So, You Want to
be a Landlord
- A Cautionary Note
You have a few thousand dollars saved up. You are wondering what
to do with that money. You consider investing it in stocks and mutual
funds, but the markets seem too unstable. Placing it in a bank account
will yield so little interest that it isn’t worth the trouble
of getting out your calculator. You have heard that some friends
and relatives have fared well buying and selling real estate. That
sounds good to you. Better still, you have heard about how people
buy residential property then rent it out to tenants. Mortgage payments
get covered by rental income. In a few years, the mortgage is paid
off and the rent starts to pour straight into your wallet month after
month. As an extra bonus, your property continues to appreciate in
value. On the surface, you think that this is a fool-proof plan and
you wonder why everyone isn’t doing this. Think again.
Residential Landlord-Tenant Law in Ontario
To begin, it is important to note that we are dealing solely with
residential rental properties, not their commercial counterparts.
Different laws and rules govern these two types of tenancies.
This article will focus on residential rental properties in Ontario.
The Tenant Protection Act
One of the most important points concerns the law and regulations
that govern landlord-tenant relations in Ontario. The law that governs
your relationship with a tenant is called the Tenant Protection Act.
Take careful note of the name of this law: it is very telling. Indeed,
tenants are well-protected under this act. Conversely, landlords,
while not without their own rights, must understand that this law
was created on the premise that an inherent power imbalance exists
between landlords and tenants. On the one hand, landlords presumably
have the financial resources to purchase and maintain rental property.
On the other hand, tenants (in many cases) are renting presumably
because they cannot afford to carry a mortgage. In light of these
realities, the law is imbued with an inherent slant favouring tenants.
The Tenant Protection Act came into force on June 17, 1998, replacing
Part IV of the Landlord Tenant Act, the Rent Control Act, the Rental
Housing Protection Act, the Municipal Amendment Act, the Land Lease
Statute Amendment Act, and the Residents' Rights Act.
It is important to note that, with the recent change of government
in the province of Ontario in late 2003, the repeal of the Tenant
Protection Act is expected by late 2004 or early 2005. A significant
overhaul of Ontario landlord-tenant law is anticipated, with major
changes specifically to rent control provisions. However, until such
time as the Tenant Protection Act is replaced by another law, it
remains the governing legislation for landlord-tenant relations in
Landlords have the right to screen prospective tenants. They may
do so by using accepted business practices, such as requiring income
information, credit checks, credit references, rental history, guarantees,
or other accepted business practices as prescribed in the regulations
of the Ontario Human Rights Code.
Practically speaking, the diligent landlord will not only collect
proper information, but also verify it. Before accepting a tenant,
a landlord should verify that the information provided is accurate.
Landlords should take the time to double-check addresses in phone
books or on the Internet and actually contact the tenant's references
and speak to his or her employers, former landlords, and personal
Performing credit checks can be difficult and costly for the small-time
landlord, especially if he or she is not a member of a credit bureau
or agency. Many businesses, notably real estate agencies and banks,
are members of the credit bureau. For a small fee, these businesses
can help a landlord access the information on file at a credit bureau.
Although the footwork and expense of screening a tenant may seem
burdensome, undertaking these steps helps to ensure that you choose
a tenant who is able to consistently pay the agreed upon rent.
Residential Tenancy Agreements
The prospective landlord should consider the residential tenancy
agreement or contract that binds the parties. Ontario law imposes
no obligation to have a written residential tenancy agreement. However,
obtaining one is highly recommended. Putting terms down on paper
significantly reduces the possibility of future disputes over the
parties’ respective rights and obligations.
In the absence of a written agreement, the landlord must give the
tenant written notice of his/her/its (for a corporation) legal name
and address for service within 21 days of the start of the tenancy.
With a written agreement, this information must be included. The
landlord must provide a copy of the agreement to the tenant within
21 days of the tenant signing and providing it to the landlord. Failure
to do so effectively allows the tenant to suspend rent payments until
the landlord carries out this obligation.
One other relatively minor though often misunderstood point on
tenancy agreements concerns pets. A tenancy agreement cannot prohibit
pets. If the agreement contains such a clause, that clause is rendered
void by the Tenant Protection Act.
With respect to rent, the Tenant Protection Act strictly regulates
just about every aspect of how it can be collected and how much can
Rent Controls and Vacancy De-Control
Of special concern to landlords (and tenants) is the amount that
rent can be increased from time to time. Landlords must comply with
strict statutory guidelines when fixing rent for the following calendar
year. Subject to a few exceptions set out in the Tenant Protection
Act, the amount of the annual increase cannot exceed statutory guidelines.
In other words, the guidelines indicate how much a landlord can legally
raise rent. The guidelines are announced every August for the following
calendar year. The average figure is about two to three percent per
year. However, the figure can vary significantly so make certain
to check with a lawyer or the Ontario Rental Housing Tribunal to
ensure full compliance with the rent guidelines.
Notwithstanding these strict rent controls, a landlord is permitted
to negotiate a market rent when there is a tenant turnover in a rental
unit. This is often called vacancy de-control. However, once a new
rent is established, rent controls take effect and regulate any future
rent controls to protect the tenant. Please note that, as mentioned
above, the Tenant Protection Act may be replaced soon. One of the
proposed changes for the new law will make unreasonable rent increases
One of the rare provisions that tends to work in favour of landlords
also concerns rent controls. Generally speaking, tenants have a relatively
limited period of time in which to dispute an illegal rent. Where
a tenant pays an illegal rent for one year or longer, the otherwise
illegal rent is deemed legal.
Rent - Discounted Rent
Some Ontario landlords often inquire whether they can charge a
discounted rent and still protect the lawful rent of the rental unit.
They should be aware that a marketing discount of up to one month's
rent can be offered as an incentive to a new tenant or an existing
tenant. As long as the discount is properly described in the tenancy
agreement and the discount is applied according to the rules set
out in the Tenant Protection Act regulations, the lawful rent first
charged can be used to determine future increases to the rent. The "eligible
discount" (as the Tenant Protection Act refers to it) can be
applied in one of two ways: 1) provide the discount over the first
eight months of a twelve month rental period and the tenant would
pay the full monthly rent over the remaining four months, provided
that the sum of the discounts applied over each of the first eight
months do not exceed the rent for one month; or 2) apply the discount
to the rent for one rental period during the year.
Rent - Collection and Enforcement
Before leaving the topic of rent it is worth addressing collection
and enforcement measures. Under the Tenant Protection Act, landlords
have the right to receive full rent on time. In the real world, this
does not always happen. It is not unusual for rental arrears to mount
into the thousands of dollars for even the most diligent landlord.
For whatever reason, tenants sometimes do not pay rent on time or
at all for months.
When considering how to collect rent, an Ontario landlord should
consider that the amount of money that can be taken from a tenant
upon establishing a tenancy is limited to collecting a rent deposit
equal to one month’s rent. Note that “key money” (that
is, any type of payment above and beyond the value of one month’s
rent) is, in almost all cases, illegal. Additionally, landlords cannot
require that the tenant provide post-dated cheques or other negotiable
instruments for the payment of rent.
If a tenant has not paid rent for even one month, a landlord can
apply to the Ontario Rental Housing Tribunal for an eviction order
on grounds of non-payment of rent. A hearing date will be scheduled.
At the hearing, the landlord must show the adjudicator proof of the
rent owing (usually by putting forward a written tenancy agreement)
and non-payment of that rent. If satisfied that the tenant has not
paid legal rent, an adjudicator may order an eviction. Do not assume
that your tenant will be evicted just because rent has not been paid
- even for as long as half a year. A tenant has the right to attend
at the hearing and give evidence. If the tenant tells the adjudicator
that he or she has been trying to pay but cannot due, for instance,
to a job layoff or to the fact that an ex-spouse has not been paying
child and/or spousal support, an adjudicator may not order an eviction.
Instead of eviction, the landlord may obtain an order stating that
the rental arrears are owing and, if not paid off, within a few months,
then the tenancy will be terminated. Furthermore, if the Ontario
Rental Housing Tribunal orders an eviction for non-payment of rent,
the tenant still has 10 days following the hearing to pay up the
rent in full. If the tenant does so, the eviction order is voided
and the tenancy continues in full legal effect.
A question that often arises from landlords is whether they can
turn off the heat or water in a rental unit when a tenant fails to
pay rent. The Tenant Protection Act prohibits a landlord, at any
time during a tenant's occupancy of the rental unit, from withholding
or deliberately interfering with the reasonable supply of any vital
service, care service, or food that is the obligation of the landlord
to provide. Vital services include fuel, hydro, gas, and hot or cold
Landlords in Ontario have relatively limited access to occupied
rental units. Landlords may have a legal interest in their rental
properties, but they must understand that their tenants obtain a
possessory interest in the respective rental unit. This possessory
interest (or right to possess the unit) is zealously guarded by the
Tenant Protection Act.
A landlord should extinguish any notion that he or she (or an agent
acting on his or her behalf) may enter the rental unit at any time
simply because they own the land on which the unit is situated. Except
in the case of emergency (such as when you see black smoke billowing
out of the windows or hear desperate screams for help coming from
within), a landlord is not permitted to enter without written notice
given to the tenant at least 24 hours in advance of entry. Even with
written notice, a landlord may enter only between prescribed times
(8:00am to 8:00pm), must have an approved reason for entry, and must
state the reason in the written notice. Failure to provide adequate
written notice, especially if a pattern of such unauthorized intrusions
emerges, may result in severe sanctions against the landlord, including
rent abatements and fines meted out by the Ontario Rental Housing
Furthermore, a landlord cannot alter the locks on the rental unit,
unless replacement keys are given to the tenant without delay.
Evicting tenants can be difficult, time-consuming, and expensive.
A landlord cannot simply kick out a troublesome tenant. That landlord
must serve proper legal notice on the tenant using forms prescribed
by the Ontario Rental Housing Tribunal. In certain circumstances,
the landlord must wait a time period specified by law to allow the
tenant time to correct or rectify the offending behaviour. If the
behaviour is not corrected, the landlord must make an application
to the Ontario Rental Housing Tribunal (and pay a filing fee of $150.00)
then, in most cases, attend at a hearing.
Although not a court of law, the Ontario Rental Housing Tribunal
is a quasi-judicial forum. In other words, it is not as formal as
a court of law, but the rules of evidence and natural justice apply.
Appearing before the Ontario Rental Housing Tribunal can be a stressful
and daunting experience, especially for those who are unfamiliar
with basic legal proceedings. The tensions only rise where bad relations
have developed between the landlord and tenant. Both landlords and
tenants have the right to be represented by a lawyer, paralegal,
or other agent at a hearing.
Examining the various grounds for eviction goes beyond the scope
of this article. However, it is worth distinguishing between eviction
for cause and non-cause. The former term speaks to situations in
which the tenant is doing or has done something illegal, whether
it be under the Tenant Protection Act or some other law. For instance,
a tenant may be using the rental unit for commercial-as opposed to
residential-purposes. Or the tenant may be carrying out criminal
activity within the unit.
Non-cause means that the tenant has done nothing wrong legally,
but the landlord wants possession of the rental unit. A common situation
is where the landlord wants the rental unit for legitimate use by
his or her child. Terminating the tenancy is possible under such
circumstances. However, the landlord must make an application to
the Ontario Rental Housing Tribunal to obtain an order to terminate
the tenancy with the current tenant.
An ancient Chinese proverb reads: be careful what you wish for,
you may just get it. Keep this in mind when contemplating entry into
the world of residential tenancies. Proceed with caution. Know your
rights and obligations under the Tenant Protection Act. Delving into
residential rental properties can be a very profitable enterprise,
but you must operate within a complex network of strict regulations,
rules, and laws that do not always work in your favour.
Also remember that most tenants are good, honest people who want
to establish and maintain a positive, mutually-beneficial relationship
with their landlord. Don’t let tales of a few rotten apples
spoil it for the rest of the bunch. But just be ready when one of
those rotten apples ends up on your rental property. Although most
tenants work hard and obey laws, a few show no regard for the law
or other peoples’ property. Drug dealers and pimps need places
to carry out their criminal trades and your property is probably
as good as any in their eyes. And it isn’t just the landlord
who suffers. Good tenants often suffer the most. Too often, honest
people trying to raise families or earn an education find out too
late that they have moved into a rental unit right beside some of
the worst criminal elements in society. You owe it to yourself and
your honest tenants to keep your rental property clean and safe.
This article has canvassed some, though hardly all, of the legal
issues that may confront a landlord in Ontario. Legal issues arise
the moment you begin dealing with a prospective tenant about a rental
unit. As discussed above, the law regulates the types of inquiries
a landlord can make when screening prospective tenants. Even after
the tenancy ends, the law touches both the landlord and tenant. For
example, landlords are restricted in what they can do with personal
property left behind by a former tenant. Like every other issue in
this surprisingly complex area of the law, know your rights and obligations
and consult a lawyer if necessary.
Stanleigh Palka received
his B.A. from Queen's University,
his M.B.A. from McMaster University,
his M.P.A. from Queen's University
and his LL.B. from the University
of Windsor. He has been with Lancaster,
Brooks & Welch
L.L.P. in St. Catharines, Ontario
since 2001, where he practices