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