COSTS when tenants refuse to move out (N12--Purchaser's Own Use)

SOME BACKGROUND TO Ontario Leases

There are very few not for cause grounds to terminate a tenancy of tenants in Ontario.  If a tenant(s) fulfills the requirements of the lease, pays rent, and otherwise does not breach the Residential Tenancies Act the tenant is entitled to remain in the rental unit indefinitely.   Indefinitely does mean “forever” and not just until the end of the fixed term of a lease.   Once a lease term expires, and absent an agreement to enter into another fixed term, the lease in Ontario renews on a monthly basis on the exact same terms as the original lease (whether the landlord likes it or not).   This concept can be difficult to appreciate as the idea of entering into a 1 year lease–surely means that the lease goes for 1 year and not indefinitely.  If you need to read the law to believe it you will find it in section 38 of the Residential Tenancies Act.   

The only party (as between landlord or tenant) to the lease contract that may terminate the lease on “notice” (i.e. by giving 60 days notice in writing) is the tenant.   A landlord has no legal right to terminate a lease by giving 60 days notice unless the reason for the termination is specifically set out and endorsed in the Residential Tenancies Act.

You might expect that the Residential Tenancies Act would set out a basis for a landlord to terminate a tenancy on somewhat general grounds.   I’m often asked or told by a landlord that they just don’t want to be a landlord anymore or that they don’t like the tenants and would rather just end the relationship and find someone new that they get along with or that they could get a whole lot more rent if the current tenant would move out.   Philosophically, there isn’t anything wrong with these reasons to terminate and the law could allow it–except that in Ontario, these grounds for termination are not legal.  Other provinces and some American states do give landlords the authority to end a lease after the expiry of a lease term.  That is a policy choice of the respective legislature.  In Ontario, the legal framework supports a tenancy continuing indefinitely until the tenant decides to give a Notice of Termination or the tenant breaches some aspect of the Residential Tenancies Act that justifies termination of the tenancy.

ARE THERE ANY NO FAULT reasons to terminate a tenancy?

Yes, there are 2 main forms (Form N12, and Form N13) that support no fault termination of a tenancy.  Each form contains different reasons for termination (though each reason is similar in nature).   Today I am writing about the N12 Form, and then specifically about what happens in the process when a tenant resists the termination of the tenancy and does not move out.

The Form N12 has a bit of a notorious history.  It is the Form that is used when the landlord wants to terminate the tenancy for the landlord’s own use or also if the landlord has sold the property and seeks to terminate the tenancy for the purchaser’s own use.   This Form N12, and the basis for termination contain highly technical and detailed obligations that must be perfectly complied with by the landlord failing which the N12 form is void and incapable of supporting a termination.

So why is the N12 Form notorious?  It is notorious because it was (or is) one of the most abused and mis-used grounds for termination under the Residential Tenancies Act.   This has happened because Landlords have no other basis to end a relationship with a tenant who is otherwise following the lease and complying with their obligations under the Residential Tenancies Act.   Therefore, when a landlord wants to terminate a tenancy to: 1) raise the rent to reflect market rents, 2) rent to tenants they like, 3) move in, 4) let a purchaser move in, 5) renovate and re-rent at higher rent to cover higher expenses, 6) pick whatever other reason that doesn’t involve tenant behaviour that you can imagine, then the N12 is employed to do the “legal heavy lifting” whether the actual reason for terminating and evicting is lawful or not.   The N12 is often used to terminate a tenancy and evict a tenant for a lawful reason (such as Landlord’s Own Use) but once vacant possession is obtained the landlord doesnt actually move in.  Instead, the landlord does what they actually wanted to do all along--which could be to re-rent, renovate, get more rent, etc.. 

The mis-use or abuse of the N12 led to tightening laws, more stringent requirements being put into the law, a tenant compensation requirement, and further limiting grounds for landlord's own use being imposed.   The government, and frankly everyone involved in Landlord and Tenant Board proceedings, was aware of how the N12 was being misused by some landlords and the governmental response to that misuse ended up costing all landlords more money with stricter and more onerous legislative requirements.

PURCHASER’S OWN USE (section 49 RTA) 

The N12 is the form that is used when a landlord sells a property to a purchaser and the purchaser wants to live in the rental unit.   The N12 Form requires that a tenant be provided 60 days notice and compensation equal to one month’s rent (payable before the termination date). 

There is a huge misconception by landlords and the public generally about the 60 day notice given in the Form N12.   The misconception is that the tenant must actually move out by the termination date.   This could not be further from the truth.   There is a misconception that if a tenant does not move out in accordance with the Form N12 (i.e. by the termination date) that they are doing something “wrong” and therefore can be sued or punished for refusing to move out.  This too is a complete fallacy and could not be further from the truth.

Whether you agree with the process or not, it is important to appreciate the specific legal rights of the landlord and the tenants in the period of time following the service of the N12 Form.  For the purpose of this article, let’s presume that the Notice period is properly given (60 days to the end of term) and the landlord has indeed paid the tenant compensation equal to one month’s rent as required.[section 49.1 RTA]  

With the technical requirements met, does the tenant have to move out in accordance with the N12 Form?  In a word: “No”.

My statement that the tenant does not have to move out is not a matter of opinion.  The law is crystal clear.   Also, for comfort to any tenant stressing out over this issue–take a look at page 2 of the N12 Form (in the fine print).  There is a statement there that says: “What if you disagree with the notice?”.  The answer in the form (i.e. what the Landlord and Tenant Board is telling tenants), is “ You do not have to move out if you disagree with what the landlord has put in this notice.  However, the landlord can apply to the LTB to evict you.  The LTB will schedule a hearing where you can explain why you disagree”. 

There should be no question then that a tenant(s) has an absolute right to remain in possession in the rental unit even after an N12 is served.  Further, there is absolutely no question that the terms of the tenancy continue and that the landlord must continue to fulfill its obligations under the Residential Tenancies Act and the tenant must do the same.     In the event that either landlord or tenant breach their obligations under the lease or the Residential Tenancies Act, while the N12 and Application to the Landlord and Tenant Board (Form L2) is pending, the remedy for those breaches is to commence legal proceedings using the other applicable forms or applications.  Unlike the Superior Court where motions can be brought to address issues within an application, there is no equivalent remedy in Ontario Landlord and Tenant Board proceedings.  By example to explain what I mean by this, if a tenant fails to pay rent after the termination date in the N12 Form, and the landlord has applied to the LTB and is waiting for a hearing date, there is nothing that can be done at the LTB in the application, as filed, to address non-payment of rent on an interim basis.   If a landlord needs to address the non-payment of rent the landlord should serve a Form N4 and follow the usual process.  Yes, this means that an entirely separate legal process needs to be started.  In my opinion, it is foolish not to start the proceeding as there are never any guarantees with any single application.  Another example of breach while waiting for a hearing can occur if the landlord ceases to provide services or fails to repair or maintain the unit after the termination date in the N12 but before the application is heard at the LTB. If this occurs the tenant can file a T2 (Tenant’s Rights) or T6 (Maintenance) application. There is no remedy available to the tenant in the N12/L2 application that is pending for any breaches by the landlord. [Do note that tenants have more recourse for landlord breaches through different channels such as Property Standards or the Housing Enforcement Unit].

LEGAL THREATS

I can now come to the point of what I intended to write about.  It is not uncommon for landlords and their legal representatives to threaten tenants with legal action for failing to move out in accordance with the N12 Notice of Termination.   The threat is often shocking in its scope and very worrying to tenants.   The threat will come in a legal letter or email and it often says something along the lines that the tenant will be held financially responsible for any losses suffered by the landlord for that time period after the termination date in the N12 if the tenant does not move out immediately.   

For N12's based on purchaser’s own use the legal threat will often state that the tenant will be held responsible for all costs associated with the real estate transaction.  Potentially for the expenses incurred by the purchaser, potentially for the loss of the sale transaction, potentially for the losses incurred in having to compensate the purchaser for breaching the Agreement of Purchase and Sale.   There is often an estimate put to the damages that will be claimed and these can be wildly high–into the millions of dollars.   Of course, this is upsetting and concerning and therefore designed to pressure a tenant(s) to vacate a rental unit as soon as possible to avoid the threat of being sued.

It is noteworthy that the “damages” that a landlord/vendor or purchaser claims will be incurred will in fact have the ring of truth or in fact be “real”.   A landlord who can not deliver vacant possession on a closing date may in fact be liable to the purchaser for damages sustained.  A landlord who is unable (but required) to deliver vacant possession may lose the sale and suffer the financial loss (profit) in the sale.  Purchaser’s may indeed incur costs because they can’t move in.   There are a lot of financial consequences for the landlord and the purchaser if they did not take into account a tenant’s right to remain in occupation (and continue the tenancy) until the Landlord and Tenant Board hears the case.

Another nuanced consideration is that landlords and purchasers often presume that getting an Order terminating and evicting a tenant for an N12 is a foregone conclusion once the case reaches the Hearing stage before the Ontario Landlord and Tenant Board.   This is a foolish assumption.   There are several defences to an N12 application and the strict requirements of the N12 are not without hardship to meet.   On top of that, the Ontario Landlord & Tenant Board continues to retain a discretion under section 83 to refuse to terminate a tenancy or delay the termination of a tenancy even if the N12 is otherwise valid.

This means that a landlord who is contemplating selling a property that contains a tenant in a lease covered by the Residential Tenancies Act should be incorporating very explicit terms in the Agreement and Purchase and Sale to deal with the possibility of a tenant not moving out or being unable to deliver vacant possession on a fixed closing date.   There are a number of options in how to contemplate and provide for it.   The worst thing for the landlord (and purchaser) is to not address the possibility squarely and simply hope that the tenant will vacate.   When “nothing” is done the standard OREA Form (real estate standard Agreement of Purchase and Sale) will typically leave the vendor landlord in worse legal shape than the purchaser but the purchaser will suffer the reality of not being able to occupy the property on the closing date.

Is it absolutely clear that a residential tenant can not be held liable for damages for refusing or failing to move out pursuant to a valid Form N12?  In my opinion there is no doubt as the wording of the Residential Tenancies Act sections make it clear, as does the Form N12, that a tenant has the right to have a hearing.  The circumstance of a tenant being pursued for damages was actually considered in the case of PE Real Estate Solutions Inc. v. Kelly, 2021 ONSC 4661.  The landlord/vendor won against the tenant in the Small Claims Court but that decision was overturned on Appeal to the Divisional Court.   In this decision the Court clearly reviews the tenants’ right to continue to occupy the rental unit after the termination date in the N12 and to have a hearing at the LTB and that doing so does not attract any liability for the types of damages that the landlord or purchaser sustains