Tuesday, 30 October 2012

Rent deemed lawful

I had a call today about the legality of rent being charged to a tenant.  It was the landlord calling and asking whether she had anything to be concerned about in relation to the rent she was charging for an apartment.  Apparently, this landlord had a fairly good relationship with her tenant and a few times over the past several years she raised the rent by agreement with the tenant.  It was informal, there was no notice of rent increase, but the tenant was happy to pay the increase amount.  On questioning, it seems clear that the increase amount exceeded the allowable annual guideline amount as published by the Ministry of Housing.  Notwithstanding the tenant's agreement to increased the rent at the time, the relationship with the tenant has recently soured and now the tenant is saying that she is owed money for the illegal rent increases that were charged to her.  It isn't clear if the tenant knew all along that the method of the rent increases was irregular or if she has just learned of the process through the Ontario Landlord and Tenant Board.  Either way, it doesn't much matter as the landlord quite likely has a problem.

For people who like to read the Residential Tenancies Act, they will have come across section 136 of the Residential Tenancies Act.   That section provides that: Rent charged one or more years earlier shall be deemed to be lawful rent unless an application has been made within one year after the date that amount was first charged and the lawfulness of the rent charged is in issue in the application. 2006, c. 17, s. 136 (1)

The plain reading of this section suggests that rent increases, taken more than one year ago, that have not been challenged by the tenant in legal proceedings are deemed to be lawful.  Presumably, this section should offer some protection to the landlord who called me today.  Unfortunately, this is not the case as the Ontario Court of Appeal in Price v. Turnbull's Grove explained that this section does not mean what it at first blush appears to say.  In essence, the Court of Appeal explains that where the process of increasing the rent has not been followed (i.e. serving a notice of rent increase), that the rent so charged is not in fact deemed lawful with the passage of time.  This means that landlords who impose rent increases, notwithstanding any agreement of a tenant, are exposing themselves to claims for refunds potentially years after the charges were made.  It is an interesting question, based on this case law, whether a landlord can cure a past mis-step by following the rent increase process in subsequent years while using the "illegal rent" as the base for the lawful annual guideline rent increase amount. 

Ultimately, this case reinforces the fact that the rent increase process is highly technical and needs to be carefully followed to avoid nasty claims for rent refunds from tenants many years after the fact.  

Quinn Thiele Mineault Grodzki LLP
Michael K. E. Thiele
310 O'Connor Street, Ottawa, Ontario
Tel: 613.563.1131 

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Any answers provided are intended to reflect the Law of Ontario, Canada. The answers are not legal advice and no one should rely on the answers provided as legal advice. The answers are intended to be general information about Ontario Law and are the personal view of the author based on the limited facts provided to the author. The answers may not be legally accurate and may indeed be contrary to the law of Ontario. Answers and conclusions drawn may have been different if facts had been shared that have not been disclosed in the comment/question. This blog is intended to assist people in learning about Ontario Landlord and Tenant Law. However, if you have actual legal problems this blog should under no circumstances replace proper legal advice obtained by retaining a lawyer or licensed paralegal to advise you. Nothing in this blog, comments submitted or answers provided, gives rise to a solicitor and client relationship. Comments are published as submitted and commenters should be aware that if they identify themselves in a comment that their identity will become public upon the comment being published. Comments that have been published may be deleted upon request to the author.

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About Michael Thiele

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Ottawa lawyer and partner at Quinn Thiele Mineault Grodzki LLP.  Graduate of Queen's University in Kingston, Ontario.  Called to the bar in Ontario in 1997.  Undergraduate degree at Colby College, Waterville Maine, U.S.A.