BILL 184: “SMALL” LANDLORDS ARE THE FOCUS OF RTA CHANGES
The “Protecting
Tenants and Strengthening Community Housing Act, 2020” (Bill 184)
received Royal Assent on July 21, 2020. Bill 184 amends a number of housing
statutes in Ontario but the one most relevant to the multi-res industry are the
changes to the Residential Tenancies Act (RTA). For the most part, the
changes negatively affect “small” landlords who are targeted in Bill
184 with stiffer rules and penalties where they attempt to “game the
system” to terminate tenancies and secure new tenants at market rents.
Small and large landlords will benefit, however, with some new changes. A
“Spaghetti Western” (“The Good, The Bad, and the Ugly”)
critical review of the amendments follows.
THE GOOD
Rent Arrears Repayment
Offers and S. 83 Eviction Refusals: When COVID-19 began to infect every aspect of multi-res
operations, we recommended that landlords offer tenants whose income was
adversely affected by the province’s shut downs, and who were therefore in
arrears of rent, the opportunity to enter into a rent arrears repayment
agreement. Most large portfolio operators followed that recommendation and Bill
184 now has a specific provision (s. 83 (6)) (see below) which will
benefit such landlords. The new subsection requires a Landlord and Tenant Board
(LTB) Member to consider whether the landlord offered the tenant, in a
proceeding seeking eviction and judgment for rent arrears, the opportunity to
enter into a rent arrears repayment agreement. If the landlord has done so then
it is less likely that an LTB Member will use discretion to override a
landlord’s successful application and “deny or delay” termination.
This provision will be helpful in evicting the small number of tenants who
subscribed to the “Keep Your Rent” ideology and, despite landlord
offers to work with those tenants to retain their housing, paid nothing over
the past months. There is some irony here in that the tenant
“advocates” who urged tenants to pay nothing and defy any effort by
landlords to work with them have now, in fact, seriously imperiled those
tenants’ housing.
From Bill
184:
Section 83 of the Act is
amended by adding the following subsections: Refusal for certain arrears of
rent
(6) Without restricting
the generality of subsections (1) and (2), if a hearing is held in respect of
an application under section 69 for an order evicting a tenant based on arrears
of rent arising in whole or in part during the period beginning on March 17, 25
2020 and ending on the prescribed date, in determining whether to exercise its
powers under subsection (1) the Board shall consider whether the landlord has
attempted to negotiate an agreement with the tenant including terms of payment
for the tenant’s arrears.
Expansion of the Scope
of “Damages” That May be Recovered at the LTB: A number of LTB
decisions previously held that the only “damages” a landlord could
claim in an N5 were costs incurred where there was physical damage to property.
Out of pocket expenses incurred as a result of tenant misconduct (ie: cost of
mischief relative to a fine levied to the landlord when the tenant disabled a
smoke alarm) were not recoverable. If landlords wanted to recover such damages
they were required to file a claim in Small Claims Court. Bill 184 allows for
the recovery of monetary damages incurred by a landlord at the LTB and the
costs may be claimed in the context of an N5 (tenant “interference”
with landlord’s legal interest) thus giving rise to both termination and a
judgment for recovery of costs incurred.
Expansion of
Jurisdiction to Recover Judgments at LTB and Reduction of Small Claims Court
Jurisdiction: In cases where landlords sought recovery of rent arrears or
damages to a rental unit, it was necessary to file a claim in Small Claims
Court if the tenant was no longer in possession of the rental unit. It has long
been recognized that the LTB has the expertise to decide such issues and the
fact that a tenant moved out before the landlord could make a claim at the LTB,
having to go to Small Claims instead, was costly and absurd. Bill 184 allows a
landlord to make a claim against a “former tenant” within one year of
the tenant vacating the rental unit so that the LTB, and not Small Claims
Court, is the proper venue for such claims. It will still be incumbent on
landlords to ensure they obtain a forwarding address so that the tenant may be
served with the application (which must be done with Small Claims anyway), but
processing such claims (believe it or not!) will be far more efficient at the
LTB than it is at Small Claims. In addition, many small landlords require
tenants to pay “utilities” in addition to the monthly rent and the
LTB previously required landlords to go to Small Claims for recovery of same;
however, under Bill 184 landlords can recover unpaid utilities and related
costs (disconnection fees, etc.) from tenants and former tenants by filing at
the LTB. Pending claims in Small Claims Court may continue, but going forward
landlords who have not filed against former tenants yet, may do so at the LTB
instead of Small Claims.
Settlement of Arrears/Eviction
Applications With “s. 78” Provisions: Under former RTA
provisions, landlords and tenants may settle a landlord application for
termination and eviction by using the services of a LTB Mediator. Most such
mediated agreements incorporate a “section 78” clause whereby, if the
tenant fails to make repayment of arrears, the landlord is entitled to apply to
the LTB, without notice, for an order terminating the tenancy; evicting the
tenant; and, judgment for arrears of rent and the filing fee. In cases
involving “professional tenants” we rarely recommended that landlords
use this process because it led to added arrears and delay of eviction: after
the s. 78 order issues, the tenant has the right to apply to set aside the
order and secure a hearing, thereby “staying” the eviction order and
buying another several weeks of rent free living. Mediation was recommended
where both parties appeared to be making best efforts to act in good faith to
resolve the issues; however, it was often the case that because so many parties
wanted mediation but only a few mediators were available, the day (and time and
money of both the landlord and the tenant) at the LTB was wasted and the
proceeding was adjourned to a future date. Bill 184 now allows landlords and
tenants to enter into settlement agreements, including a s. 78 provision,
without the services of an LTB Mediator but with continued oversight by the
LTB, and the tenant retains the right to “set aside” an eviction
order given on a s. 78 request. Ultimately, the only benefit is that the
parties can settle the file themselves without having to use a Mediator, but
this should save time and money for parties acting in good faith to resolve
rent arrears and other proceedings, including tenant applications…it is not
recommended for “bad faith” tenant arrears applications.
Consent Orders May
Include “Termination and Eviction” Clause: As s. 206 of the RTA was
formerly worded, the LTB was prohibited from including in a “Consent
Order” a term which allows a landlord to apply under s. 78 for termination
and eviction. Bill 184 now allows for such an application if the tenant fails
to comply with one or more terms of the consent order. As with the case of
settlements, the Board still has oversight of the post consent order process
because the tenant can still move to stay and set aside the order. So again,
with professional tenants this process may buy them delay, but otherwise, the
amendment is positive as it reduces the need for landlords to go back to the
Board for a formal order as long as the tenant does not move to set aside the
s. 78 Order. In most cases where a settlement of an arrears and termination
application is reached, the consent order with a s. 78 provision is the best
option for resolving the case rather than treating the file the same as a
mediated agreement.
“Confusing” or
Non-Compliant NORIs Valid After One Year Without Challenge: A Court of Appeal
decision previously held that any rent increases paid by a tenant, even if paid
for several years, would be “void” unless the Notice of Rent Increase
(NORI) was given on the “prescribed” government form. The decision
was inconsistent with a clear legislative intent under the RTA which was that
if a tenant accepted a rent increase and paid it for at least 12 consecutive
months without challenge, the rent was “deemed” lawful. Bill 184
effectively overturns the Court of Appeal decision and reinstates the
legislative intention that rent increases should not be subject to challenge
after one year.
Tenants Must Now Disclose
“Issues” Prior to the Hearing of a Landlord’s Application For
Termination: Previously under the RTA tenants were permitted to raise,
without any advance notice, “any issue” at a hearing of a landlord
application for termination of a tenancy and eviction of a tenant. Landlords
who are blindsided by the tenant at such hearings, which often only occur
months after the application was first filed, face the unenviable option of
proceeding and attempting to respond despite having no notice of the allegations
or evidence to rely on in response, or adjourning for several more weeks, the
hearing of the application so that they can review the new allegations and
prepare a response. Under Bill 184 a tenant will now be required to disclose
such issues prior to the hearing so that the landlord has an opportunity to
respond. This is a simple matter of procedural fairness which has long been
denied to landlords under the RTA.
No More “Tenant
Information Forms” Required: Under the RTA, landlords are required to provide tenants with a
prescribed form setting out information about “rights and responsibilities
of landlords and tenants”. Since the Standard Lease already contains such
information, Bill 184 eliminates the requirement, thus reducing the standard leasing
package (often about 30 pages) by 2 pages.
THE BAD
Landlords Must Apply for
Rent Arrears Within 2 Years: There is currently a convention allowing for recovery of rent
arrears by filing a claim before the expiry of 6 years from the time the claim
arises. Under Bill 184 that time limitation is reduced to 2 years and, while
that may seem like a long time, in cases where landlords have worked with
tenants to try to have them catch up on payments, it is often the case that
more than two years pass before a claim is made. In addition, if a landlord
seeks to enforce a guarantor’s obligation and the arrears claimed include
amounts outside the two year period, it is our view that the guarantor can
successfully dispute that portion of the claim. The Bill 184 amendment will
require landlords to carefully administer and enforce rent arrears claims to
ensure that a formal claim is made against tenants and guarantors within the 2
year limitation period. In any repayment agreements, it must be made clear that
any funds received will be applied, first, to the most aged arrears owed.
Small Landlords Exposed
to Serious Financial Risk When Terminating For Landlords/Purchasers’ Own Use: A host of new
provisions in Bill 184 is intended to aggressively curb the practice by some
small landlords/investors to seek termination of tenancies so that the rental
unit can be re-rented at a higher rent to a new tenant. In addition, new
compensation is payable by the landlord (or seller) where landlord/purchaser’s
own use Notices of Termination are given and acted on by a tenant. Without
going into full details here, we can advise that landlords must now meet some
stringent evidentiary and financial obligations in exercising the right to
vacant possession and where those rights are exercised in bad faith or in
non-compliance with the RTA, penalties are now extremely punitive. In cases of
bad faith, etc., most landlord have no sympathy for offenders; however, there
will likely be landlords who act in good faith but fail to comply with the
stringent requirements imposed by Bill 184 and they will be severely penalized
by the amendments. Landlords of rented condo units are particularly vulnerable
to claims and where the unit is managed by a fee manager, attention should be
given by both the landlord and fee manager to provisions of their management
agreements to ensure proper allocation of liability and indemnity in the event
it is found that vacant possession was improperly obtained.
Small Landlords to Pay
Compensation For Termination Based on Demolition, Conversion, Renovations: The RTA previously
relieved landlords of residential complexes containing five or fewer units from
the obligation of compensating tenants for up to 3 months’ rent where a tenancy
is terminated based on Demolition, Conversion or Renovations so substantial as
to require vacant possession of the rental unit. Bill 184 will now require
payment of one months’ rent in such circumstances, acting as a further
disincentive to small landlords who improperly seek to terminate a tenancy on
such grounds. In cases of bona fide termination, the compensation is a
small price to pay.
Limitation Period for
Claims Against Landlords Extended From One to Two Years: Tenants who are
improperly evicted from their rental units based on landlords’ non-compliant
exercise of rights of termination based on “renovations”, demolition,
conversion or landlord/purchasers’ own use will now have up to two years to make
a claim for damages. The damages which may be claimed have been increased
substantially to include a full 12 months’ rent, plus 12 months’ of the
increased rent paid, plus all moving, storage and “other like
expenses” the tenant has incurred. It will be incumbent on landlords,
particularly those who secure vacant possession based on
“renovations”, to carefully document the compliance process and to
retain all such documentation for at least two years after the tenant vacates
the rental unit. Where properties are transferred during the two year
limitation period, purchasers should require warranties to protect themselves
from potential liability under the new Bill 184 provisions and ensure all
documentation relative to the termination and compliance process is provided to
them.
THE
UGLY…
LTB Backlog Continues
Unabated…: There is nothing in Bill 184 to address the current adjudicative
paralysis that exists at the LTB. While there are some signs the LTB will be
back in business by September, in cases where tenants have been living for
months, rent free, it is most likely that landlords will have to struggle to
find any leverage they can to cut their losses in exchange for a tenant
agreeing to vacate. With vacancy rates increasing and rents decreasing, tenants
who deliberately violated their RTA and lease obligations will gain a
substantial benefit if they can negotiate rent arrears forgiveness and the
avoidance of a judgment on their credit record in exchange for vacating.
Landlords should be wary of rewarding such tenant conduct as doing so will
inevitably result in a repeat performance by unscrupulous tenants if and when
the next COVID shutdown is announced.
