Compensation not paid--Eviction Notice void?

The automatic dismissal of Landlord & Tenant Board Applications because of Non-Payment of Compensation is changing (has changed!)

For the last several years the Landlord and Tenant Board has adopted an interpretation of the Residential Tenancies Act that is utterly unforgiving to landlords who fail to pay the compensation due to tenants upon the serving of an N12 or N13 Notice of Termination.   The Ontario Landlord & Tenant Board has been dismissing applications to terminate and evict where the landlord could not demonstrate that the compensation owed to the tenant was paid before the termination date in the N12 or N13 form.    Is this changing?  It seems so!

Firstly, what compensation?

There are very few non-fault grounds for termination of a tenancy in the Residential Tenancies Act. This is by design and intentional and the fact of there being very few no fault grounds of termination is what underpins the security of tenure that tenants have in Ontario.  Far more than in many (if not most) other jurisdictions, a tenancy in Ontario, once started, is by design extremely difficult to terminate if the tenant fulfills their obligations under the tenancy agreement and Residential Tenancies Act.  Basically, if a tenant pays the rent, doesn't damage the place, commits no illegal act and doesn't impair safety, they can effectively stay in a rental unit "forever".  An Ontario lease never, in practice, expires.  A fixed term may end (i.e. one year or such other agreed term), but after that term the law renews the tenancy on a month to month basis indefinitely--whether the landlord likes it or not.   Again, this is intentional on the part of the legislature.

The major exceptions to the "forever" tenancy is a termination for landlord's own use, for purchaser's own use, for demolition, conversion, or repair.   And of these, only the landlord's own use, purchaser's own use, demolition and conversion lead to permanent termination where the tenant has no right to return to the unit.  These grounds for termination are reflected in the Notice of Termination Forms (available on the LTB website) N12 and N13.

These grounds/forms, because they represent the only basis to lawfully terminate the forever tenancy, have done some double/triple duty to terminate tenancies for reasons other than what they are intended for.  Examples, if the rent is low and the landlord wants to re-rent for a higher rent the N12 Form was/is often used to terminate, evict, and then re-rent to a new tenant at a higher market rent.  If a landlord simply doesn't like a tenant, or the tenant is too demanding or requiring the landlord to do too many repairs the landlord might retaliate with an N12 to evict and re-rent to a tenant who is less demanding.  The N13 might be used to evict for "repairs" (often referred to as reno-viction) with the intent to upgrade the unit and put it back on the market at a higher rent (there is some nuance to the N13 not described here but be aware that a tenant has a right to move back in after repairs).

These grounds/forms are ripe for abuse as they represent the only way to terminate a tenancy for no fault grounds.   The fact that some landlords use N12's and N13's improperly (i.e. wrongly and illegally) is not a secret---everyone knows.  It is such common knowledge that the legislature has increasingly made it more difficult and more costly for landlords to use the N12 and the N13 (i.e. barriers to use).

One of the barriers to use of the N12 and N13 is that the legislature requires a landlord to pay a tenant compensation equal to one month's rent prior to the termination date in the N12/N13 form.  You may characterize the compensation as you wish, but for sure it was a step towards making landlords think twice about serving N12's for improper purposes.

The compensation requirements for these notices of termination (N12/N13*) are set out in sections 48.1, 49.1, 52, 54, and 55, Residential Tenancies Act. [*note that I have (above) made reference to compensation equal to one month's rent--in fact, on N13's it is possible for the compensation requirement to be up to 3 months or zero depending on the circumstances]

Section 55.1 Residential Tenancies Act states that if the landlord is required to compensate the tenant under the above sections then the compensation shall be paid no later than the termination date.

Fail to Pay or Pay late?

So what is the termination date and what is late?   Both the N12 and the N13 must indicate a termination date on the Form.  For an N12 it is a minimum of 60 days after service with the end date being on the last day of a rental period (typically the end of a month).  For an N13 the termination date is a minimum of 120 days after service with the end date being on the last day of a rental period and again typically on the last day of a month.  When we talk about the compensation being required to be paid before the termination date--it is the 60 day date or the 120 day date indicated on the N12/N13 that we are talking about.

Beginning with the ZOOM LTB years the LTB shifted its perspective on what it meant if the compensation required by section 55.1 RTA was not paid on time (before the termination date).   It was a profound change and one that I thought was weirdly coordinated by all of the adjudicators hearing cases--so much so that one could be excused for thinking that adjudicators were being directed on how to decide cases involving compensation (a fettering of discretion if you will).  Anyway, in Ottawa at least, we had for years the experience at an LTB hearing that if a landlord had not paid the compensation on the date of the hearing (but after the termination date in the Notice of Termination) that an adjudicator as almost a matter of course would make the termination and eviction Order conditional on the landlord paying the tenant the compensation that was owed.  Frankly, that made a lot of sense as the tenant was still in possession and the aim of the compensation being paid was still met with such a conditional Order.

But the sensical thing changed and the LTB for the last several years has been strictly interpreting section 55.1 such that if the compensation was not paid then an eviction application could not be successful and it would be dismissed.  There was no leeway, no rationalizing, no recognition of intention, error, or lack of prejudice.  It was a bright red line--no compensation paid--case dismissed.

We perhaps had some softening of the bright red-line when some LTB adjudicators decided that compensation could be paid by waiver of rent due or rent that was in arrears.  So long as the waiver was clear and unequivocal the landlord did not have to go out of pocket directly.  Compensation paid by waiver of rent past due or future rent (so long as it was before the termination date) could satisfy the compensation requirement under section 55.1 RTA.  Somewhat interestingly, while my opinion is that there was always legal flexibility to allow the compensation to be paid at any time before actual eviction Order being made, I never quite understood how adjudicators could equate the waiver of a purported debt or even a disputed debt with actual compensation.  Doing so seemed to defeat the purpose of the compensation requirement on a fundamental level.

CASE DISMISSED?

For the last several years it was quite common to see eviction applications that had been pending for untold months and years to be dismissed because the landlord failed to pay compensation months if not a year or more before (while the tenant remained in possession).  Many thought this was unfair, seemingly arbitrary and an unnecessarily rigid application of the law.  But that's the thing with "bright red lines".

CHANGE!? New appellate authority

The Divisional Court has re-introduced some flexibility and sanity (I think) to the compensation requirement issue.  In the case of 6150 Yonge GP Inc. v. Boxma , released May 18, 2023, the panel of the Court erased the bright red line.

In this case a landlord had served an N13 for purposes of demolition of a rental unit.  The landlord gave the tenant a cheque for the compensation prior to the termination date.  The tenant did not cash the cheque prior to the termination date and did not move out.  The landlord applied to the LTB for an eviction Order.   The hearing to terminate and evict was held a few months after the termination date in the N13 (termination date Dec 31, 2021--Eviction Hearing February 2022).  The tenant attempted to cash the cheque before the eviction hearing but after the termination date.

The cheque provided to the tenant went NSF (non-sufficient funds) and in the common vernacular "bounced".    The Landlord and Tenant Board did not dismiss the application.  In these circumstances the LTB allowed the landlord to provide a replacement cheque (by Order) and proceeded to terminate the tenancy.  The tenant appealed to the Divisional Court.

The Court reviewed the section 55.1 RTA requirement.   It also reviewed the authority, jurisdiction, and discretion afforded to the LTB under section 190(2) RTA.  This section authorizes the extension of time with respect to any matter other than prescribed requirements.  The Court notes that the time to pay the compensation is not a prescribed time period (i.e. not in regulations).

The Court did look at the rationale for extending the time period and noted the exercise of discretion in the particular circumstances of the case and analyzed what the adjudicator did and why.  It was held to be reasonable---and in fact "entirely understandable" that the adjudicator would exercise his discretion in the way that he did.   Using the phrase "entirely understandable" I think, and it should, put to bed the bright red line forever and ever.

Of course, the Court did not abolish section 55.1 and read it into a meaningless oblivion.  There is still a requirement to pay compensation by the termination date.  The failure to pay can quite reasonably lead to a dismissal of an application.  Imagine a circumstance where a tenant begs for the compensation to make first and last month rent at a new place, or to pay for moving expenses, and the landlord simply refuses and then later begs forgiveness of the LTB when the tenant does not move out and he is looking for an eviction Order.   One would not expect an adjudicator to exercise discretion for that particular landlord.  Hence, context will matter.

I think that it is clear, again, that an LTB adjudicator has discretion to allow the payment of the compensation owing after the termination date in an N12/N13 and still terminate a tenancy.   The question is what will be the factors that go into getting an adjudicator to exercise their discretion.  Will a landlord's ignorance with apology and offer to pay be enough to excuse a non-payment in accordance with section 55.1?  Will a refusal to pay when compensation is demanded by a tenant who needs or wants the compensation shut the door hard on discretion?  I imagine that in time there will be common circumstances that will elicit the exercise of discretion.   However, I imagine too that this might be unsatisfactory as it suggests that the exercise of discretion may become unprincipled and really just depend on bias' (for or against) and perhaps likeability of the parties.

I would suggest, instead, that a test evolve on this issue that looks at the prejudice caused by the failure to pay.  Did the non-payment directly impact the tenant's ability to look for a new place to live?  Did the lack of these funds make moving such a hardship that it was unrealistic for the tenant to even try to move?  Did the tenant lose an apartment because they didn't have the money to pay the first and last that the compensation could have covered?  If so, then looking at the prejudice to the tenant might be grounds to argue that discretion should not be exercised.  However, there could be other circumstances from a principled basis that suggest discretion should be exercised.  Imagine a landlord who was simply unaware, that if a simple request had been made that the compensation would have been forthcoming, that the compensation was perhaps late by days and the hearing many many months afterwards.  Perhaps in these circumstances where the tenant has not suffered due to the late payment or non-payment of the compensation and it is perhaps very clear that the landlord is sincere in the application and the purpose of the N12/N13 is being severely prejudiced then discretion should be exercised.   However you look at it, I suggest that the basis for the exercise of discretion should have an objective basis and be consistently applied so that landlords and tenants can have a predictable outcome at hearings and paralegals and lawyers can advise their clients accordingly.

Michael K.E. Thiele

www.ottawalawyers.com

Hearing de novo at the Landlord and Tenant Board. What does this mean?

STARTING FROM SCRATCH (de novo) after all the work was done!

As we all know, the Ontario Landlord and Tenant Board is having a difficult time in fulfilling its statutory mandate.   Where the fault lies, how it can be fixed, or frankly if this version of the Landlord and Tenant Board can ever be fixed is a fair question that won’t be answered here.

However, the Landlord and Tenant Board’s issues play out in ways that are perhaps unexpected but also not unpredictable.  One of the newer and stranger things that is happening is the Hearing de novo.   This little article will explain what this kind of notice is, what it means, and what you might want to do or say about it.

A hearing de novo is what happens when the Landlord and Tenant Board decides that it is incapable or unable to continue with, follow through, complete an application that has already started, or render a decision (i.e. write an Order).   Currently (early 2023) (and rather frequently) adjudicators are resigning or not being re-appointed after their terms expire.  As this occurs they are failing to complete the applications that have been assigned to them or that they are seized with.  In practical terms this means that hearings have already started and one or more days of evidence has been heard but not completed.  Or, it also may mean that a hearing started, the evidence was heard, and the only thing remaining was for an Order to be issued.

Landlords and Tenants instead of receiving an Order are receiving a Notice of Hearing de novo directing them to attend a new start from scratch hearing.   The only explanation for this Notice of Hearing de novo is on an enclosed endorsement form where a vice-chair explains that the member resigned or was not re-appointed and was therefore unable to complete the matter.   The endorsement goes on to apologize and further promises to schedule the matter on an expedited basis.

Receiving a hearing de novo direction can be very upsetting for one or both of the parties.  A significant amount of effort and expense will have gone into the work already done.  Sometimes, it is a miracle to get cooperation from neighbouring tenants or other witnesses and losing the value of the effort that went into getting the witnesses to attend the original hearing is extraordinarily prejudicial.  Some witnesses risk their own safety and fear retribution for testifying and a hearing de novo discounts that risk and basically requires the witness to do it again.   Query if a party is able to even lead the same evidence or find the same witnesses to testify.   This morning I was on a ZOOM hearing where a tenant was arguing against a hearing de novo because the matter was two years old and the evidence had been highly traumatic when it was originally given two years ago!   

Are there options when an adjudicator resigns or isn’t re-appointed and cases that they have started remain outstanding?   Or is it the case that the LTB’s choice of proceeding by hearing de novo is automatically the only option?

In fact, there are options short of starting from scratch and throwing out all of the work that has been done.  To get a sense of a “big case” where the hearing de novo process was challenged it is worthwhile to review Faruk v. The Landlord and Tenant Board, 2023 ONSC 2191 (CanLII).   There, the Divisional Court considers the effort of the parties in the proceedings and options short of a hearing de novo.

In another case, EAT-77647-18, an adjudicator resigned after all of the evidence had been heard and submissions completed after a lengthy hearing.  The Landlord and Tenant Board directed the case back to a hearing de novo.  There, the parties jointly submitted that the original adjudicator should complete the case because she was seized and relied on section 4.3 of the Statutory Powers Procedure Act (SPPA) which provides that “if the term of office of a member of a tribunal who has participated in a hearing expires before a decision is given, the term shall be deemed to continue, but only for the purpose of participating in the decision and for no other purpose”.   That section would seem to be the necessary authority to at least give an adjudicator who has resigned or not been re-appointed the authority to continue (and presumably be paid) to finish a matter.

Unfortunately, section 4.3 of the SPPA is not the complete answer as the RTA contemplates this section at section 173 RTA and qualifies the scope of section 4.3 SPPA by limiting the authority to continue to a period of 4 weeks.   Query, if an adjudicator who resigns (but is willing to finish what is started) is entitled to continue to finish matters for the remaining period of the term of their appointment plus 4 weeks.

In EAT-77647-18, the parties further jointly submitted that if the adjudicator who heard the case was unable to write the decision that the LTB should appoint another adjudicator to listen to the recording, review the evidence, and if necessary pose questions to the parties and then proceed to make an Order in place of the adjudicator who actually heard the case. 

The LTB accepted that submission and decided the case in this way (by reviewing the materials filed and the recording of the evidence).

It is, in my view, concerning that the LTB is deciding to proceed to a de novo hearing without asking the parties their position.   The LTB appears to be issuing the Notice of Hearing de novo without considering the impact on the parties or without determining whether a hearing de novo is actually necessary or appropriate.   As an example, last week I had another hearing de novo which was scheduled after the adjudicator who heard the case and resigned did not issue a consent Order.   The terms of the consent had been submitted to the adjudicator and all that was needed was to record the terms in an Order.  Why was that sent to a Hearing de novo as opposed to another adjudicator simply stepping in and writing the Order that was asked for on consent?

Hearings de novo are also causing some ethical challenges.   On another matter I was appearing for a landlord on a hearing de novo where he had previously agreed to a termination of the tenancy with a substantial section 82 rent abatement.   The tenant held the leverage at the original hearing as the landlord could not expect to ever get his rent arrears yet the tenant continued to occupy the rental unit.   At the original hearing it appeared unlikely that the matter would get reached that day and a further lengthy adjournment was likely.  At this stage the landlord was worried about future rents that would remain unpaid by the Judgment proof tenant.   Because of this, the landlord agreed to a significant rent abatement to obtain a consent termination and eviction order for 30 days after the hearing.  Given the circumstances at that time, the terms made sense.

Although the LTB received the consent order terms it appeared to have lost the file for some time and hence did not issue the Order.   Fortunately for the landlord, the tenant upheld the terms of the consent without actually ever receiving the Order and moved out in accordance with the consent terms.  The landlord took possession of the unit when the tenant vacated.  Then weeks after the tenant vacated, the LTB issued a Notice of Hearing de novo instead of making an order in accordance with the consent terms.

What made this hearing de novo interesting is that the landlord was intent on pursuing the rent arrears that were owed (less the abatement given).  However, now that the landlord was in possession of the rental unit, the leverage that the tenants had at the original hearing (i.e. possession of the unit) had evaporated.  The landlord, at the hearing de novo, no longer needed to “make a deal” to get the rental unit back and could choose to resile from the abatement that he had previously agreed to.  Or could he?

In my view, the hearing de novo is not an opportunity to resile from a agreement previously made to settle an application.  While the LTB notice does indicate that the application is being considered afresh, it is my view that such a direction from the LTB does not over-ride an agreement made between the parties.  The logic derives from the principle that an “agreement to settle a claim is a contract” (see Canadian Tourism Human Resource Council v. Meadow Wood Communication Group Inc., 1998 CarswellOnt 1114 at para 28).