Summary:
1. Would the previous tenant have to pay for the difference in rent if he vacated with a short notice and the unit was re-rented for lower rent?
2. Does the LTB or the SCC actually ever order more than 2 months' rent in loss of rental income?
3. How would a landlord prove minimization of losses / actively trying to re-rent the unit? (Dudley v. Mackay)
4. What if it takes some time to re-paint and repair the unit before the unit can be re-rented? (Is this time included in the calculation?)
5. Can the landlord charge the tenant reasonable expenses to advertise the unit to re-rent it?
6. Can a tenant pay for entering into an N11 agreement of termination to terminate early? Or would RTA section 134 prohibit it?
1.
In one our previous posts, we discussed some methods of early termination by the tenant, including providing a short notice and RTA section 88.
The landlord would be entitled to rent amount that would be required under a proper notice, subject to the landlord minimizing his losses for the tenant's breach (as per RTA section 16 and RTA subsection 88(4)) by actively trying to re-rent the unit. And as soon as a new tenant is found, the previous tenant's obligation stops, due to inability to "double dip", i.e. landlords cannot collect rent from more than one tenancy for the same leased premises for the same period of time, as per RTA subsection 88(3).
But if the landlord minimizes his losses by renting out the unit for LESS, is the tenant who vacated with a short / improper notice responsible for the difference in rent for the duration of the lease term?
The answer is not clear.
1)
On the one hand, "Subsection 88(3) of the Act provides that if a landlord enters into a new tenancy agreement with a new tenant, the tenant who vacated the rental unit is not liable to pay arrears of rent that exceed the arrears owing for the period that ends on the date the new tenant is entitled to occupy the rental unit" ((1) SWT-17089-10 (Re), 2011 CanLII 13406 (ON LTB), <https://canlii.ca/t/fkkgc>, at para. 10).
And (2) TET-94001-18 (Re), 2018 CanLII 141598 (ON LTB), <https://canlii.ca/t/j0fgr> says:
"23. This section of the Act specifically contemplates the scenario before the Board here in which a tenant moves out of a unit and new tenant moves into that same unit. This section specifically prohibits a landlord from being paid twice for any overlapping time period between the old and new tenants."
Theoretically, this should exclude ability to charge for rent reduction after a new tenant moved in.
2)
On the other hand, Greg Joy's Review Order in (3) EAL-22003-12-RV (Re), 2012 CanLII 59987 (ON LTB), <https://canlii.ca/t/ft6jc> ordered the tenant to pay the difference in rent for the duration of the fixed lease term:
"6. The tenancy agreement is a one year lease commencing September 1, 2011 and continuing to August 31, 2012. The Tenant claims she moved out on January 31, 2012. The Tenant did not provide the Landlord with a notice to terminate the tenancy as required under section 47 of the Residential Tenancies Act. The Landlord had not served a notice on the Tenant. The Tenant did not return the keys to the unit to the Landlord and in April the Tenant had personal belongings in the unit.
[...]
8. The Landlord claims he did not discover that the Tenant had vacated the unit after he filed the application with the Board. Based on the e-mail correspondence and photographs, I find on the balance of probabilities that the Landlord did not know the Tenant vacated before he filed the application. After the hearing on April 4, 2012 when it was confirmed the Tenant had vacated the unit, the Landlord advertised the unit and by May 1, 2012 a new tenant took possession of the unit. The rent the Landlord was able to have the new tenant agree to, after reducing price to ensure the unit was rented as soon as possible, was $1,590.00. This is $240.00 a month less than the Tenant was paying. I find the Landlord has fulfilled the requirement under section 16 of the Act and has minimized the losses to the Tenant and the Tenant is responsible for the $960.00 loss the Landlord has incurred for the period May 1 through August 31, 2012.
[...]
It is ordered that:
[...]
3. The Tenant shall pay to the Landlord $960.00, representing the $240 loss per month the Landlord was able to re-rent the unit for, from May 1 through August 31, 2012."
In support of the second position, it is also interesting to note that if the landlord is ordered to return the funds to the previous tenant due to double-dipping under a T1 application, the landlord apparently might not have to return more than what the landlord himself receives from the new tenant who is paying lower rent than the previous tenant. At least, this is the position taken in (4) SOT-67764-16 (Re), 2016 CanLII 44362 (ON LTB), <https://canlii.ca/t/gsk2m> (where the previous tenant's rent was $550 per month and the new tenant's rent was $450 per month):
"24. Section 88 (4) and Section 16 of the Act require the Landlord to minimize his losses by taking reasonable steps to re-rent the unit. The Landlord actively advertised the rental unit and at the time of the hearing, had a new tenant. The Landlord indicated that the new tenant had a 4-month lease term. It is expected that the Landlord would continue to return to the Tenant any rent he receives for the rental unit until August 31, 2016 to a maximum of $550.00 per month. This would include return of the $450.00 per month received from the new tenant for March and April 2016, if that new tenancy continued to April 2016. If the Landlord receives only $450.00 or any other lesser amount for rent on any given month, the Landlord will only be obliged to return $450.00 or any such lesser amount to the Tenant."
So what do you think?
Would the tenant be responsible for the difference in rent if new rent amount had to be lowered?
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2.
It is important to note that, despite popular belief, the Board can indeed order rent for significantly more than just 2 months (but capped at the fixed lease term, of course), as long as the Board actually determines that the landlord indeed minimized his losses (RTA subsection 88(4), RTA section 16), so this could mean potentially significant amounts that the tenant could be ordered to pay. See examples below (remedies for loss of income of well over $10,000 in both cases - for about 6 months in the first case and for 7 months in the second case).
Of course, convincing the Landlord and Tenant Board or the Small Claims Court that it actually took so long to find another tenant for the unit would be harder the longer the period of time that is being claimed, especially in a hot rental market, but that would be an issue of evidence.
Also note how the first LTB ruling did not order remedies for loss of income for the period of time going forward (i.e. after the date of the hearing), even though the unit still remained unoccupied at the time.
"This application was heard via videoconference on December 2, 2020 at 9:00 a.m. Only the Landlord attended the hearing. As of 9:50 a.m., the Tenant was not present or represented at the hearing although properly served with notice of this hearing by the Board.
[...]
7. The Landlord is seeking rent up to March 31, 2021, the end of the lease term. At the hearing, the Landlord testified that this is a one-year lease beginning April 1, 2020 and ending March 31, 2021. Based on the Landlord’s uncontested evidence, I am satisfied that this was the lease agreement. The Landlord testified that on May 23, 26 and 27, 2020, the Tenant emailed and texted the Landlord advising that she was unhappy with the unit and would be vacating in June 2020. The complaints were with respect to maintenance issues with the unit. The Landlord inquired about the maintenance issues and did not agree to an earlier termination date. The Landlord submitted that this is insufficient notice and therefore, the Landlord is entitled to the amount of rent up to the date of the end of the one-year lease term.
8. I find that the Landlord is entitled to rent to the date of the hearing, December 2, 2020. 2021. Section 47 of the Residential Tenancies Act, 2006 (the ‘Act’) provides that “a tenant may terminate a tenancy at the end of a period of the tenancy or at the end of a term of a tenancy for a fixed term by giving the notice of termination to the landlord in accordance with section 44.” Pursuant to section 44 of Act a notice to terminate a yearly tenancy shall be given at least 60 days before the last day of the yearly period on which the tenancy is based. The Tenant provided notice to vacate on May 23, 2020 and vacated the unit on June 23, 2020. The Tenant did not provide 60 days’ notice and the notice did not terminate the tenancy on March 31, 2021, the last day of the yearly term period.
9. Pursuant to section 88(1) of the Act, arrears of rent are owing are up to the earliest termination date that could have been specified in the notice. The earliest date which could have been specified is March 31, 2021. However, the Landlord is not entitled to future arrears of rent. As such, the Landlord is entitled to rent to the date of the hearing, December 2, 2020.
10. Section 88 (4) and section 16 of the Act require the Landlord to minimize losses by taking reasonable steps to re-rent the unit. The Landlord posted on three forums since the beginning of July 2020 after the Tenant vacated the unit. The Landlord testified that she has had no luck re-renting the unit. She testified that some Tenants have come to view the unit, but were not satisfied for various reasons, e.g. because the unit did not have enough parking spots or not close enough to the bus station. Further, the Landlord could not rent to prospective Tenants for various reasons, e.g. the credit checks of the prospective Tenants were problematic, or the Tenants’ reference checks were unsatisfactory. As such, to the date of the hearing, the unit is still vacant. Based on the Landlord’s uncontested evidence I find that the Landlord has taken reasonable steps to minimize her losses and therefore, is entitled to rent to December 2, 2020.
It is ordered that:
1. The Tenant shall pay to the Landlord $11,215.36,* which represents the amount of rent owing up to December 2, 2020 ($11,025.36) and the application filing fee ($190.00)."
"9. I find the Landlord took reasonable effort to re-rent the unit despite the unit being re- rented on September 1, 2020 which was over seven months after the Tenant vacated the rental unit. The outbreak of Covid-19 pandemic in mid March 2020 made it more difficult for the unit to be rented. The Landlord continuously advertised and reposted using Kijiji from January 11, 2020 to August 4, 2020. The Landlord also reposted and advertised individual rooms in another attempt to find prospective tenants.
10. The Landlord has fulfilled her duty to take reasonable steps to minimize the Tenant’s losses as required by section 16 of the Act.
11. The Tenant did not pay the total rent of $18,000.00 ($2,000.00 x 9 months) she was required to pay for the period from December 1, 2019 to August 31, 2020."
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3.
How can a landlord prove actively trying to re-rent the unit?
(7) Divisional Court ruling in Dudley v. Mackay, 2000 CarswellOnt 229, 131 O.A.C. 75, 94 A.C.W.S. (3d) 1001
"APPEAL by landlords from decision of Small Claims Court judge dismissing action for unpaid rent and allowing counterclaim for return of security deposit.
Lack, J.:
1 This is an appeal by the landlords from a decision of Deputy Judge Hall in the Small Claims Court at Campbellford on February 19, 1999.
2 The landlords rented a residential dwelling at 153 Old Hastings Road, in the Township of Perry, in the County of Northumberland to the respondents, the tenants. The rental agreement was for a fixed term of one-year starting September 1, 1997 and ending August 31, 1998 with rent of $700.00 per month to be paid on the first of each month. The tenants paid a security deposit of $700.00 to the landlords at the time the lease was signed. The tenants made all rental payments for the month of August 1998. On August 15, 1998, the tenants verbally advised the landlords of their intention to vacate the premises before the end of August, 1998. The tenants vacated the premises on August 17, 1998.
3 The landlords sought to recover unpaid rent for 60 days in lieu of notice and damages. The tenants counterclaimed for the return of their security deposit.
4 The learned deputy judge dismissed the landlords' claim for unpaid rent on the basis that the tenants were not required to provide notice of their intention to vacate at the end of a fixed term residential lease. He found that there was no significant damage to the premises. He granted judgment to the tenants for $700.00 for the return of their security deposit plus interest of $63.00 in accordance with the Landlord and Tenant Act. He ordered costs of $55.00.
5 The reasons for judgment show that the learned deputy judge carefully weighed and considered the evidence adduced by the landlords in support of their claim for damages to the premises. In my opinion, there is no basis for interfering with his findings or with the disposition on that issue.
6 The learned deputy judge proceeded on the basis that the Landlord and Tenant Act, R.S.O. 1990, c. L.7 applied. It does not appear that the provisions of the Tenant Protection Act, 1997, S.O. 1997, c. 24 were brought to his attention. The Tenant Protection Act was proclaimed into force on June 17, 1998. Section 2 of the Tenant Protection Act provides that it applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary. The Tenant Protection Act and not the Landlord and Tenant Act applied in this case.
7 Subsection 47(4) of The Tenant Protection Act provides:
47(4). A notice under section 46, 60 or 96 to terminate a tenancy for a fixed term shall be given at least 60 days before the expiration date specified in the tenancy agreement, to be effective on that expiration date.
This section applied in the circumstances of this case. Consequently, the learned deputy judge erred in finding that a lease for a fixed term relieved the tenants from the obligation of giving notice at the end of the term.
8 However, that does not conclude the matter. Section 13 provides:
13. Where a landlord or a tenant becomes liable to pay any amount as a result of a breach of a tenancy agreement, the person entitled to claim the amount has a duty to take reasonable steps to minimize the person's losses.
The learned deputy judge did not consider the question of mitigation of damages. It was not necessary for him to do so in view of the disposition he made. However, in light of the view that I take, it is necessary to consider the issue.
9 There is some indication in the transcript that the landlords did show the premises on one occasion to a prospective tenant after the tenants vacated on August 17, 1998, having paid the rent to August 31, 1998. However, the evidence was very vague about when the landlords showed the premises. There is no evidence that the landlords advertised the rental unit for immediate occupation. The landlords must demonstrate that they have made reasonable attempts to mitigate their losses before they can recover rent when the tenants vacate premises early. The landlords could not have met that onus on the evidence that they adduced at trial. Consequently, there is no reason to interfere with the disposition made by the learned deputy judge.
10 For these reasons, the appeal is dismissed. The tenants were unrepresented at the appeal. They were unable to advise me of any costs that they had incurred in responding to the appeal. For that reason, I am ordering no costs of the appeal.
Appeal dismissed."
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LTB examples:
"14. The Tenants argued that their fear for their children’s safety, due to a slip on the ice, was a major reason for their decision to move. However, that incident took place in November, long after the Tenants had given inadequate notice to terminate. And, the Tenants failed to prove either that the Landlord failed in the Landlord’s duty to maintain the premises free of ice and snow or that the fear that might happen in the future was sufficient justification for terminating the tenancy early.
15. I am not satisfied that the Tenants were justified in leaving the premises on November 30, 2016, since they did not give a valid 60 days’ notice and their request to the tribunal to terminate it that day we denied.
16. Since the tenancy was not terminated until December 31, 2016, the Landlord was entitled to apply the last month's rent deposit to the rent for December 2016.
17. MV provided a record on which she had recorded that lights were observed being on in the Tenants’ apartment and off on December 12, 2016, and the door was locked on December 16th, 2016. She suggested that the Landlord did not take adequate steps to find a new tenant for December 2016.
18. The Landlord’s Agent testified that the premises were not re-rented for December and advised that there were several other vacant units in the building at the time. MV said that the Tenants unit was not included on the Landlord’s website as an available unit although she did not produce proof of the date of that observation.
19. Section 16 of the Residential Tenancies Act requires parties to take reasonable steps to mitigate their losses. I am cognizant of the comments on the Divisional Court in Dudley v. Mackay [2000] O.J. No. 287, where the court considered the duty of a Landlord to attempt to re-rent premises after tenants leave without proper notice:
¶ 9 There is some indication in the transcript that the landlords did show the premises on one occasion to a prospective tenant after the tenants vacated on August 17, 1998, having paid the rent to August 31, 1998. However, the evidence was very vague about when the landlords showed the premises. There is no evidence that the landlords advertised the rental unit for immediate occupation. The landlords must demonstrate that they have made reasonable attempts to mitigate their losses before they can recover rent when the tenants vacate premises early. The landlords could not have met that onus on the evidence that they adduced at trial. Consequently, there is no reason to interfere with the disposition made by the learned deputy judge. [emphasis added]
20. In this case, the Landlord did not produce any evidence to show that the premises had been listed for rent or that they had been shown. In fact, the testimony of the Landlord’s Agent could reasonably lead to an inference that the other vacant units might have been shown before this one. Since the Landlord failed to prove on a balance of probabilities that the Landlord took reasonable steps to find new tenants for December 1, 2016, the Tenants are entitled to a refund of their last month's rent deposit plus interest less what they owed for November 2016. ($900.00 + $116.00 interest from October 2012 - $692.44 = $323.56)"
"21. The Tenant moved out of the rental unit on October 23, 2016. The second semester commenced January 2017. The Landlord, M.C. testified that he has an advertisement running on the first page of Google all of the time but failed to submit a copy of the advertisement at the hearing. According to M.C. it is a generic ad that advertises the property and services offered. The ad does not explain if there is a unit available for immediate occupancy. M.C. said that he had no other vacancies at the time the Tenant left. M.C. said that he couldn’t remember if anyone had expressed any interest in the rental unit when the Tenants vacated, but didn’t think so. He said that it is difficult to rent because he markets to students who do not often enter into tenancies midway through the school year.
22. In Dudley v. Mackay [2000] O.J. No. 287 the Divisional Court found that there was “no evidence that the landlords advertised the rental unit for immediate occupation” and that “the landlords’ evidence was vague about when the landlords showed the unit”. The Court found that “the landlords must demonstrate that they have made reasonable attempts to minimize their losses before they can recover rent when the tenants vacate premises early”.
23. I find that the evidence of the Landlord M.C. was vague with respect to what reasonable steps he took to re-rent the Tenant’s unit specifically. There was no direct evidence with respect to dates and times the unit was shown or who had filled out applications for the unit. The Landlord M.C. was asked if the advertisements say immediate occupancy. The Landlord responded by saying no.
24. Had the Landlords properly advertised the unit and there was no uptake from students, it would be reasonable to accept the assertion that students will not enter into tenancies mid-way through the school year. However, the Landlord had an obligation to at least attempt to advertise the rental unit for immediate occupation. It is implausible that some students may require residency in the middle of the school year or seek to find alternate accommodations at the beginning of a new semester. Simply relying on a generic ad that failed to specify that the tenant’s specific unit was available for renting in the new semester, several months after the tenants left, is, in my view, insufficient.
25. I find that the Landlords did not comply with section 16 because they failed take reasonable steps to minimize their losses flowing from the Tenant vacating the rental unit without first serving a notice of termination in accordance with the Act’s requirements.
26. Given the Landlords have failed minimize their losses, I find that the prepaid rent collected for the second semester must be returned to the Tenant, since, given the failure of the Landlords to minimize losses, the money cannot be applied to the rent for the second semester. "
The steps to minimize losses need to be "reasonable", not "perfect", and "the reasonableness of these steps should not be evaluated based on their result".
"10. Section 16 of the Act requires parties to mitigate their losses; in other words, a party who is going to be harmed by the actions of another must take steps to minimize the harm that is caused to them. In this case, the Landlords had a duty to mitigate their vacancy loss by taking reasonable steps to rent the unit for April 1, 2017.
11. At the hearing AV testified that the residential complex has signs outside advertising that there are units available in the building. AV testified that the Landlords also advertised vacancies in the building on an online classifieds website and on S.K website. AV testified that he showed the rental unit to several prospective new tenants in an attempt to obtain a tenant for the unit for April 1, 2017, but that none of the prospective tenants were interested in taking the rental unit on April 1, 2017. AV testified that a new tenant was found for the rental unit for May 1, 2017.
12. At the hearing the Tenant testified that when he initially found the rental unit it was by using an online aggregator program which searches various online classified websites. The Tenant testified that after he told AV that he was no longer interested in the unit the Tenant searched for advertisements of the unit using the same aggregator program but no hits came up. The Tenant testified that he also searched several online classified websites directly and he did not see any advertisements for the rental unit or the residential complex.
13. Based on AV’s testimony, which was largely uncontested, I am satisfied that the Landlords took reasonable steps to rent the unit for April 1, 2017. In order to meet the duty to mitigate its losses, a party is not required to take perfect steps; they are required to take reasonable steps. Advertising the unit on signs outside of the building and advertising the unit on S.K website were reasonable steps. These steps were largely successful in the sense that several prospective tenants came to look at the unit. Unfortunately these steps did not result in renting the unit for April 1, 2017 but the reasonableness of these steps should not be evaluated based on their result. The Tenant contested AV’s testimony that the Landlords advertised on an online classified website; however, even if the Landlords did not do this, they did take other steps, which I find to be reasonable."
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4.
It is also important to note that the period of time dedicated to quick repairs in order to re-rent the unit more effectively might also be included in the calculation of the period of time of rent owing under minimization of losses, at least that is what seemingly happened in these LTB rulings (but please remember that LTB rulings are not binding):
"12. As I explained at the hearing, pursuant to s. 88(3) of the Act the Tenant’s liability for the rent ended when the Landlords re-rented the unit for August 1, 2015. This means that the deposit should be applied to the rent due under the lease agreement for the month of July, 2015, unless the Tenant can establish the Landlords failed to take reasonable steps to minimize their losses by re-renting the unit as soon as possible. (See ss. 88(4) and 16.)
13. According to the Landlords’ Realtor and the second-named Landlord above, the Landlords had to do work in the rental unit after the Tenant returned the keys in order to return it to a single family home – which is how they rented it to him. They appear to have done this within mere weeks and then immediately advertised it finding a new tenant shortly thereafter.
14. The Tenant led no evidence in support of the proposition that the Landlords could have rented it sooner; rather he points to the fact that he offered to find a subtenant and the Landlords’ Realtor refused permission to sublet. This is not an application about whether or not the Landlords unreasonably refused permission to sublet so it is not clear to me that the Tenant’s evidence in this regard is relevant. That being said absent evidence that he actually presented to the Landlords an acceptable new tenant for July 1, 2015, there is insufficient evidence to establish that the Landlords failed to reasonably mitigate their losses and could have found a new tenant to rent the unit earlier than August 1, 2015.
15. As a result and pursuant to s. 106(10) the Landlords were mandatorily required to apply the deposit to the rent due for the month of July, 2015, so they are not retaining the deposit in contravention of the Act. Therefore, the Tenant’s application must be dismissed."
"[17] Since the Tenant’s notice was given on May 14, 2009, the earliest termination date that could have been specified was July 31,2009. By painting the rental unit within a reasonable time and showing the rental unit, the Landlord took reasonable steps to minimize its losses as required by subsection 88(4)of the Act. As such, the Tenant owed rent for June 2009 and July 2009, and the Landlord was entitled to collect the June 2009 rent payment and retain the rent deposit."
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5.
It is also worth noting that administrative expenses to advertise and re-rent the unit faster do not seem to count as part of what the tenant would owe, at least according to (11) TST-06315-19 (Re), 2019 CanLII 134289 (ON LTB), <https://canlii.ca/t/j6vbf> below. Such charges would potentially fall under RTA section 134 ("additional charges prohibited").
Importantly, had the tenant asked for an assignment or sublet (instead of vacating without a proper notice), the landlord COULD have charged "the landlord’s reasonable out-of-pocket expenses incurred in giving consent to an assignment to a potential assignee" (RTA subsection 95(7)) or "in giving consent to a subletting" (RTA subsection 97(3)).
"Was the Landlord entitled to retain the Tenant’s deposit to cover expenses?
22. The Landlord also argues that he spent over $700 in administrative expenses to advertise and re-rent the unit.
23. Pursuant to subsection 106(10) of the RTA, a rent deposit can only be used to pay the rent for the last month of the tenancy. Pursuant to section 134, a landlord may not collect any fee or charge not authorized by the RTA.
24. The Landlord was not entitled to charge the Tenant for his administrative expenses, or to use her deposit to pay for those expenses."
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6.
Can a tenant pay for an N11 agreement of termination?
Tenants paying administration fees for entering into an N11 termination agreement might also fall under RTA section 134 ("additional charges prohibited"), though the same prohibition wouldn't apply to landlords paying for tenant buyouts ("cash for keys" deals), since RTA section 134 prohibits additional charges accepted by landlords from tenants, but does not prohibit payments by landlords to tenants. At least, that is how the LTB rulings below went, though please note that LTB rulings are not binding and that perhaps there may be a way of arguing that the tenant is paying this "break fee" as consideration in exchange for savings to the tenant (instead of providing a full N9 notice of termination), perhaps even under O. Reg. 516/06 subsection 17(6), i.e. perhaps payment by tenant to settle potential court action or potential application to the Board in regards to loss of rental income?
"14. The list of exemptions does not include a charge for entering into an agreement to terminate the tenancy.
15. Based on the documentary evidence before me, there was no evidence that the deduction of the $300.00 from the Tenant ’s deposit was in exchange of settling any potential court action.
16. Therefore, I find that the Landlord breached section 134 of Act by retaining $300.00 from the Tenant’s last month’s rent deposit as an administration fee for breaking the lease."
Here is another interesting LTB ruling on that issue: (14) TST-22893-11 (Re), 2012 CanLII 21425 (ON LTB), <http://canlii.ca/t/fr383>.
In this case, the tenant and the landlord agreed to terminate the lease early in exchange for the tenant forfeiting Last Month's Rent deposit and in exchange for the tenant paying HST on realtor's commission to re-rent the unit.
Despite the fact that both parties freely agreed to this, the landlord was found to be in violation of RTA subsection 106(10) (because LMR deposit was not applied to the last month of the tenancy) and in violation of RTA section 134 ("illegal additional charges"), and ordered to return these amounts to the tenant. The adjudicator also relied on RTA section 3 about inability to contract out of the RTA.
"3. On or about November 16, 2011 the parties signed an agreement that in consideration of the termination of the tenancy on November 29, 2011 the Tenants’ agreed to forfeit the last month’s rent deposit. The parties also signed an Agreement to Terminate a Tenancy (Form N11) effective November 29, 2011.
4. The Landlord submitted that the Tenants signed the agreement to forfeit the last month’s rent deposit and to pay the HST on the commission for re-renting the unit. I explained to the parties at the hearing that subsection 3, of the Act states that “This Act applies with respect to rental units in residential complexes, despite any other Act and despite any agreement or waiver to the contrary.”
5. I also explained at the hearing, that subsection 106(10) of the Residential Tenancies Act, 2006 (the 'Act') states that a rent deposit must be applied to the last month of the tenancy. The landlord is not permitted to use the rent deposit for any other purpose.
6. The relevant case law on this issue is the Court Appeal decision on Musilla v. Avcan Management Inc., 2011 ONCA 502. In Musilla, the rental application contemplated that once the landlord accepted the tenant’s application the parties would enter into a tenancy agreement. The rental application included a term that set out that if the tenant failed to enter into a tenancy agreement, the tenant would forfeit the rent deposit. The court found this provision in the rental application to be illegal because it allowed the rent deposit to be used for a purpose other than applying it to the rent for the last rental period of the tenancy.
7. In this particular case, the provision in the November 16, 2011 agreement that the Tenants agreed that the last month’s rent deposit shall be forfeited wholly to the Landlord is therefore illegal as the rent deposit would be used for a purpose other than applying it to the rent for the last rental period of the tenancy.
8. Based on the evidence before me, the Tenants paid the November 2011 rent in full and the parties agreed to terminate the tenancy on November 29, 2011. There was evidence before me that the Landlord did not use the last month’s rent deposit for the last rental period of the tenancy. Instead, the Landlord used the last month’s rent deposit to pay the real estate agent’s fees/commission for finding a new tenant to move into the unit for December 1, 2011.
9. Pursuant to subsection 134 of the Act, unless otherwise prescribed, no landlord shall, directly or indirectly, with respect to any rental unit, 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.
10. There was evidence before me that the Landlord collected money from the Tenants to pay the HST on the realtor’s commission contrary to subsection 134 of the Act.
11. I find that the Landlord applied the Tenants' last month's rent deposit in a manner that is prohibited by the Act.
12. I find that the Landlord collected illegal additional charges from the Tenants in a manner that is prohibited by the Act.
It is ordered that:
1. The Landlord shall pay to the Tenants the sum of $2,200.00. This amount is the last month's rent deposit.
2. The Landlord shall pay to the Tenants the sum of $286.00. This amount is the HST on the realtor’s commission."
And in the ruling below, the landlord and the tenant entered into sort of an agreement to terminate the tenancy whereby the tenant agreed to pay 1 month's rent to be let out of a lease early, yet the adjudicator applied RTA subsection 95(7) (about landlord's ability to charge no more than reasonable out-of-pocket expenses under an assignment) and treated the payment of Last Month's Rent deposit for breaking the lease as an illegal charge.
"2. In December 2011, the Tenants approached the Landlord to inform her of their desire to terminate the tenancy. The parties drafted and signed an “Amendment to Lease Agreement” which set out number of conditions including that the Tenants agree to vacate the unit on or before January 31, 2012, the Landlord will be permitted to show the unit to prospective tenants and that the Tenants will be responsible for the rent until the Landlord was able to locate a new tenant.
3. The Tenants vacated the rental unit January 25, 2012.
4. The Landlord cashed the Tenants’ rent cheque for both January and February 2012. The Landlord was able to find a tenant for the unit and entered into a new tenancy agreement with that individual commencing March 1, 2012.
Retained Money Illegally:
5. The Landlord asserts that the parties had a verbal agreement that in the event she was able to assign the unit to another tenant prior to April 30, 2012, she would retain the equivalent of one month’s rent. The Landlord submitted that she applied the LMR to February’s rent and as for the payment made by the Tenants in February she retained that amount as per their agreement. The Tenants testified that they had no recollection of any discussion involving any such fee.
6. There was insufficient evidence before me to support the Landlord’s claimed that the parties had agreed that she could retain the equivalent of one month’s rent if she found another tenant to re-rent the unit prior to April 30, 2012. That being said, even if the parties had agreed to the amount, by operation of subsection 95(7) of Residential Tenancies Act, 2006 (the ‘Act’): a landlord may charge a tenant only for the landlord’s reasonable out-of-pocket expenses incurred in giving consent to an assignment to a potential assignee. Section 3 of the Act states that the Act applies despite any agreement or waiver to the contrary. In other words a landlord can not just pick an amount arbitrarily to charge a tenant for costs relating to an assignment, it can only seek the reasonable out-of-pocket expenses incurred.
7. As a result, I find that the Landlord had received rental payments from the Tenants for the period ending February 29, 2012. The Tenants’ tenancy was effectively terminated on February 29, 2012 when the unit was re-rented for March 1, 2012. The Landlord has retained the Tenants' last month's rent deposit. This is prohibited by the Act."
Michael Thiele's position:
"Question: As a landlord whose tenants are trying to get out of a one year lease after one month due to finding new jobs outside of area - can I ask for 2 or more months worth of rent to terminate the agreement? This would approx cover the costs in terms of advertising, scheduling viewing, credit checks, etc. property is 2 hours away for me so there is gas involved in viewings, etc. Please advise if you recommend asking tenant for this and if it is legal?
Thanks.
Answer: There should be a perfectly straight-forward answer to this simple question. What you propose is inherently reasonable as the tenant has certainty with respect to terminating an ongoing liability and you are fairly compensated for lost rent and the effort that goes into re-renting the unit. So, why is it not straightforward? The section of the RTA that gives you a problem is section 134. It states as follows:
"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;(b) require or attempt to require a tenant or prospective tenant to pay any consideration for goods or services as a condition for granting the tenancy or continuing to permit occupancy of a rental unit if that consideration is in addition to the rent the tenant is lawfully required to pay to the landlord; or(c) rent any portion of the rental unit for a rent which, together with all other rents payable for all other portions of the rental unit, is a sum that is greater than the rent the landlord may lawfully charge for the rental unit. 2006, c. 17, s. 134 (1).Same(2) No superintendent, property manager or other person who acts on behalf of a landlord with respect to a rental unit shall, directly or indirectly, with or without the authority of the landlord, do any of the things mentioned in clause (1) (a), (b) or (c) with respect to that rental unit. 2006, c. 17, s. 134 (2)."
As you can see, the wording is intentionally broad and it is not much of a stretch to characterize the payment you describe as fitting into the definition of section 134. Does section 134 prevent what you propose? Perhaps, but I haven't seen it as tenants who have agreed to such deals (I've seen many like you describe) have been pleased with the deal and they don't try to get the money back. What I imagine could happen is if you manage to re-rent the unit for the day after the tenants move out and your existing tenants see your 2 month charge as an excessive windfall.
So, that is one way to look at it. The other is to see if there is any direct authorization for the type of deal you are talking about. Is it possible for a landlord and tenant to enter into an "agreement to terminate" and if so, is there any guidance in relation to what may be included in an agreement to terminate? The RTA is oddly silent with respect to the Agreement to Terminate. Yes there is a form (Form N11) and you can indeed find references to "agreement to terminate" in the Act--but as far as I can see no specific section of the Act states that the landlord and tenant may enter into an agreement to terminate a tenancy and include such terms in that agreement that they think is fair/just. It would be a handy section to have. I do think that this notion (that the parties can make their own deal on what is fair to terminate a tenancy) is implied in the RTA--specifically in section 88 that speaks to compensation owing when a tenancy isn't terminated properly. Note that the framework of what is due only applies if there is no agreement to terminate. On this rationale, the deal you propose to do with the tenant is fair and legal. I would add to the argument that an agreement to terminate actually needs some benefit to flow from the landlord to the tenant in order to be enforceable. If the landlord gets nothing in exchange for signing an N11 it is a contract to end a contract without consideration (meaning, in my view, that it isn't a contract at all).
All that being said, I have no problem with the notion of a tenant basically paying a break fee to get out of a fixed term tenancy. I think that arguably it is authorized under the Act as Agreement's to Termination are clearly contemplated. However, there are arguments against it--specifically under section 134--that could cause you trouble should your tenant decide to challenge it. If you were challenged by the tenant and you've made the agreement to terminate conditional on the payment--arguably the result of the challenge is that the tenants tenancy is no longer terminated. You could then sue in small claims court for all of your costs--and in the end you may indeed be in the exact same position as you were with the agreement to terminate."
However, interestingly, even if the landlord and the tenant freely enter into an N11 agreement to terminate the tenancy early, perhaps it won't always mean that the amount of savings to the tenant that this represents (as compared to a full N9 notice) could never be factored in as consideration already given by the landlord for the tenant's claims, as this unusual LTB ruling shows:
"[66] On November 2, 2015, the Tenant gave notice by email to terminate the tenancy effective November 30,2015. This notice was not given in accordance with section 44 of the Act because it was less than 60 days’ notice. The earliest termination date that could have been specified on the Tenant’s notice, if it had been given in accordance with the Act, was January 31, 2016.
[67] Nonetheless, the Landlord accepted the short notice and agreed to terminate the tenancy as of November 30, 2015. The unit remained empty until it was re-rented the following Spring, in March or April 2016.
[68] The Landlord’s acceptance of the short notice represented a savings to the Tenant of two months’ rent and parking ($930.00 X 2 for the months of December 2015 and January 2016), which is $1,860.00. This amount must be factored in as consideration already given by the Landlord for the Tenant’s claims."
Conclusion:
As you can see, the post raises questions, but does not exactly provide answers. Hopefully, the LTB rulings presented above convey the importance of getting legal advice if the tenant is considering providing a short notice. As stated above, it is very important to remember that LTB rulings are not binding and that, in any event, the specifics of the case could result in completely different outcomes, so please get legal advice for your own situation.
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