Sunday, March 18, 2012

How long can a tenant avoid paying rent? How long is a piece of string?

It's no secret that the Residential Tenancies Act is tenant centered, but investors know that fact going into the game so my sympathy for them is limited when they whine the familiar complaint that "the law is so unfair".  It's a business.  Nobody twisted their arm to get into it.

Rental housing is just another asset class, like precious metals, stocks, bonds, public equities, private equities, mortgages.  But what differentiates a rental property is that unlike other types of investments, you also have to actively manage it.  As long as the price of the asset keeps rising, you only need to break even on the management side.  People think that's easy, but with the rising spread between housing prices (and hence mortgages) and rents, it's getting harder and harder to cover your costs with rental income.  For the small landlord with one property, the real risk is that you have a very high percentage of your assets in one basket, with no diversification, and you are counting on the asset going up in price while an income stream covers the expenses.

But what if a tenant doesn't pay?  While it's true the system exists for you to get an order for eviction and arrears, rarely do landlords who evict for arrears actually collect anything.  It's one thing to obtain a judgment, another to enforce it.  That's why when the Tenant Protection Act was proclaimed, the ORHT was given a mandate for expeditious process.  Delay changes everything.  When the Residential Tenancies Act was proclaimed, the Board inherited that same mandate.  But the mandate is all for show.  If a tenant wants to not pay a year's worth of rent, it's pretty simple, especially considering most small landlords listen to crazy excuses and promises for months before serving an N4 notice.

The people who are the most dangerous are those who have nothing to lose.  No credit, no job. no standing in the community, no self-esteem....why pay rent?  And so comes the story of a sociopath who over the last few months used delay at the LTB to rip off a young woman client of mine who went into the business totally unprepared.

The irony is that once I got to know that this tenant was trouble, I Googled him, and right away I could see the trail of debts left behind.  Too many landlords do no due diligence whatsoever, and it's so foolish.

In a nutshell, the landlord took the tenant to the LTB in September of 2011 for rent arrears of $3,600, that's one month's rent.  He showed up at the hearing with a cheque for $3,770 and convinced her to withdraw the application.  She agreed, so they go before the Member, and the application is withdrawn.  And to the landlord's great surprise, the cheque turns out to be no good.

So she retains me, I filed a new application and we went to a hearing in December and it's now $10,800 owing, three months rent.  The guy has the nerve to call me in my car on the way down to the hearing, pretending he is in New York and his plane is delayed, and asks for an adjournment.  Of course I refused, advised the adjudicator of the call, and got the standard 11 day remedial eviction order.

So on the last day to pay, he drops off a cheque to my client for the full amount, and goes to the Board to file a void motion.  At the counter he swears an affidavit, shows them a copy of the cheque, and the Board deems the eviction order void.  Except this cheque is also no good, so the next day I filed a motion asking the Board to set aside the void order.  That hearing of my motion was March 7th.  So he doesn't show up, but sends a lawyer, who assures the Board that the money is in the account, and that the tenant will have no problem paying $14,620 (4 months, costs, NSF fees) by Monday.  On consent the Member issues an order requiring payment by Monday.  If the money is paid into the Board, the tenant's void motion stands, and the tenancy continues.  If the money is not paid by Monday, the stay of enforcement for the eviction is lifted, and my client can get the Sheriff action re-started.  By the way, the Toronto Sheriff takes 5 weeks!

It's no surprise that on Monday there is no money paid in, but the tenant did pick up a deposit slip from the Board, no doubt just to muddy the water.  But he never paid a dime, so on the 16th of March the Board issued an order granting my motion, lifting the stay and allowing enforcement of the eviction.

But on the same day the stay is lifted, the tenant served my client with a notice of appeal to Divisional Court.  The appeal was the most frivolous fairytale I've ever read, but that doesn't matter as a party to an LTB proceeding has an absolute right to file an appeal to Divisional Court.  It costs about $280 to file, and is pretty much guaranteed to get you a minimum of 2 more months free rent, perhaps as much as six.  If he gets six more, that's $36,000 in arrears, never to be collected.

But that's not all.  My client needs to hire a solicitor to represent her on the appeal at Divisional Court as paralegals can't appear in the Superior Court.  So that's likely to cost between $5,000 (if they can get the Court to grant a motion to quash) and $15,000 if it needs to go to a trial on the merits of the appeal.

At the end of the day, the tenant will owe upwards of $40,000 in rent and Court costs, but I suppose he doesn't care, as this young woman is just the latest in a string of victims whose lives he has ruined.  What's the solution for the small landlord investor?  I'm not sure there is one.  It's the luck of the draw to some extent.  Certainly do a thorough check on the tenant as if you were hiring the person to work in your business.  Know the law thoroughly, or hire a good property manager to manage the property.  And when rent is one day late, serve an N4 notice.  But the truth is, if the tenant is unscrupulous and is willing to play the system, the system is ripe for playing.

One lesson the LTB (actually the Minister) should take away from this true story is that a tenant's void motion can be very dangerous and highly unfair to the landlord unless the rent arrears are paid into the Board in Trust by guaranteed funds,  On the issue of the de facto right to file an appeal to the Divisional Court, I don't know what the solution is, but perhaps allowing paralegals to qualify for appeal work would soften the blow somewhat.  I also think we need a process for landlord and tenant appeals where the disputed rent has to be paid into the Court as security against the potential judgment within 10 days of the filing of the appeal, or the appeal will be dismissed.


16 comments:

Anonymous said...

I could not agree more that a Paralegal should be allowed to continue with an Action that began before a tribunal and within the scope of a Paralegal. A lawyer will charge a fee to your client to come up to your present speed with the file. It seems wrong to increase costs when in fact most Paralegals are aware and more than capable to work with the Rules of Civil Procedures as would apply to this Appeal.

becomingalandlord said...

I also have the same question as this. I as a tenant myself have this question because even though I am a good payer I still have questions maybe its for my future reference...


becoming a landlord

Sonia said...

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Valerie Keefe said...

Do you know what I noticed? How your posting conflated structural and cyclical unemployment with bad credit and an inability to pay.

And that's what really strikes me, is that so many landlords aren't capitalists, but rather classists. I've made good on my obligations while waiting two weeks for a landlord to send someone to fix the heat. (The 'repairman' had this suggestion: Open the door in the lower suite and let the heat drift up...) Not to mention promised improvements upon which the agreement to lease was dependent going unfulfilled, eight-percent rent increases after the first year (never mind this was during a fall in the nominal value of the underlying asset, sorry, was I the one speculating on real estate?), Poor maintenance allowing bedbugs to enter the suite from a neighbour (It's ten cents of caulking), and landlords entering the suite without notice to name a few. Oh, and there was the time the landlord gave possession of the suite to a nice couple from BC five days before my lease was up. (I don't care if most of my stuff is moved out, it's still my place when I pay for it. All of that within eight years. When landlords start treating tennants as entrants into a contract instead of rentserfs, then we'll see some equitable and respectful relationships (And I've had those too).

Tell you what, you can start kvetching about tenants respecting their side of the agreement when your colleagues start respecting their side. I pay my rent and I've been repaid with people trying to exploit my vulnerability. Your end of the business, as you just admitted, is filled with people who think they can get something for nothing.

No, the law is not tenant centred, as in most cases the onus is on the tenant, to demonstrate discrimination on the basis of source of income, to demonstrate failure of the landlord. As any good economist (U of A educated in my case) can tell you, barriers to entry are one of the key sources of market power.

That your colleagues cheat us, fail to provide proper documentation, and force us to apply, well... not every tenant is a university-educated politician. Most don't know their rights, and thus, have none, and it's disingenuous of you to pretend otherwise.

Disclaimer: You have no permission to redact, abbreviate, or edit this comment in any way save refusal to publish. Doing so will be considered actionable libel at my discretion (I find I have to specify these things with people in your line).

Anonymous said...

Scary story.

What if the land lord was willing to move back into the unit, and wished to evict the tenant on those grounds? Would that not prevent the situation where the tenant would constantly promise to pay, be granted a void, and continue to be a deadbeat?

Cheers.

Anonymous said...

Well, by posting this on the internet you actually teach tenants how to abuse the system :-(

I am in the similar situation as your young client and still cannot believe how ridicules Ontario laws are. The system works well for the government collecting money from the application fees, for tenants abusing the system, and for paralegals who make living on it. I just paid $500 to paralegal Michael Abrams who spent two weeks talking to Legal Aid rep for my tenant trying to reach an agreement, but totally failed. I offered to forgo 2 months of rent and to actually pay her money to move out. Nope...

mdb said...

I read your blog. I agree with you about landlords, I was a Superintendent for 4 years and it was a for a huge company and encouraged for us to work with tenants. Now I am tenant facing eviction as a the owner of my building cashed a postdated cheque early, which caused a huge downfall financially with no apology and not willing to work out a payment plan. Gives wrong notices, harasses, intimidates, and bullies until you have no choice to run with your tail between your legs. This superintendent seems to think he is above the law and the owner is so naive to her business doesn't even know how to fill out rent receipts. So tell me how does a tenant who is being up front and honest and not abusing the system deal with a superintendent who falsifies documents, interferes with my enjoyment without having to file a T2? Yes I was told I could discuss this at my L1 hearing but depending on the adjudicator.

mdb said...

I read your blog. I agree with you about landlords, I was a Superintendent for 4 years and it was a for a huge company and encouraged for us to work with tenants. Now I am tenant facing eviction as a the owner of my building cashed a postdated cheque early, which caused a huge downfall financially with no apology and not willing to work out a payment plan. Gives wrong notices, harasses, intimidates, and bullies until you have no choice to run with your tail between your legs. This superintendent seems to think he is above the law and the owner is so naive to her business doesn't even know how to fill out rent receipts. So tell me how does a tenant who is being up front and honest and not abusing the system deal with a superintendent who falsifies documents, interferes with my enjoyment without having to file a T2? Yes I was told I could discuss this at my L1 hearing but depending on the adjudicator.

mdb said...

I read your blog. I agree with you about landlords, I was a Superintendent for 4 years and it was a for a huge company and encouraged for us to work with tenants. Now I am tenant facing eviction as a the owner of my building cashed a postdated cheque early, which caused a huge downfall financially with no apology and not willing to work out a payment plan. Gives wrong notices, harasses, intimidates, and bullies until you have no choice to run with your tail between your legs. This superintendent seems to think he is above the law and the owner is so naive to her business doesn't even know how to fill out rent receipts. So tell me how does a tenant who is being up front and honest and not abusing the system deal with a superintendent who falsifies documents, interferes with my enjoyment without having to file a T2? Yes I was told I could discuss this at my L1 hearing but depending on the adjudicator.

mdb said...

I read your blog. I agree with you about landlords, I was a Superintendent for 4 years and it was a for a huge company and encouraged for us to work with tenants. Now I am tenant facing eviction as a the owner of my building cashed a postdated cheque early, which caused a huge downfall financially with no apology and not willing to work out a payment plan. Gives wrong notices, harasses, intimidates, and bullies until you have no choice to run with your tail between your legs. This superintendent seems to think he is above the law and the owner is so naive to her business doesn't even know how to fill out rent receipts. So tell me how does a tenant who is being up front and honest and not abusing the system deal with a superintendent who falsifies documents, interferes with my enjoyment without having to file a T2? Yes I was told I could discuss this at my L1 hearing but depending on the adjudicator.

Anonymous said...

if you read some of the forms, such as N4 it says "get legal advise immediately, you may be eligible for legal aid services" Nowhere did I see an advise for the landlord aside from applying to the board. Why does the law automatically assume that the tenant is in need for advice 'you can do this, that' and the landlord is not? The landlord on the other hand is left t0 deal with unpaid rent for who knows how long and legal fees. On the other hand a tenant WHO KNOWS he can abuse the system is advised to seek legal advise. Why? So he can further abuse the system and a poor landlord? I am not referring to tenants who are wrongfully being evicted, instead i am referring to the ones who know they have breached the contract by not paying rent and still want to live there rent free. Why? Because our tenant centred system lets them. How are the rights of a landlord being protected here? I think that the law assumes that the landlord will win the case if they are right , but what happens if they do win? do they get their arrears of rent? not necessarily. Do they get reimbursed for legal fees?
Therefore I do not see how this system is functional. I think the tenant should have the right to evict a tenant, without LTB, if rent hasen't been paid,unless it is because the landlord has failed to do necessary repairs or for a reasonable cause, in which case the rent must be placed with a trustee or a respective body, which would void the 'right' of the landlord to evict the tenant.
I think the law can do way more to protect both tenants and landlords, instead it is simply making room for abuse.

Having been a tenant before I have hardly ever incurred any problems with my landlords, no entry without notice problems, no eviction problems.
As a landlord now, I have 2 tenants, one who is beyond an angel, pays rent on time (6 checks ahead of time, bcs its more convenient for him), never makes any noise, never made any damage to the unit. And another tenant, who is always late on rent (and will be served with an N4 on the 2nd), makes noise at all times (was served with an N5 3 days ago). Lives garbage bags around the building etc. To cut a long story short. My tenant doesnt know any of the rights and obligations (he things he does, but has the facts wrong) that apply to him, all he knows is "that he can't be evicted, because the process is too long".
Therefore I don't think "tenants have no rights because they don't know they're rights" as valerie is saying You don't need a university degree to learn some basic rights about being a tenant. As long as you can read and want your rights respected and are willing to do your homework before you sign a lease, than the university degree is very irrelevant.
I understand there's hundreds of tenants that comply to their lease and lots of landlords that treat their tenants poorly, but I personally believe that the law is not inclusive of both parties involved. To conclude, if you fail to pay your mortgage, the bank gets your house. It doesn't really wait for you to apply to the board and say that your house is being taken wrongfully.

Zubin said...

Thank you Mr. Fine for the information. We are having similar issues for past on year now. You mentioned in your article about hiring a good property manager, I already have a BBB accredited property mangers and it has still been a nightmare with mortgage and everything. I have lost count the number of times we have gone to the tenant board for non payment and eviction. Are there any property managers you recommend? some advice would help aswell, my condo townhouse is in Brampton, ON. thanks ...zubin

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Anonymous said...

Anonymous. Give your head a shake. Next thing you know, the janitor will be allowed in court. Don't get into this rental thing, unless you do your homework, or can take a bath if your tenant renags. It is a business, and you win some, and lose some. Tenants have rights too!!

Leslie Lim said...

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Anonymous said...

From what I have been able to make out from my readings of L&T act , is that the tenant can damage your property , not pay their rent and still the landlord cannot get them out..on the other side of the law would these area's not be considered a criminal offence.. vandalism of ones property ,not paying rent in my eyes would be the same as robbing someone.
The laws seem to be in conflict
in our case the rental only one rental was rented to mother and father month to month the father passed away and mother a couple years later moved in with another son leaving the other son aged around 40 in the rental about with no mention of leaving or that the son would be staying since he doesn't work , we would likely have ended the rental , 4 month of garbage sits in a backroom of the house every door in the house has a hinge broken .. I really don't get it ! In my eyes the landlord should have the ability to give a un-responsible tenant the 2 months notice and tenant moves out end of story ..