As if small landlords who rent to students and young people did not have enough to cope with, the Landlord and Tenant Board (LTB) has been issuing orders with increasing frequency, declaring that because of landlords’ leasing practices, their “joint tenancy agreements” are actually “tenancies in common." The effect of this is that instead of the single lease that the parties have entered into, the LTB rules that there are legally separate leases with each of the tenants. This means that if one of the joint tenants vacates, then that tenant’s share of the rent is no longer payable by the rest of the tenants and the landlord will have to go to small claims court to recover the arrears from the tenant who defaulted; furthermore, if your tenants bring in a new roommate who occupies the vacated room, you can’t charge them rent because that person is an “occupant,” not a tenant, and the remaining tenants can use the revenue to further reduce their rent costs.
How can this happen?
It is because some board members, instead of applying the Residential Tenancies Act (RTA) to 21st century leases, are applying provisions of a 19’th century statute called the Conveyancing and Law of Property Act (CLPA), and a feudal legal doctrine about “four unities” to current leases. By applying these legal tests to joint tenancies, the LTB has declared that a landlord actually has separate leases with each of the tenants and must pursue a defaulting co-tenant separately from the others. The LTB rulings blame the landlord’s leasing practices for this outcome.
What leasing practices can trigger this absurd outcome?
Small landlords who rent converted residential dwellings, townhouse units, or large apartments (3 or 4 bedrooms) that are marketed to students and “roommates” will often receive applications from young people who, for affordability reasons, decide to share the rental space. In many cases the renters may have limited or no past acquaintance with each other. It is common in this market for landlords to require guarantors for each of the renters due to their lack of credit history. It is also common (and expected or requested by tenants/parents) for renters to want an assurance of security and privacy (locks on their bedrooms) while still operating as a household, sharing common areas (bathrooms, kitchen, living room) and responsibilities with the other tenants.
There is usually an arrangement between tenants that they will each pay a portion of the rent, in contribution to the total monthly rent payable, and so they each pay separate rent amounts to the landlord. A landlord’s accounting system can track which tenant paid, so that if there is a default by one tenant, all parties to the agreement know who defaulted and can resolve the issue with that tenant, failing which, an application can be made to the LTB naming all of the tenants, since the lease specifies joint and several liability.
What is the risk?
It is this leasing arrangement: locks on bedroom doors; tracking separate rent payments; and dealing separately with one tenant if there are problems within the rental unit (behavior issues or non-payment of rent) which exposes landlords to liability. Even though the lease states that all of the tenants are jointly liable for rent and all other obligations, by applying the 19’th century legal principles referred to above, the LTB can declare that the landlord’s arrangements have transformed the joint tenancy into separate leases for each of the tenants. When this transformation occurs and there are arrears of rent, the landlord can only apply for recovery against the defaulting tenant. In addition, if you have five bedrooms, a fire or municipal inspector may declare that because there are five tenancies, you are running a rooming house and are in contravention of zoning and Fire Code regulations.
So assume in the above situation, there are four tenants and rent is $1000 per month. If one tenant vacates and is in arrears, the landlord must proceed in small claims court to recover the $250 arrears; meanwhile, the remaining tenants are free to bring in an occupant to occupy the empty bedroom and contribute to payment of a reduced rent for the rental unit of $750. If the landlord demands the right to re-rent the empty room to a stranger, the remaining tenants can challenge such action since they have “exclusive possession” of the common areas and introducing a stranger can be considered “interference,” giving rise to legitimate safety and security concerns, and leaving the landlord to try to resolve the issues through costly legal proceedings and ruining the relationship between all parties. If two tenants default and vacate, the rent for the rent controlled unit is now $500; next, in walks the Fire Inspector and issues and Order to retrofit the unit and obtain a rooming house license.
What is the fix?
There are at least three options, one of which is not in the landlord’s control.
- Reject rental applications from students or young people who want to share expenses. That is the take-away from the LTB decisions which apply feudal law to todays’ urban rental realities. It is a highly negative message and a barrier for first-time renters trying to find affordable rental housing and choice. This option is not practical or responsive to today’s rental market, but it is an obvious option for risk-averse landlords.
- Change your leasing practices. The lease should emphasize that the tenants are to decide how much each will pay; what “non-exclusive” space they will occupy within the rental unit; and require that they submit one payment at the beginning of each month from one account. Prohibit locks on bedroom doors. If there are problems between tenants, don’t try to resolve the conflict: tell them they are on their own and don’t let any of them out of the lease. The lease would also provide that if a tenant vacates, all tenants remain liable and the landlord will not assist in finding a replacement tenant. This approach, of course, means that it will be more difficult to provide prospective tenants and their guarantors with the services and facilities that the market place demands and it promotes bad customer service.
- Resist! There is at least one “pre-RTA” decision from the LTB’s predecessor tribunal (Kosa v. Keet) where the adjudicator rejected applying feudal legal principles to a modern roommate situation and made the following determinations:
“It is now a common occurrence that roommates rent a unit with the intention of sharing the rent, each having exclusive use of a bedroom and shared use of the other rooms…the co-tenants in such a case would never agree to the landlord finding another tenant to live in the same space with them, at least not without their veto…I find the presumption of modern urban Ontario to be different than that of many years ago. The law should distinguish between situations in which common sense dictates a different result…The landlord will ask for income and other details from…prospective tenants, with the intention of allowing them to have the unit if together they can pay the rent. The law should not discourage the landlord from renting to multiple tenants for fear that they will have to look only to the remaining individual[s] where the joint occupation becomes untenable for any reason…the question from a reasonable landlord’s perspective…[is]…why he or she would make such an agreement, exposing himself or herself to the potential loss of revenue when [a “tenant in common”] suddenly decided to abandon their separate “tenancy”.
The adjudicator in that case went on to confirm that the roommates were joint tenants and that they were jointly and severally liable under the lease. The decision is consistent with direction given to the LTB by the Ontario Court of Appeal, which emphasized that the law evolves over time and that the Board’s interpretations should reflect today’s realities, stating: “Such a reading is appropriate having regard to the interpretive principle that legislation enacted to regulate an activity that is ongoing over an extended period of time invites a dynamic, as opposed to a fixed, interpretation…”.
“Resistance” may involve LTB proceedings but if successful, it will allow landlords, prospective young tenants, and guarantors to provide and acquire safe, secure, affordable rental housing and enable landlords to assist in resolving conflicts between tenants without being punished by the LTB for doing so.