be month-to-month.  Under Ontario law, after the initial lease term is over (if there was term), the tenancy becomes month to month automatically.  The written lease is still in force.  No renewal is necessary.  Nothing changes, except the term is over.

But what too many small landlords do is apply the LMRD to the last month of the TERM, the 12th month if it was a one year lease term.  At that point, they have lost their rent deposit.  They have given away their hedge against the time it takes for eviction if a tenant stops paying rent.  There is no way to force a tenant to give you another rent deposit.  What should have happened is that the tenant should have paid for the 12th month with a cheque just like every other month, post-dated or otherwise, and the LMRD stays with the landlord until some time in the future, perhaps years down the road, when the tenant give notice they are moving out, or the landlord evicts the tenant.  The LMRD is applied to the last month of the TENANCY, not the last month of the lease term.


HOW AND WHY IT GETS MESSED UP

This mistake happens because Realtors and most small landlords are generally confused about the distinction between term and tenancy, and don't understand what happens after term ends.  Usually in a rental where Realtors are involved, the tenant has given the landlord only 12 post-dated cheques.  Post-dated are not required under the Residential Tenancies Act (s.108), you can't force the tenant to give post-dated cheques, but most tenancies initiated by Realtors involve them.  The landlord pays the Realtor the equivalent of one month's rent as a commission.  The landlord deposits the LMRD in their bank and then deposits each cheque as it comes due each month.  On the 12th month, they have no cheques left.  They should have received 13 cheques, not 12, in order to have a year's worth PLUS the LMRD.  But they didn't.  And on that 12th month, they simply APPLY the LMRD in their mind, confused about term, confused about whether the tenant is staying etc.  Then when they finally get around to asking the tenant their intentions (no need for that, the tenancy continues month-to-month by default), they realize the tenant is staying, they ask for a replacement LMRD.  The tenant may agree, but sometimes says NO.  And truthfully, the tenant doesn't have to pay another LMRD.  It's something a landlord and tenant agree to prior to the start of the tenancy.


HOW TO FIX IT

You fix it by not getting it wrong in the first place.  If you take post-dated cheques for a year, you need 13, one is the last month's rent deposit and the rest are for the first 12 months.

But to fix it, if the tenant fails to pay for the 12th month and you have no cheque, you just remind them that since they did not give 60 days notice (an N9 form), then the rent for the 12th month is due.  Assure them that their LMRD is still safe, has not been applied, although you will pay them the interest or top up the rent deposit.  If the tenant balks, it's an easy fix....you serve an N4 notice for the missing month's rent, and file an L1 application for rent and eviction at the LTB if they don't pay.

If the tenant says "haha, it's YOUR mistake landlord, you told me I didn't have to pay January's rent" (the 12th month), then apologize, tell them you made a mistake, and ask again for the missing rent.   Even if it was your mistake, it's fixable, since the Residential Tenancies Act clearly sets out in s.106(10) that you can ONLY use the LMRD as security for payment of the rent for the last month of the tenancy, and the Residential Tenancies Act also sets out in s.3(1) that even by agreement, you can't do otherwise.  In other words, it would be illegal for landlord or tenant to apply the LMRD to any month other than the last month of the tenancy.

So keep it simple.  You take the last month's rent deposit prior to entering the tenancy.  You put it in the bank.  You pay or apply interest on the LMRD annually using the current provincial guideline interest rate.  You apply the LMRD for the very last month they live there, never before.  Follow these rules and you won't get in trouble with rent deposits.

FOR MY ONTARIO LANDLORD FORMS PACKAGE AND A NEW POWERPOINT ON RENT CONTROL AND RENT-BASED EVICTIONS, CHECK OUT MY WEBSITE: 

http://www.hfineparalegal.ca/


Thursday, April 2, 2015

LOTS OF ADMINISTRATIVE CHANGES UNDERWAY AT THE LANDLORD AND TENANT BOARD

Lots of news at the LTB these last few weeks.  Add in the new case management hearings, changes to hearing scheduling and the addition of Cooperatives under the LTB's umbrella, the agency has had a busy year.  Here's a summary of a few of the newest changes.

E-FILING

E-filing is being tested on a limited basis for L1, L2, T2 and T6 applications. It's about time, they were talking about it when I was a Member of the LTB in 2004. I will believe it when I see it.  The Board plans to make e-filing available to all users across the province by this summer.  Together, L1, L2, T2 and T6 account for 80% of all applications received at the LTB.

UPDATED FORMS

As you know, the new forms are now available, but the old ones can be used until May 31st, 2015 without issue. After that, if an old form is used, it may delay the processing of the application.  Good and bad on the new forms. I like the Human Rights and French Language services expanded area. Also great to have a scheduling sheet where you can indicate unavailable dates on the last page of every application.

People shouldn't fret about star
ting to use them right on April 1st. The forms do not reflect any statutory changes, there has been no Rule or notice that they must be used as of that date. So far it's simply an announcement on the website saying they are available.  They are suggesting that by May 31st, you should be using the new forms otherwise delays may occur.

The best thing about the new forms is that finally the N5, N6 and N7 notices of termination warn the landlord that they had better include dates, times and specifics in order to comply with the 2002 decision Ball v. Metro Capital from the Ontario Divisional Court. I hope it results in fewer L2 applications being thrown out. The way the forms are designed forces the person to think point by point and include dates.


But the biggest single oversight was the N8 notice. There are only 3 slots for dates, times and specifics. To succeed with an L2 eviction application based on an N8 notice for persistent late payment, the Board member usually wants to look at the most recent 12 months of payment. Having only three slots is crazy, it will mislead the small landlord. I just sent this to a contact of mine at the LTB:


"Not trying to be an alarmist, but I just started looking at the new notices and applications that became official today, and I’m a bit shocked that the N8 notice has three lines on it, and no room for additional pleadings. I applaud the changes on the N5, N6 and N7 asking for details, dates and times, and having multiple distinct boxes, implying the need for clarity and specificity. Certainly if there are more than 3 instances of conduct, a landlord can attach an appendix to the notice.
But on the N8, most members insist on 12 months, it’s not set out in statute, but it’s generally what’s required. I’ve attached what I usually draft as an N8 under the old form. And if the notice is insufficient, it can’t be amended at a hearing.
I would strongly consider removing this notice from your website until this is re-thought. As you know, forms are not the law, but they are the best approximation of what the law says in a way non-legal people can understand. But this including only 3 lines, it’s completely misleading with respect to what may be required in order to get the order sought. Also by removing any space for commentary, you’ve removed the ability of the landlord to plead (since in LL apps, pleading is done by way of notice) their facts!"

SERVING OF APPLICATIONS AND NOTICES OF HEARING

Also the LTB will start serving the application and notice of hearing by mail starting July 1st, 2015. The LTB will serve the notice of hearing and the application to both the applicant and the respondent. Currently, the applicant serves these documents to the respondent. This new process will be more streamlined and will cut down on claims by respondents who say that they were never served. Some of the new forms talk about the LTB serving the application and notice of hearing. This is not the case until July 1st. 

EMAIL INQUIRIES HAVE ARRIVED

And believe it or not, email for case inquiries will soon be available at the Southwestern and Toronto South offices. Starting April 7, the Southwestern and Toronto South offices will be accepting case inquiries by email as part of a pilot project. LTB users in these areas will be given the email address along with their Notice of Hearing. They are asked to put their file number in the subject line of the email.


SO WHEN WILL EMAILING OF NOTICE OF ENTRY BE ALLOWED?

So...WHEN WILL EMAIL BE AN ACCEPTABLE METHOD OF SERVICE FOR NOTICES OF ENTRY BY A LANDLORD?  Fax is an acceptable method under the Board's Rules of practice, but not email. How many of your tenants have fax numbers? And besides, today email and fax are functionally equivalent. You receive faxes on your computer, you send them on your computer.  There really is no distinction.  This should not be so difficult, and can be changed by a simple amendment to Rule 5 of the LTB's Rules of Practice.  No legislative or regulatory changes are needed.  Perhaps the Rule could specify that emailed service is only permitted if the landlord and tenant have provided each other with their respective email address in the lease, or in writing, and agreed to use email as a method of communication.  Perhaps the Board could draft a form for them to use acknowledging their agreement.

Take the following example of why a change is needed.  Suppose a landlord lives in Burlington and owns a rental property in Pickering.  It's Thursday, and he wants to go and do a fire safety inspection, or change furnace filters over the weekend.  Since the tenant has no fax machine, and since email is not an acceptable method of service, he has to drive to Pickering on the Friday to drop the notice of entry off to the tenant, in the mailbox, in his hand etc.  Then he has to drive home, and on Saturday (making sure it's at least 24 hours later) he has to drive back to Pickering to change the furnace filter.  

Now it's true, he could simply take his chances, knock on the door and ask the tenant if it's OK for him to change the filter.  But if the tenant says "no", then the landlord can't enter. 

For all the details of changes taking place at the Board, check out their website:

http://www.ltb.gov.on.ca/en/About_Us/STEL02_111230.html

Saturday, March 28, 2015

RESIDENTIAL TENANCIES ACT'S DIRTY LITTLE SECRET ABOUT RENT INCREASES...FINALLY REVEALED!

Section 6(2) of the Residential Tenancies Act is the dirty little secret that nobody wants to talk about.  The tenant advocacy side keeps it quiet, as it would hurt their constituency if landlords became aware of it.  Many landlords don't know it exists, and if they did, rents would be jacked way up.

Landlords who know about the Section keep it quiet, as they don't want the newspapers to pick up on a story about an “egregious abuse” of the exemption.  Those in the know are happy to have it for themselves.  They've almost lost it before.
The exemption from the annual rent guideline increase first appeared in the Tenant Protection Act, 1998 (the “TPA”), and survived when the TPA was replaced by the Residential Tenancies Act, 2007 (the “RTA”).  It was added into the TPA in 1998 as a bone to developers since rent control was being put into place, and that was potentially a game-changer not just going forward, but it breached a trust retroactively.  

 Ostensibly it was included in the law to encourage future development; s.6(2) allows certain rental units to be exempt from the annual rent increase guideline which approximates CPI inflation.  The argument was that if the exemption wasn't provided, NOBODY would build new high-rise rentals.
So, the Tenant Protection Act came into force in June of 1998, not only exempting new construction going forward, but in some cases, going back to 1991 and beyond.

That section has seen its challenges.  There have been two failed private members bill in the legislature – one in 2010 and the most recent in 2013 – attempting to eliminate the so called "loophole".  
The section reads as follows, and refers to several sections of the RTA that do not apply in certain circumstances, but most importantly, exempts certain rental units from s.120 which creates the annual rent increase cap:

6(2)  Sections 104, 111, 112, 120, 121, 122, 126 to 133, 165 and 167 do not apply with respect to a rental unit if,
     (a) it was not occupied for any purpose before June 17, 1998;
     (b) it is a rental unit no part of which has been previously rented since July 29, 1975; or
     (c) no part of the building, mobile home park or land lease community was occupied for
     residential purposes before November 1, 1991.

Section 6(2) is badly written, and as a result is subject to a lot of different interpretations.  Divisional Court, a mid-level appellate court where Landlord and Tenant Board (the “Board” or “LTB”) decisions go for appeal, has only dealt with it a couple of times:

1.     Drewlo Holdings Inc. v. Weber, 2011 ONSC 6407 (CanLII).  The Court affirmed that the plain meaning of the word "building" includes a bungalow.  Good thing the Court didn’t say it must be a multi-unit building.  The decision didn’t have much value as the Court simply upheld the Board’s interpretation of the section as being reasonable and therefore not subject to appellate review.  That's called curial deference in appeal parlance.

2.     Coburn v. Tenants of 152 Concession 11 Road West, 2014 ONSC 2421 (CanLII) – Again, not very helpful or instructive.  The original Board decision was found to be reasonable.  However the Court also brought s.134 into the analysis.  More about that later.

Here’s my take on the three subsections:

6(2)(a) is confusing, but it seems to want to capture individual rental units, not the building.  It reads:  “sections ......do not apply with respect to a rental unit if it was not occupied for any purpose before June 17, 1998”.  I think this means that the exemption applies to a unit in a building built since 1998 or a new rental unit in an older building or a rental unit in a building that was simply never occupied residentially or otherwise, before June 17, 1998, the day the TPA was proclaimed.


6(2)(b) seems to apply to a first time rental unit, regardless of when it was built, so long as it was not rented to anyone since 1975.  Remember this first became the law in 1998.   It reads:  “sections ......do not apply with respect to a rental unit if it is a rental unit no part of which has been previously rented since July 29, 1975.”  In other words, only an owner (not just the current owner) lived there since 1975, and at some point decided to turn it into a rental.  In my mind, this is a grandfathering provision. 

Factually, it would be tough for either party to prove usage going back 40 years.  I think that the idea behind this exemption is that imposing a rent guideline over properties which did not have residential rental use since before any rent control laws came into force constitutes a form of expropriation of title. The significance of the year in 6(2)(b) is that it was in July 1975 when the Residential Rent Review Act 1975, (the “RRRA”), was enacted.  Prior to that there was no rent control to speak of in Ontario.

However Section 6(2)(b) is confusing even if you go with my interpretation. If I lived there since 1975 as an owner, and then in 2012 I decided to rent it out, is it s.6 exempt forever, for all future rentals?  I don’t think so.  I think any subsequent rental would take you out from the exemption.  By the way, this is so rare, I've never seen it asserted.


6(2)(c) is the subsection most landlords normally rely on for support.  It deals with the building.  Most think of it as new buildings constructed after 1991, condos primarily but not necessarily.  It reads, “no part of the building, mobile home park or land lease community was occupied for residential purposes before November 1, 1991.”  But if you examine the wording carefully, I think it’s meant to capture an older building used for a commercial or industrial purpose before 1991, but that was converted to residential use post-1991.  After all, if it’s NEW post-1991, then how could any part of it have been residential pre-1991?  Wouldn’t the legislature simply have said “not built prior to 1991” if that was its intention?

My 6(2)(c) interpretation is not the norm, and it challenges how the LTB and many landlords have traditionally used it.  Everyone goes to the LTB and says “exempt... it was built after 1991”, but I really think it might be 1998 that applies to new construction and everyone is relying on the wrong subsecftion.  What did the legislature mean when it wrote in (a) “not occupied for any purpose”?  Does that mean it was built, but in an alternate dimension, protected by a force field, surrounded by a moat?  I just don’t know.

Even though all the units described in s.6(2) are exempt from the annual rent guideline, there are still rules for raising the rent.  Too many landlords who know they are exempt still serve the N1 instead of the N2 notice of rent increase.  The N1 is the normal notice of rent increase for guideline increases (or special applications above the guideline), while the N2 is supposed to be for those units partially exempt, such as social housing, s.6 etc. 

Depending on the adjudicator, the service of the N1 form may or may not be acceptable, possibly saved by the substantial compliance sections of the Residential Tenancies Act, the Statutory Power Procedures Act and Legislation Act.  Forms can be found here: 

http://www.ltb.gov.on.ca/en/Forms/STEL02_111311.html

I’m concerned that one day, an appeal regarding a s.6(2) decision from the LTB is going to go to Divisional Court, and the free ride will be over.  The facts will be that a landlord of an exempt unit increased the rent from $700 per month to $7,000 per month.  A Divisional Court panel will decide that in a building with multiple comparables, where a "normal" value can be established, such a tactic breaches s.134 of the Act (see below).  The judge will call the rent charged a premium, and strike down the increase as an illegal premium. An over-zealous landlord will ruin it for everyone.

Additional charges prohibited
134.  (1)  Unless otherwise prescribed, no landlord shall, directly or indirectly, with respect to any rental unit,

(a) collect or require or attempt to collect or require from a tenant or prospective tenant of the rental unit a fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable;

My advice to a landlord lucky enough to have an exempt unit is to be up-front when signing the lease, including a clause where the parties acknowledge that the annual guideline does not apply, and that any new rent will not constitute a premium.  I believe it's better to act in good faith up-front and avoid fights a year down the road.
I always remind people that this blog does not constitute legal advice.  In this instance, it's even more important for you the reader to know that there are still many unanswered questions about this controversial exemption, and you should consult a lawyer or paralegal for additional advice.

Saturday, December 20, 2014

What if Ontario's Banks were Treated Like Ontario's Residential Landlords?

Business owners should have to assume risk.  After all, they are in the business of making a return on their investment better than they might have if they had taken no risk.

But what if government creates a statutory regime that is so unfair and unbalanced, that the risk becomes excessive?  That's what's happened with landlord and tenant regulation in Ontario. 

The argument against my hypothesis is that nobody twists a landlord's arm to go into the business.  While that is true (and I often remind clients of that fact), it's also true that there is too little education for prospective landlords about their rights and obligations, and a lot of pressure from the Real Estate industry suggesting to them that the risk in manageable.  Another factor is that if you build an apartment building, it's a 60 year investment, and if the rules change mid-way through the game, you can't easily get out with your capital intact.

Let's look at the banking business by analogy.  Both highly regulated.  Let's pretend landlords (business owners, some with shareholders) were banks (business owners, all of them with shareholders).  Now ask yourself these questions.

1. Would any bank in Canada still exist today if the rules about granting credit were the same as the rules about granting a tenancy; I'm speaking specifically about the Human Right's Commission's Policy Guideline on Rental Housing. 

Their policy guideline basically says that landlords should chose blindly without regard to risk.  It states that you can't equate no credit history with a bad credit history, no rental history with bad rental history, you can't look at income on its own as a factor, and you can't look at employment stability. Doing any of those things might be construed by a court or tribunal as being discriminatory.

2. Would any bank in Canada still exist today if they had to continue to advance further funds (analogous to a new month's of rent) to a client who was in default of their current obligation?

3. Would any bank in Canada still exist today if they were required to give speculative loans without collateral (or a high enough interest rate to compensate for the loss, like credit cards). Landlord's can't get any sort of meaningful deposit or security.  They are allowed one month's rent as security against a future breach, while it takes a minimum of 3 months to evict through the Landlord and Tenant Board.  No damage deposits allowed.

4. 
Would any bank in Canada still exist today if reasonable conditions or restrictions could not be attached to a loan.  In the landlord and tenant world, you can't freely contract with a tenant.  The Residential Tenancies Act applies notwithstanding any waiver or agreement to the contrary.  Beautiful hardwood floors?  You can't have a no-pet policy.  Landlord paying all the utilities?  You can't specify who may live there, or that rent varies depending on the number of people in the unit.

Landlords in Ontario should be questioning the oppressive conditions under which they operate, particularly when the government suggests that they are interested in creating more low-income housing. If the government wants a strong rental housing industry, they have to think of ways to support and encourage it, not smother it in unfair regulation.

Landlord and Tenant Board is in Crisis Mode Once Again

The Landlord and Tenant Board is starting to drift into crisis mode again, sort of like the old FSP (now called the Family Responsibility Office) did in the early 90's when the newspapers and opposition parties attacked the government of the day, pointing out the unfairness, delays and inefficiencies. In both cases, the governments changed the name of the agency, hoping the problems would go away.

The backlogs for hearings at the Board has become intolerable. Toronto South is booking into March for return dates. Toronto North is six weeks. The LTB is reacting by putting super-blocks in several locations in the GTA (instead of morning and afternoon blocks) to try to make better use of time for its Members. However these are terrible for those in the legal profession in terms of scheduling and income, not to mention the parties who will lose time and income waiting for 5 hours for their matter to be called.

For a tenant in arrears of rent, a delay is often as good as a win, particularly if they are living on the margins and are resigned to drifting from place to place. If you are judgment proof, a delay of 6 months means six months of free rent. Often adjournments are accompanied by an order for the tenant to pay new rent into the Board until the matter is finally resolved. There are remedies for the landlord if a tenant breaches such an interim order, but unfortunately they are mostly theoretical remedies as Members almost never impose them. Keep in mind that LTB litigation for rent is unlike Small Claims Court litigation for damages, in that the longer the proceeding drags on, the more the ultimate damages are. Damages are almost never fixed at the time of filing an LTB claim.

It's not just the Board, the statute itself is full of holes, inequities and gaps. But it's not fair to lay the blame solely at the feet of the statute either, the Board Members have a role to play in how the statute is applied. Under the Residential Tenancies Act there is discretion that can be exercised at every turn. Reasonableness and fairness are built into the statute's wording, and are determined by Members making findings of fact or exercising discretion. Decisions made on those bases are difficult to overturn on review or appeal. When Members grant reviews that shouldn't be granted, or grant a set aside motion that has no merit, and deal with tenants as if they are weak and unsophisticated while regarding landlords as wealthy and not to be trusted, the problems are exacerbated. This just enables those who would take advantage of the system. Members see no harm in soft justice on a case by case basis, but it perverts the system by removing what economists would call market discipline, and creates what they refer to as moral hazard.

If you haven't read Justice Matlow's critique of the LTB, you have not been in the loop. It's a must-read, but more so for the Chair of the Board, its Members and our legislators. The system is terribly broken and ripe for abuse. But neither the government nor the Board has responded to Justice Matlow's plea for reform.

http://www.canlii.org/…/2012/2012onsc4467/2012onsc4467.html…

There is far too much funding for tenant advocacy groups. At Toronto South lately there are often three staff lawyers, part of the Tenant Duty Counsel (TDC) program who mostly cause delay and hardship for landlords who are just trying to pay their mortgages. Funded by ACTO through Legal Aid Ontario, the program simply acts as an enabler for tenants who might otherwise pay their rent, clean up their units or stop causing disturbances. I noticed in Toronto South yesterday a new terminal for tenants to sign in for tenant duty counsel replacing the old paper clipboard. I see a couple of problems in it. First, it institutionalizes the TDC program "inside the walls of the Tribunal" to a greater extent than a clipboard. Many Members in their preamble make the point that the TDC program is NOT part of the LTB. Yet their computers are inside the door.

At the Toronto East District Offices (Scarborough) the TDC office is actually inside the LTB. Do they pay rent? How much? And with the new sign-in terminal for TDC at Toronto South, plugged into the walls of the LTB, who is paying for the electricity to run the terminal? When landlords see the TDC offices inside the doors of the LTB, with their computer terminals in the hall, they wonder how they can possibly get fair adjudication.

The government social assistance programs are swelling. Many of those recipients are tenants, many in trouble because the government refuses to mandate that rent be paid from assistance payments directly to landlords, rather than to the tenant who may then choose to withhold rent. Governments don't realize that they are actually doing a disservice to tenants by letting arrears grow to the point that there is no way to save the tenancy.

http://www.therecord.com/…/5215764-tenants-on-social-assis…/
http://www.ourwindsor.ca/…/5215804-landlord-tenant-board-n…/

The Provincial Liberals say that they want to create more affordable housing. A few years ago they passed the Strong Communities Through Affordable Housing Act. It mandated a return to legal second suites in communities across the province to create a system of less expensive basement apartments.

http://www.ontla.on.ca/…/bills_detail.do;jsessionid=c72d607…

But municipalities, more concerned with garbage and sewage volume, never got on board, and moreover, the Liberals are presiding over the punishing adjudication of the same small landlords who they are trying to entice to put in second suites. All of us in the paralegal business have seen landlords getting out of the rental business. The only reason the rental numbers swell is because of the growth of the condo market caused by Ontario's unique and lucrative residential real estate market.

Rental housing is complicated. This government has no interest in dealing with it in an adult manner, they ignore the problem and are disingenuous in all respects. Why are opposition parties (the Conservatives) not all over this?

Monday, October 13, 2014

THE PROBLEM WITH N9 TERMINATION NOTICES


Ontario's Residential Tenancies Act allows a tenant to give the landlord a notice of termination indicating their intention to move out.  No reason is required.  Generally the notice period must be a minimum of 60 days, with the effective date of termination on the notice being the last day of a rental period, or if there is a lease term remaining, no earlier than the last day of the lease term.

The Act requires the tenant to use an LTB approved form, called an N9, or at least a form that substantially complies with the N9.  The Act says that such a notice must identify the rental unit, the parties, the termination date and be signed by the person giving the notice...the tenant.

The concept is fine, but in practice there are numerous problems that arise, the most common is that the tenant gives an N9 notice that is not in accordance with the Act.  Most often the issue is that the notice period is less than 60 days, or not at the end of lease term, or not the end of a rental period.

What's a landlord to do when given an N9 notice on October 13th indicating that the tenant is planning on moving out on November 31st (which is not 60 days and November 31st does not exist)?  Well first of all, the landlord should never say (which they often do) "You can't leave, the lease ends in months", as slavery was abolished in 1864 and people can come and go as they choose. The legitimate issue is what are the legal obligations of the tenant to continue to pay rent if they give notice that is not in accordance with the Residential Tenancies Act.

The Residential Tenancies Act was written to replace the common law with a unified code that is not necessarily fair, but which corrects an imbalance of power and recognizes the remedial nature of rights-based legislation.  So the Residential Tenancies Act includes s.88 which basically says that if short notice is given by the tenant (or no notice is given) and the tenant moves out, rent continues to be owed until the earliest termination day that could have been specified had proper notice been given.  So if a tenant gives notice and moves out at month 6 of a 12 month lease term, the tenant owes rent until the end of the 12th month, right? 

Wrong!  That's because s.88 goes on to say that if the tenant does leave with short notice, then the landlord has an obligation to try to re-rent (mitigate the damages) and if they are able to re-rent, then the original tenant no longer has an obligation to pay rent.  Reinforcing that practice is s.16 of the Residential Tenancies Act that makes it clear that under the Act either party has the obligation to minimize losses (mitigate) when the other side is in breach of a provision of the tenancy agreement.

So landlords, if a tenant gives you an N9 notice which is short notice, accept it with good grace and try and re-rent the unit and get on with your life.  If you can't rent it in time, and suffer a rental loss, you can certainly sue for the damages.

However I always advise clients NEVER to sue for short notice if a tenant gives at least 30 days.  When you do, usually the tenant turns around and counter-sues for breaches of an obligation to maintain, or harassment etc.  In fact, I often suggest, depending on the circumstances, that the landlord "offer" the tenant an opportunity to sign an N11 agreement to end the tenancy which eliminates any requirements for the tenant to give proper notice.  If a landlord and tenant sign an N11, the tenant cannot be sued for short notice, and the landlord has in effect acquiesced to the short notice.

But unfortunately, it does not end here.  First of all, if the notice was given to you via email, or a hand-written note and NOT with an N9, that notice likely does not comply with the Act.  That creates a terrible risk for the landlord, because if you do want the opportunity to sue for short-notice (for instance, if you can't re-rent within the time they've given you), then the emailed notice likely won't be accepted by the LTB to evict the tenant(s) if they change their mind and don't move out.  So imagine the scenario where you get short notice via email, you try to re-rent as per s.88, you find a tenant and sign a lease, but the week before your new tenant is going to move in, the current tenant tells you that they have changed their mind.  What now?  The incoming tenant can sue you when they can't move in for damages arising out of the breach of the new lease.  If they spend $5,000 for a hotel until they can find a new place, you may be on the hook.

The solutions is to ALWAYS ask the tenant to use an N9 form when giving you notice to move out, even when it's short notice.  Let them know that if they don't sign an N9 notice, then you as the landlord don't have a notice you can rely on for an eviction (with an L3 application to the LTB ). As a result, the landlord can't start looking for a replacement tenant.  If the landlord is prevented from searching for a new tenant, the tenant's obligation to pay rent continues until the earliest of either the date that would have been proper notice once you realize they are gone (between 60 and 89 days), and the date you find a new tenant.  It is actually in the tenant's best interest as well as the landlord's that a proper Board approved N9 form be signed so that the landlord can begin the mitigation process.

This article would end here, except that once again, it's not so simple.  Section 37, 44 and 47 of the Act work together to basically say a tenant can give 60 days notice to terminate a monthly tenancy on a Board approved form provided it's effective the last day of a rental period, and where there is lease term, the date is no earlier than the last day of the lease term.  So what happens when a tenant gives a notice, even a proper Board N9 notice, that does NOT comply with the requirements of the Act.  In my mind, while it's short and triggers the landlord's s.88 obligations to mitigate, it should still allow the landlord to file an L3 application (no notice or hearing required) based on the N9 if the tenant does not move out,  After all, while you may (depending on when you are able to re-rent) be able to sue for rent based on short notice, you should still be able to confidently re-rent the unit which is what mitigation is all about.

Enter an LTB decision from a year ago where just that happened; short notice was given, the landlord re-rented, the tenant refused to move out and the landlord then filed an L3 application to evict based on the N9 notice.  The LTB Member, a sharp woman who is a lawyer, found that since the notice did not comply with the statute (it was short in days) the notice was void.  And since it was void, she decided that it could not be used to uphold the tenant's stated intention to move out by ordering eviction.  What a disaster.  The landlord is supposed to mitigate when an N9 is bad, but then when they do mitigate by re-renting, the LTB can determine that the notice is void (which in law means a nullity), and not evict the sitting tenant. 

Now for the record, the Residential Tenancies Act does NOT say such a notice is void, and it does certainly say that other notices not in accordance with the Act are void.   Yet, the Member made the decision and tied the landlord's hands, causing them risk of litigation from the incoming tenant.

What a mess it is, the Residential Tenancies Act.  But this Catch 22 is so unfair, and worse, it leaves the landlord afraid to try and re-rent in case the sitting tenant then refuses to move out and the Board refuses to evict on the "short" N9 notice.  That helps nobody, certainly not the sitting tenant who may continue to be responsible for the rent because the Act makes it impossible for the landlord to safely mitigate.

There is no solution or right answer, other than hoping for an adjudicator who makes the right finding, and does not find that a short notice invalidates the notice for all purposes.  Another way, as I've stated earlier in this article, is to simply accept the short notice, sign an N11 agreement with the tenant (which removes requirements for 60 days etc.) and then hopefully re-rent the unit without a rental loss.  Not very fair, but just like in so many other instances, the Residential Tenancies Act is unworkable in the real world.

Tuesday, April 1, 2014

Deposit Decision at Divisional Court Muddies the Water

I must admit I was shocked when I read this recent decision about last month's rent deposits, allowing a landlord and tenant to agree on a rent deposit of more than the one month, the limit set out in the Residential Tenancies Act.

Corvers v. Bumbia , 2014 ONSC 985


The Residential Tenancies Act seems to prohibit the collection of a rent deposit, once negotiated, in an amount greater than the equivilent of one month's rent:
106.  (1)  A landlord may require a tenant to pay a rent deposit with respect to a tenancy if the landlord does so on or before entering into the tenancy agreement. 2006, c. 17, s. 106 (1).
(2)  The amount of a rent deposit shall not be more than the lesser of the amount of rent for one rent period and the amount of rent for one month. 2006, c. 17, s. 106 (2).
I've read this new decision, I've also read the Divisional Court decision Royal Bank v. Macpherson, which this decision relied on.  In Macpherson, which was an appeal from LTB file TNL-07849, the Court upheld the Board’s decision that the tenant could rely upon a prepayment of rent made to the former landlord as against the current landlord, a mortgagee in possession. In Macpherson, the Court found (in paragraph 27) that while it is illegal for a landlord to demand a rent deposit in an amount greater than one month's rent, it does not prevent a tenant from offering a large deposit, or pre-paid rent. "The tenant does not commit an offence in paying more than one month's rent in advance".

However the facts in Corvers are very different from those in Macpherson. In Corvers, the Tribunal found that the payment was voluntary. Moreover in Macperson, the bank asked the Court not to take into account a large prepayment of rent after they became a mortgagee in possession.  Justice Wilson, writing for the Court in Macperson acknowledged that even if they were wrong about the legality of the deposit, "this does not mean that the tenant would be precluded from relying on his prepayment of rent when faced with a demand for rent".

It's my opinion that section 3 of the Residential Tenancies Act makes a voluntary payment that contravenes the Act, illegal.
3. (1) This Act applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary.
I don’t know if in this new case anyone for the tenant argued either of two appeals, Joe Barber v. 108689, from the Divisional Court, or Montgomery v. Van.  In Joe Barber, the landlord and tenant had agreed to forgo any future rent increases in exchange for a larger than normal one-time rent increase so that the landlord could make some upgrades to the complex.  Despite this agreement, the Divisional Court decided several years later that the landlord could raise the rent as the Act permitted it and the agreement ran contrary to s.3 of the Act.  The Court wrote:

[18] The policy rationale behind ss. 2(1) is to treat tenants and landlords equally. The subsection is designed to prevent parties from bargaining away or waiving their statutory rights no matter what the circumstances. Both Crown Trust Co. v. Rosenberg and Pinheiro v. Bowes found that the provision was meant to operate as a blanket prohibition. To permit a departure would create a significant loophole which could dramatically impair the entire scheme of the Act.
Montgomery v. Van was a decision that went to the court of appeal a couple of years ago as an adjunct to a personal injury claim when the court was asked whether, even by agreement, a landlord could require a tenant to shovel the snow despite the landlord's obligation to do so found in s.20 of the Act.

The Court of Appeal decided that they could only contract outside the Act if it was in the context of a separate agreement outside the tenancy agreement. In effect, Montgomery and Van would have had to draft a separate agreement, not as landlord and tenant, but as Mr. Montgomery and Mr. Van, for snow shoveling or grass cutting.

The judges in Corvers appear to have based their decision on a finding of fact made by the adjudicator that the deposit was voluntary.  They were unwilling, which is the norm, to disturb a finding of fact unless it amounts to a palpable and overriding error of fact. What I think they missed is that you can't really have a voluntary payment of something that the Act anticipates, and which is part of the negotiating process.  The landlord may have well refused the prospective tenant if the offer had not been made.

This recent decision leaves the door open to terrible abuses. Section 3 has always been sacrosanct, in my mind the most important single section of the Act. At very least, it provided us as practitioners with clarity and predictability. Now, it seems anything goes. What if a tenant is bidding for a coveted rental, and offers to pay increases annually exceeding the guideline?  It seems that using the reasoning in Corvers, that would be permitted.

Statutes like the Residential Tenancies Act are said to be remedial, that is, they address an imbalance of power.  Volunteering to work for less than minimum wage to put food on your family's table, or paying a six month rent deposit because you might be new to the country with no credit history, is hardly a bargain among equals.  At the end of the day, even if the Court's legal analysis is correct, we are now in a situation where adjudicators at the LTB will have to decide whether it was an "agreement" based on bargaining strengths, or a bona fide offer by a tenant, to pay lump sums of rent in advance.  There are also Human Rights Code issues here, as there may be a discriminatory effect on a person in "negotiating" a lump sum deposit, for instance if the tenant is on social assistance.

I’d love to see my friends at ACTO (Advocacy Centre for Tenants, Ontario) take this to the Court of Appeal. I’m a landlord side paralegal, but I still think this was wrongly decided.

Saturday, February 1, 2014

Trouble with Condo Tenant Demands Fast Action

As of this past November I am now a condo dweller, but that's not what got me thinking about this new post.  I have a lot of clients who are owners of condos, bought for investment purposes, who run into trouble with tenant conduct issues, usually noise, drunken parties, prostitution etc.  Certainly a big part of the problem stems from the the fact that too many condo investors think of themselves only as investors and not as business owners.  They are both; and they neglect the latter at their peril.

The Condominium Act prescribes obligations on unit owners (the landlord) with respect to their tenants.  Owners must make sure tenants receive a copy of the Rules, Declaration and Bylaws of the Corporation, and must make sure the tenants know they are responsible to abide by them.  The lease signed by the tenant should have a clause wherein they acknokwlege that they have received and will comply with same.

Most condo Declarations and Rules have carefully drafted wording such as:  
The owner of each unit shall comply and shall require all residents and visitors to comply with the Act, the Declaration, the By-Laws and the Rules.
Each owner and resident of the Condominium shall be responsible for the acts and omissions of their family members, tenants, guests, licensees and invitees.
No owner or resident shall create or permit the creation or continuation of any noise or nuisance (wither within a unit or on the common elements) which, in the opinion of the board or property manager, may or does disturb the comfort or quiet enjoyment of the units or common elements by the owners or their family members, tenants, guests, licensees and invitees.
When the day comes when the management company calls and writes the owner advising them that there are noise or other conduct issues caused by their tenants, most owners don't act quickly enough.  Usually they call their Realtor who sold them the unit and yell at them. Not too effective.

Even a warning by condominium's management that the Corporation's solicitor may be retained to force compliance through the Condominium Act usually is met with a shrug of the shoulders.  Section 134 of the Act permits a corporation to make application to the Superior Court for a compliance order against the owner and tenant.  Legal costs in obtaining same may be as high as $20,000, even higher if the issues are complicated and respondents contest the application.  Whatever costs or damages are assessed against the owner get tacked on to their common expenses. 

Addition to common expenses
134(5)  If a corporation obtains an award of damages or costs in an order made against an owner or occupier of a unit, the damages or costs, together with any additional actual costs to the corporation in obtaining the order, shall be added to the common expenses for the unit and the corporation may specify a time for payment by the owner of the unit. 1998, c. 19, s. 134 (5).

And not only that, a statutory lien is created in priority to almost every registered encumbrance.The Corporation could even sell the unit to satisfy payment.

Lien upon default
85.  (1)  If an owner defaults in the obligation to contribute to the common expenses, the corporation has a lien against the owner’s unit and its appurtenant common interest for the unpaid amount together with all interest owing and all reasonable legal costs and reasonable expenses incurred by the corporation in connection with the collection or attempted collection of the unpaid amount. 1998, c. 19, s. 85 (1).

Owners need to take tenant conduct issues seriously.  A discussion with the tenants followed up with a letter might be appropriate the first time, but at the second complaint by the management company, the owner needs to serve the appropriate Landlord and Tenant Board notice(s) seeking termination of the tenancy.  Only by immediately taking all reasonable steps through the Residential Tenancies Act does the owner protect themselves against a Compliance Order under the Condominium Act.

Property management companies must be forthcoming with dates, times and specifics, even video recordings, both for the purpose of the statutory notices, and evidence at a hearing.  Witnesses, in particular security staff, should be made available and summonsed to the Landlord and Tenant Board hearing. 

Often by the time I'm retained, the unit owner and tenant have already received the first warning letter from the Corporation's solicitors, at a cost of about $400 tacked on to their common element costs.  The first thing I do is write the Corporation's counsel, advise them that I've been retained to commence proceedings at the Landlord and Tenant Board, and ask them to forebear until such time as the proceeding has concluded.

Usually an N5 notice is drafted and served.  If the tenants correct their offending behaviour within the 7 days following service, the notice becomes void and you cannot file an application to the LTB.  The Corporation may wonder why you haven't moved on with an eviction application.  It's up to the paralegal to explain to the corporation and their solicitors what the Landlord and Tenant Board process entails.

What if after a hearing, the Landlord and Tenant Board decides not to evict?  Assuming that the paralegal retained for the LTB proceeding has acted properly and the Board still chose not to evict, it's likely that by simply making a good faith attempt to evict the tenant based on their conduct,this will protect the owner against the costs of a compliance order.  I've noticed in a lot of the condo cases recently based on s.134 applications, the Courts are wary of the high costs charged to the corporation (which flow through to the unit owner) as there is really no incentive for the law firm or condo corporation to keep costs down. There is a trend towards condo corporations pulling the s.134 trigger too quickly.  As a paralegal, you need to give these types of retainers top priority to prevent a costly outcome for the client.