When the Rent is late what penalties can a landlord require a tenant to pay?
Covid 19 and the pandemic has left a lot of residential tenants a bit short or unable to pay the monthly rent when it became due. For many this is a very unusual situation to be in because they "always" pay the rent and being behind on such a basic obligation is very worrying. What can happen?
In other articles in this blog I've written about the rather lengthy process to terminate a tenancy for non-payment of rent. The law does not make it easy to evict a tenant and there is a philosophical underpinning in the law that seeks to ensure a security of tenure for tenants. Therefore, for most tenants, being temporarily unable to pay rent is not going to lead to eviction because the law has built into it numerous opportunities, delays, and discretion that gives tenants a chance to pay rent arrears and maintain their home. Uniquely, for this Covid and pandemic period, the Ontario government through the Superior Court of Justice and the Ontario Landlord and Tenant Board has made it impossible to get an eviction Order for non-payment of rent and further has made it impossible for landlords to direct the Sheriff to enforce an eviction Order for non-payment rent without getting specific and special permission from the Court.
While tenancies are being protected and landlords are being forced to bear the cost of non-paying tenants (without any legal recourse against tenants during the state of emergency) tenants will eventually have to pay their rent and they will have to make up and pay the rent arrears that they have accumulated. Whether the arrears will be so large as to be impossible to pay is still left to be seen as we don't know what the end of this pandemic looks like.
The question that this article answers is whether a landlord may legally charge a penalty, interest, late fee, or some other charge to compensate them for not receiving the rent on time? The question is posed in the context of virtually every other commercial transaction where the failure to pay in accordance with a contract attracts some kind of penalty, interest, or other consequence.
The question that this article answers is whether a landlord may legally charge a penalty, interest, late fee, or some other charge to compensate them for not receiving the rent on time? The question is posed in the context of virtually every other commercial transaction where the failure to pay in accordance with a contract attracts some kind of penalty, interest, or other consequence.
The short and simple answer is that under the Residential Tenancies Act (RTA), a landlord is prohibited from charging a late fee, interest, or any other kind of charge or penalty for the late payment or late partial payment of rent. Additional charges for failing to pay the rent "on time" are very clearly illegal.
It does not matter what clauses are contained in the lease and what terms a landlord has inserted or negotiated to include in a lease. All such penalty clauses are illegal and void. It also doesn't matter if a tenant agrees to specific penalty clauses, has signed such clauses, acknowledged such clauses or even has paid such penalties in the past. The Residential Tenancies Act does not allow a tenant and landlord to agree to late payment penalties and any such agreements (even if freely made) are illegal and void (see section 4 RTA for the "voiding" provision).
It does not matter what clauses are contained in the lease and what terms a landlord has inserted or negotiated to include in a lease. All such penalty clauses are illegal and void. It also doesn't matter if a tenant agrees to specific penalty clauses, has signed such clauses, acknowledged such clauses or even has paid such penalties in the past. The Residential Tenancies Act does not allow a tenant and landlord to agree to late payment penalties and any such agreements (even if freely made) are illegal and void (see section 4 RTA for the "voiding" provision).
So where exactly does it say that a landlord can not charge a tenant a late fee, penalty, bonus, interest, or other such charge for paying the rent late? This question is actually answered in a couple of different ways under the Residential Tenancies Act. The first spot where the RTA prohibits these kinds of charges is in section 134 RTA. This section is titled "Additional Charges Prohibited" and it describes charges like a "fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable". Section 134 (1)(b) continues (with further clarification of the prohibition by stating that a landlord can not require or attempt to require a tenant to pay "any consideration" for goods and services as a condition for granting the tenancy or continuing to permit occupancy of a rental unit if that consideration is in addition to the rent the tenant is lawfully required to pay to the landlord.
The point of section 134 RTA (as it is broadly worded) is that is designed to capture and prevent any kind of sneaky or indirect way of charging a tenant more than the lawful rent. This section throws up a massive roadblock to a landlord who is seeking to levy charges or create a basis for charges that would exceed the lawful rent.
Another way that the RTA clearly prohibits interest, late fees, penalties, (and like charges) for the late payment of rent or the late partial payment of rent is in section 111 RTA. This section states that the landlord shall not charge a rent that is greater than the lawful rent that the landlord is permitted to charge. The "lawful rent" is the amount first charged to the tenant (section 113) and includes lawful annual rent increases. The "lawful rent" does not permit there to be late fees, penalties, interest, or other such charges.
In simple terms, the RTA in section 111 is stating that a landlord may not charge a tenant more than the lawful rent--even if that rent is late or partially late.
In simple terms, the RTA in section 111 is stating that a landlord may not charge a tenant more than the lawful rent--even if that rent is late or partially late.
A tenant does not have to have a "good excuse" for late payment or some other explanation that the landlord finds acceptable as an explanation for a late payment. A tenant does not have to get the landlord's "okay" or forgiveness for the late or partial payment of rent. A landlord may exercise its rights to serve a Notice of Termination for Non-Payment of Rent (with its numerous protections for tenants built in), but a landlord may not coerce, manipulate, threaten, charge, or otherwise take retributive action against a tenant for late or non-payment of rent. A landlord can not punish a tenant or take away "rights" under the lease just because a tenant has failed to pay rent on time.
Are there any exceptions to charges for late payment of rent? There are a very few. If the rent is late because the rent cheque went NSF a landlord is permitted to charge a tenant the actual fee charged to the landlord by its Bank for the NSF cheque plus a maximum amount of $20 as the landlord's fee for dealing with the NSF cheque. Aside from NSF charges, a tenant could also be required to pay the "costs" of an application to the Ontario Landlord and Tenant Board if the landlord serves a Notice of Termination for Non-Payment of Rent and then, when permitted, applies to the LTB for an eviction Order. That fee can be $175 to $190 dollars and is typically awarded to the landlord if the landlord wins the application. Note however that the LTB fees are a reimbursement of money actually spent by the landlord and not a "fee" that the landlord simply gets to charge a tenant for starting a termination process with an N4 form.
Michael K. E. Thiele
www.ottawalawyers.com
Ottawa, Ontario
Hi Michael,
ReplyDeleteI have a question regarding the deposit for a hydro bill.
I live in the upper of a house share and I am having nothing but trouble with some of the terms of my agreement.
It was agreed that I would give an $80 cash deposit for my first months hydro bill - which is still in my landlords name. They actually pick the mail up from our mail box and scan over a copy of the bill. Each month they ask for a month in advance deposit for the hydro bill to be left in the mail box. I have asked to be able to etransfer this money but they simple say 'no'. On top of this, there is no split meter and the downstairs tenant has a hot tub which is constantly running along with other appliances which make me feel that the split of hydro is not fair.
Is it legal to take a cash deposit for hydro each month in advance? I've read through a lot of your articles and many of the things in my contract are not lawful, but I can not find anything in your work regarding hydro/electricity.
My rental is Guelph, Ontario.
Thank you!
This law is totally unfair and illegal. What happens if a landlord depends on the rent income to pay his mortgage, to pay his insurance, to pay his property tax, to pay his maintenance cost but then the tenant fails to pay rent or on time, and the landlord does not have the money to pay, or to pay on time? We all know that in this situation, the landlord will be in deep trouble; his rental property could be punished to pay interest or late fee, or worse to be foreclosed by his mortgage bank; he will be charged for a credit card interest like 1.2% a month in Toronto, and if the landlord continually fails pay the property tax, the municipal can seize the property and sell it to recoup the the property tax; his insurance could be terminated by his insurance company, and he would be at high risk of losing everything if something like fire happens. A landlord is a investor. A landlord is not a slave, he should not be punished for providing the housing to a tenant. The landlords and the tenants should be treated equally both in right and responsibility. This law considers a tenant's interests only, not a landlord's interests. That's why there have so many tenants fooling around without paying the rent, or paying the rent on time in Ontario, damaging the landlord's property without being charged, or taking a long time if the landlord is lucky enough to have the case judged in court and the tenant has financial capability to pay. This law encourages only those bad tenants not to pay rent, not to pay rent on time, or not to pay damage they made to the property. This law is sick, unfair, unequal, and should be illegal.
ReplyDeleteI will make the point again, that I am not an apologist for the Residential Tenancies Act. Meaning, what I write about here is not intended to be a defence of the law or to be on the "side" of the tenant or the "landlord". In my work, I am content to represent one side or the other and for whichever "side" I am working I will make the best case possible. The law is the law and it is the job of the Ontario Landlord and Tenant Board to take the facts presented and apply the law as argued and presented.
DeleteI make the above statement to put this next comment in context. You are not "wrong" about your view of the impact of the law. All of the things you describe can indeed happen, and in fact they do happen regularly. The law is written in a way to preserve tenancies and to give tenants repeated opportunities to maintain their tenancies--even at the expense of the landlord's interest. The way the law is written is not an accident. It is intentional. There are public policy choices being made and it has been determined that housing stability for tenants is very important and in many instances trumps the financial interest of landlords.
So what is the lesson? As a landlord you can complain about the law and you can see if the government will make changes. In fact, the government does make changes, minor adjustments typically, over time. All governments, whether Conservative, Liberal, NDP, they all have made or make changes. Interestingly though, every single major political party has had an opportunity (many times over) to dramatically change the structure of the Residential Tenancies Act (and the predecessor legislation) and none of them have done so. The residential landlord and tenant laws have had the same basic structure since the 1970's with the same "bias" to housing stability and security of tenure.
So if the above is true--what is the lesson for landlords or people who think they might like to be a landlord? I think it is that you need to understand the law, understand the rules, understand the delays built into the system, understand the priority placed on security of tenure, and you need to take that understanding and build it into your business model. If your business can't tolerate or survive the application of the Law to your business--well, then you shouldn't be in the landlord and tenant business. The legal principles of the Residential Tenancies Act represents the Rules of this business and if you can't afford to operate in the environment with these Rules you need to get out of the business.