I’ve just read a recent case, decided in July by the province’s highest court, the
Ontario Court of Appeal. The decision reversed (or at least modified) the
reasoning in an earlier decision of the Ontario Divisional Court which allowed
a landlord to retain a last month’s rent deposit when a tenant refused to move
in. I would suggest you read the decision.
In
this case, the tenant’s rental application was approved, and a lease was
signed. However six weeks before the commencement date, the tenant
advised the landlord they would not be moving in. The landlord, foolishly
in my opinion, stood firm and said that they were prepared to have the tenant
move in. The landlord would have been better off getting the tenant to
rescind the agreement in writing, and then trying to re-rent the unit.
ACTO
disagreed with the ruling at Divisional Court and filed an appeal on behalf of
the tenant. The decision of the Court of Appeal overturned the earlier
decision of the LTB and the Divisional Court, based on the specific facts of
the case. The Court of Appeal agreed with the Divisional Court in theory,
in that a tenant does not have an automatic right to have the deposit refunded
where the landlord has done everything required to give possession of the unit
to the tenant, but the tenant unilaterally repudiates the agreement.
However the Court of Appeal allowed the tenant’s appeal, and found that in this
case, the landlord’s rental application was not clear about the disposition of
the rent deposit if the tenant failed to move in, and also contained an
illegal provision in stating that the deposit would be forfeited. As
a last month’s rent deposit can only be used as rent for the last month of the
tenancy, the forfeiture of the deposit would be illegal. A rent
deposit can be applied….if it’s clear what it was meant to be, but it cannot be
forfeited.
The
Court of Appeal agreed that if an application for tenancy is worded properly,
the landlord should be able to retain a last month’s rent deposit if the tenant
then fails to move in so long as they are not double-recovering. In other
words, if the tenant gives the landlord lots of notice of their intention to
not move in despite the approved application, the landlord must attempt to
re-rent and would return the deposit if and only if they were able to re-rent
without loss of income.
I’ve have a good rental application form at my online form that some of my clients use. I’ve made
some changes to it in keeping with the decision. Use whatever application
you wish, but be careful about wording related to the rent deposit. I’ve
updated the section on the deposit to make it clear that if the tenant fails to
sign a lease once the application is approved, or if the tenant refuses to move
in once the application has been approved, that the landlord can retain the
deposit and apply it as security against rent.. I’ve been careful to use
wording to track the Court of Appeal decision so that the rent deposit can be
retained as security against lost rent, even if the approved tenant does not
sign a tenancy agreement.
It’s
important to remember that when one party to an agreement breaches a term or
condition, the other party has an obligation to mitigate, that is, to minimize
their losses.
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