Wednesday, March 21, 2018

Realtor's new Offer to Lease, Form 400 Now Published. What does it all mean?

The updated Ontario Real Estate Association ("OREA") Agreement to Lease is finally here.  It replaces the old Agreement to Lease, the Form 400 used by Realtors in Ontario for so many years.  The new document was produced in reaction to the Ontario government producing a new standard form lease that must be used by ALL landlords and tenants for leases signed on or after April 30th, 2018.  This includes tenancies where Realtors found the tenant and facilitated the agreement.

There are a lot of rules and changes related to the new mandatory lease.  For more information, check out my post from last week:

Standard Residential Leases Coming to Ontario

OREA's old Agreement to Lease was a hybrid document; an offer document that turned into a lease upon acceptance by the landlord.  Most agreed it was awful but Realtors didn't have a choice but to use it.  Parts of it didn't comply with the Residential Tenancies Act (the "RTA") and didn't contain the detailed clauses that are needed to protect the landlord and give certainty to both parties. Many parts were illegal, and you can't contract out of the RTA's statutory protections.

So the new form 400 was created to be an offer to lease only, and anticipates the parties signing the mandatory government's standard form lease upon acceptance of the offer by the landlord.  A few things bother me.

The old document was called an Agreement to Lease, but was in effect, an offer to lease that became an agreement to lease once the applicant was approved.  This new document which is ONLY an offer to lease, is still called an Agreement to Lease.  That's just wrong.  The name is confusing and makes no sense at all.

While the parties to the offer will, if the landlord accepts it, enter into the Ontario government's new standard lease, the new standard form lease is woefully deficient.  It lacks any clauses to anticipate and protect the landlord based on contractual wording that is not contrary to the RTA, and therefore can be enforced if it was included.  Now it's true that OREA has a document full of standard residential lease clauses that Realtors are expected to select like entries on an all-you-can-eat sushi menu.  Realtors are trained to  paste those into a lease schedule they call Schedule A or B.  However, the OREA standard clause document is full of illegal clauses that can't be enforced at the Landlord and Tenant Board (the "LTB").  These include clauses such as no pets, demands for post-dated cheques, tenant's responsibility for repairs, tenant's responsibility for shovelling and grass cutting, dictating who can reside in the unit with the tenants, entry for showings etc.

In fact there are some very harmful clauses that have put my clients into jeopardy, standard clauses for instance giving a tenant the automatic right to renew lease term in perpetutity.  This clause, if inserted by the Realtor, can prevent the landlord from EVER evicting a tenant for themselves or a family member to move in, or a prospective purchaser or their family member to move in.

So what will this mean for Realtors and their landlord clients for leases drafted by Realtors?  Let's look at the new Form 400 first.  Besides the name "Agreement to Lease" being confusing, it's not bad as an offer.  It includes the landlord's address which for years wasn't on their document, causing tenants to have their obligation to pay rent suspended because the RTA says in s.12 that if that information is not in the lease, they don't have to pay rent.  It contains most of the major details that govern a tenancy such as rent, deposit, lease term etc.

The new Form 400 asks for first and last months' rent up front when the offer is accepted.  It's illegal to take the first month's rent before the first month arrives, as the rent for the first month isn't due until the tenancy starts.  Notwithstanding that, everyone does it, and it's a good idea, and I recommend it to my clients.  You don't want to have a brand new tenant move in and they haven't even paid rent for the first month.

The description of the Premises in section #1 is not sufficient.  It asks for the address of the premises, but no description of what they are renting.  For instance, there needs to be some detail of what is exclusive use versus shared use space.  If there is a shared yard, or laundry room, or driveway, this needs clarification.  Without specifics, litigation often results.

The description of the last month's rent deposit in section #4 is troublesome.  The last month's rent deposit under the RTA is not, as stated, a deposit as security against all terms and covenants.  The last month's rent deposit is security as rent for the last month of the tenancy.  Period.  And in fact, by OREA describing it incorrectly in Form 400, the Court may decide that it is an illegal deposit, and the landlord would have to return it if the tenant changes their mind about moving in even after you've accepted the offer.  Very foolish indeed considering the Ontario Court of Appeal dealt with this issue in 2011 in a case called Musilla v. Avcan Management Inc.

Section #5 of the new Form 400 again misstates the law, indicating that only people listed on the lease can live there.  Occupants are not tenants, and it's up to each tenant to decide who they love, sleep and live with, subject to property standards bylaws and condominium rules.

Most odd and not enforceable is the way OREA dealt with the commission payable to the brokerage in section #21.  The agreement (offer) is between the landlord and prospective tenant.  Yet it purports to bind the landlord and has them agree that brokerage's commission may be deducted from the deposit.  The brokerage is not a party to this agreement (offer) to lease, so who is the landlord agreeing with...the tenant?  The tenant is not a party to the issue of commission, and the Realtor or brokerage is not a party to the agreement (offer) to lease. 

Then in clause #14, OREA's Form 400 attempts to provide the landlord with a right to enter the unit for various reasons.  I would have thought this would be in the lease, not the offer.  But in any event, this clause is illegal as entry is only permitted in accordance with s.27 of the RTA and entry requires written notice, timing provisions etc.

In any event, I don't think much will change.  Despite the Agreement now actually being just an offer requiring the presentation of the standard lease, the leases will still be badly drafted without proper protections, partly because the OREA clauses aren't great, and partly because Realtors are not lawyers or paralegals, and don't understand what's needed.  I've developed a lease schedule for my clients that is comprehensive and enforcable.  But OREA just doesn't seem to have done their homework or understand the RTA sufficiently.

Then there's the issue of the Rotten Realtor Rental Paradaigm.  The Realtor's common method of exclusive offers, irrevocable for a period, with commission deducted from the deposit is broken and potentially dangerous for the landlord.  Having serial selection using exclusive offers dealt with one at a time opens the landlord up to Human Rights complaints when a prospective tenant is not accepted. Only Realtors select tenants this way, mirroring their agreement of purchase and sale mindset. The risks are enormous, because instead of being able to tell a rejected tenant that you refused them because you had a better offer, you have to make up some story because there were no other offers.

Everything is changing in Ontario's real estate industry.  With the condo building boom, Realtors are doing as much leasing as they are sales.  But sadly, they have not received proper training, and often the result is litigation that me and my colleagues get dumped in our laps.

For those interested in educating their brokerages, I do 3 hour sessions for your salespeople on site, with materials and a PowerPoint that they can use for reference.  I've been teaching Realtors since 2005, and was RECO approved in the days prior to RECO moving to in-house and online training.  Here are some useful links for Realtor info and materials:

Harry Fine Paralegal Realtor Training

Harry Fine Paralegal Blog on New Rules for Leases

Harry Fine Paralegal Important Landlord Forms and Templates

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