Monday, October 13, 2014

THE PROBLEM WITH N9 TERMINATION NOTICES


Ontario's Residential Tenancies Act allows a tenant to give the landlord a notice of termination indicating their intention to move out.  No reason is required.  Generally the notice period must be a minimum of 60 days, with the effective date of termination on the notice being the last day of a rental period, or if there is a lease term remaining, no earlier than the last day of the lease term.

The Act requires the tenant to use an LTB approved form, called an N9, or at least a form that substantially complies with the N9.  The Act says that such a notice must identify the rental unit, the parties, the termination date and be signed by the person giving the notice...the tenant.

The concept is fine, but in practice there are numerous problems that arise, the most common is that the tenant gives an N9 notice that is not in accordance with the Act.  Most often the issue is that the notice period is less than 60 days, or not at the end of lease term, or not the end of a rental period.

What's a landlord to do when given an N9 notice on October 13th indicating that the tenant is planning on moving out on November 31st (which is not 60 days and November 31st does not exist)?  Well first of all, the landlord should never say (which they often do) "You can't leave, the lease ends in months", as slavery was abolished in 1864 and people can come and go as they choose. The legitimate issue is what are the legal obligations of the tenant to continue to pay rent if they give notice that is not in accordance with the Residential Tenancies Act.

The Residential Tenancies Act was written to replace the common law with a unified code that is not necessarily fair, but which corrects an imbalance of power and recognizes the remedial nature of rights-based legislation.  So the Residential Tenancies Act includes s.88 which basically says that if short notice is given by the tenant (or no notice is given) and the tenant moves out, rent continues to be owed until the earliest termination day that could have been specified had proper notice been given.  So if a tenant gives notice and moves out at month 6 of a 12 month lease term, the tenant owes rent until the end of the 12th month, right? 

Wrong!  That's because s.88 goes on to say that if the tenant does leave with short notice, then the landlord has an obligation to try to re-rent (mitigate the damages) and if they are able to re-rent, then the original tenant no longer has an obligation to pay rent.  Reinforcing that practice is s.16 of the Residential Tenancies Act that makes it clear that under the Act either party has the obligation to minimize losses (mitigate) when the other side is in breach of a provision of the tenancy agreement.

So landlords, if a tenant gives you an N9 notice which is short notice, accept it with good grace and try and re-rent the unit and get on with your life.  If you can't rent it in time, and suffer a rental loss, you can certainly sue for the damages.

However I always advise clients NEVER to sue for short notice if a tenant gives at least 30 days.  When you do, usually the tenant turns around and counter-sues for breaches of an obligation to maintain, or harassment etc.  In fact, I often suggest, depending on the circumstances, that the landlord "offer" the tenant an opportunity to sign an N11 agreement to end the tenancy which eliminates any requirements for the tenant to give proper notice.  If a landlord and tenant sign an N11, the tenant cannot be sued for short notice, and the landlord has in effect acquiesced to the short notice.

But unfortunately, it does not end here.  First of all, if the notice was given to you via email, or a hand-written note and NOT with an N9, that notice likely does not comply with the Act.  That creates a terrible risk for the landlord, because if you do want the opportunity to sue for short-notice (for instance, if you can't re-rent within the time they've given you), then the emailed notice likely won't be accepted by the LTB to evict the tenant(s) if they change their mind and don't move out.  So imagine the scenario where you get short notice via email, you try to re-rent as per s.88, you find a tenant and sign a lease, but the week before your new tenant is going to move in, the current tenant tells you that they have changed their mind.  What now?  The incoming tenant can sue you when they can't move in for damages arising out of the breach of the new lease.  If they spend $5,000 for a hotel until they can find a new place, you may be on the hook.

The solutions is to ALWAYS ask the tenant to use an N9 form when giving you notice to move out, even when it's short notice.  Let them know that if they don't sign an N9 notice, then you as the landlord don't have a notice you can rely on for an eviction (with an L3 application to the LTB ). As a result, the landlord can't start looking for a replacement tenant.  If the landlord is prevented from searching for a new tenant, the tenant's obligation to pay rent continues until the earliest of either the date that would have been proper notice once you realize they are gone (between 60 and 89 days), and the date you find a new tenant.  It is actually in the tenant's best interest as well as the landlord's that a proper Board approved N9 form be signed so that the landlord can begin the mitigation process.

This article would end here, except that once again, it's not so simple.  Section 37, 44 and 47 of the Act work together to basically say a tenant can give 60 days notice to terminate a monthly tenancy on a Board approved form provided it's effective the last day of a rental period, and where there is lease term, the date is no earlier than the last day of the lease term.  So what happens when a tenant gives a notice, even a proper Board N9 notice, that does NOT comply with the requirements of the Act.  In my mind, while it's short and triggers the landlord's s.88 obligations to mitigate, it should still allow the landlord to file an L3 application (no notice or hearing required) based on the N9 if the tenant does not move out,  After all, while you may (depending on when you are able to re-rent) be able to sue for rent based on short notice, you should still be able to confidently re-rent the unit which is what mitigation is all about.

Enter an LTB decision from a year ago where just that happened; short notice was given, the landlord re-rented, the tenant refused to move out and the landlord then filed an L3 application to evict based on the N9 notice.  The LTB Member, a sharp woman who is a lawyer, found that since the notice did not comply with the statute (it was short in days) the notice was void.  And since it was void, she decided that it could not be used to uphold the tenant's stated intention to move out by ordering eviction.  What a disaster.  The landlord is supposed to mitigate when an N9 is bad, but then when they do mitigate by re-renting, the LTB can determine that the notice is void (which in law means a nullity), and not evict the sitting tenant. 

Now for the record, the Residential Tenancies Act does NOT say such a notice is void, and it does certainly say that other notices not in accordance with the Act are void.   Yet, the Member made the decision and tied the landlord's hands, causing them risk of litigation from the incoming tenant.

What a mess it is, the Residential Tenancies Act.  But this Catch 22 is so unfair, and worse, it leaves the landlord afraid to try and re-rent in case the sitting tenant then refuses to move out and the Board refuses to evict on the "short" N9 notice.  That helps nobody, certainly not the sitting tenant who may continue to be responsible for the rent because the Act makes it impossible for the landlord to safely mitigate.

There is no solution or right answer, other than hoping for an adjudicator who makes the right finding, and does not find that a short notice invalidates the notice for all purposes.  Another way, as I've stated earlier in this article, is to simply accept the short notice, sign an N11 agreement with the tenant (which removes requirements for 60 days etc.) and then hopefully re-rent the unit without a rental loss.  Not very fair, but just like in so many other instances, the Residential Tenancies Act is unworkable in the real world.

2 comments:

Benny Lin, GTA Realtor said...

Thank you Harry for this informative article. This really sheds light on how the system keeps protecting the Tenant and put Landlord at risk.

Anonymous said...

Thanks for your explanation, which, I thank you, for not being a simplified idiots,
one sentence response. All things are complicated, and you have generously cited reference material for further research. Thanks again. Hope I will throw some business your way, but I'd prefer...that life remains simple!