Bankrupt Tenant: What is a Landlord to do?

 Landlord waiting for L1 (Non-Payment of Rent) hearing and Tenant goes bankrupt!

If you are searching for legal information respecting a tenant going bankrupt--aka making an assignment in bankruptcy or filing a proposal, you may be a landlord who has a tenant with significant rent arrears.  You may be waiting for a hearing date to terminate and evict your tenant and you have received a Notice of Stay of Proceedings from a Trustee in Bankruptcy.  What is the legal significance to you?

The simple answer, and a standard approach, is that if a tenant makes an assignment in bankruptcy before the LTB hearing commences, and no mediated agreement is entered into, then the legal effect of the assignment in bankruptcy is that the LTB proceedings are "stayed".  This means that the rent arrears that are claimed form part of the bankruptcy proceedings and are dealt with in that process.  The practical effect is that the Ontario Landlord and Tenant Board will not convene a hearing on the rent arrears that existed up to the time of the Assignment in Bankruptcy.  No order will issue, the tenancy will not be terminated, and in fact the tenancy will continue on in the normal course.  You can find numerous orders from the LTB (where an assignment in bankruptcy has occurred) explaining to the parties and in particular to the landlord, that the stay of proceedings only impacts the rent arrears up to the date of the assignment in bankruptcy.

There is some dispute, some contradictory LTB level cases, on the issue of the existing LTB file number and application being allowed to continue to adjudicate and terminate a tenancy for non-payment of rent for any rental periods that remain unpaid after the assignment in bankruptcy.  Meaning, by explanation, say the N4 covers a period of January to June and the LTB application is filed in July.  A hearing is scheduled for November.  The tenant makes an assignment in bankruptcy on September 2nd.   It is fairly clear that the Bankruptcy will capture all rent arrears from January to September (the entire month of September even if the assignment is made prior to the end of the month---because the entirety of the rent was due on the 1st of the month).  What about the arrears for October and November?  Some have argued that the LTB application can proceed and deal with the October and November unpaid rent.  That being said, I think it is now settled that the existing LTB application is not properly continued (it is stayed), and that for a landlord to recover the October and November rent they would have to serve a new N4 and start again with a new L1.  The entire month of Septembers' rent is lost even if the tenant made the assignment on say, the 2nd of September---there is clear law on this point.

As an aside, and I won't cover it much here but will mention it in case anyone has a convoluted and quirky case.  The decision in Peel Housing Corporation and Siewnarine 2008 CanLII 31815 (ON SCDC) is an instructive appellate authority where the Bankruptcy occurs and subsequent LTB orders and mediated consents are entered into.  If you have quirky facts, give this case a read.  It arises under the Tenant Protection Act so often gets missed when folks are searching Residential Tenancies Act related questions.  I do think the law is still good.  If you are representing a tenant and a bankruptcy is contemplated--it would be worthwhile to read this case for your own liability!

All that being said, and the purpose of this article today, is to draw your attention to the case IN the Matter of The Proposal Raven Wendy Suzann Farrow, 2025 ONSC 4665(CanLII).  This case, and the facts as described, are messy.  However, it reads (I think) as the expression of a very upset landlord who finds it fundamentally unjust that a tenant who is in rent arrears can BOTH 1) avoid liability for those arrears AND 2) still continue the tenancy.  The fact that the tenancy continues without the landlord being paid is an often galling realization for landlords.  Some view it as fundamentally unjust--and I suppose one can understand the point.

Anyway, part of the reason for pointing out this case is that it describes the landlord's path in seeking to lift the stay of proceedings that arises upon the tenant making the assignment in bankruptcy.   Earlier I mentioned that the LTB will inform a landlord that the termination and eviction proceedings are stayed due to the assignment in bankruptcy--i.e. no eviction or other remedy at the LTB.  You will find commentary from the LTB, to landlords, that unless the stay is lifted by the Superior Court--nothing further will happen at the LTB (that is the meaning of the "stay").

Well, this case results in the Superior Court ordering that the Stay of Proceedings is lifted "to allow the LTB action to proceed"(para 26).  The Court hopes that the LTB will schedule the matter as soon as possible.   What is unclear, but perhaps it is implied from what is being discussed more broadly in the case, is whether the lifting of the stay will then have the LTB make a typical standard Order.  A standard Order will ascertain the amount of the rent arrears and then provide a pay and stay (voiding mechanism). Arguably, such an Order is statutorily required.  The existence of the arrears is a basis for terminating the tenancy and that, in the normal course, results in termination subject only to voiding.  I am perhaps missing something, but it seems that the lifting of the stay (as ordered here) does not lift the stay only for the purpose of valuing the landlord's financial interest vis a vis the tenant's up to the date of the proposal arrears and monies owed to the landlord.  The lifted stay seems to send the entire case forward for adjudication.  Further, if you think about it, the lifted stay would then automatically capture any future and new rent arrears that arise after the date of the proposal (because LTB Applications for rent arrears include forward arrears that come into existence after the application is filed).

It appears, I think, that the lifted stay means that the LTB will determine the financial debt owed to the landlord which then will be caught by the Proposal (or an assignment)---to an extent.  However, the other part of the Order--which is termination if the arrears are not paid, is not typically a claim that is provable in bankruptcy--meaning the eviction portion of the Order does not fall into the bankruptcy--and hence simply is enforceable because the tenant doesn't void the Order as the Proposal does not count as a "voiding" action under the RTA.  I don't see in this Order that the Court limits the LTB on the scope of its usual Order and I don't see how the LTB would consider the impacts of a Proposal under the BIA or an actual Bankruptcy on its findings of the amount of arrears and damages and the eviction remedy for failing to void.  Query further, if the tenant paid rent post proposal--what stops the landlord from attributing paid rent to the oldest debt first--thereby reducing his arrears that are pre-Proposal and increasing the arrears that would not be caught by any BIA proceedings?

It will be interesting to follow this case as it goes back to the LTB.  Hopefully it is a reported decision and we can see how the Board interprets what it is to do in the face of a Superior Court Order lifting the stay on its proceedings.

Michael Thiele

www.ottawalawyers.com

Can I sue: Apartment building has severe criminality, gang activity, intimidation, and the Landlord does nothing!

Can a tenant sue a landlord when the landlord fails to control criminality in the building?

Imagine a tenant who lives in an apartment building where there is rampant drug use in the common areas, violence, threats of violence, vandalism, intimidation of tenants by others in the building, and basic criminality is a part of every day life.   How horrible it must be to live in a building like this?  Why stay there?--many ask.  The answer often is that the apartment is subsidized and moving is not an option because finding something affordable elsewhere is impossible.  Even if the unit is not subsidized, sometimes the answer is that the rent is affordable compared to renting elsewhere.  Moving is not an option as rents are high and moving costs money too.

Does a tenant have to put up with criminality, open drug use, trafficking, and all of the anti-social and anti-community impacts that these kinds of activities bring with them?  For a long time now, anyone versed in Landlord and Tenant law would point a tenant complaining of this kind of activity to a T2 Application (Tenant's Rights) that may be pursued at the Ontario Landlord and Tenant Board.  Along with that direction, most lawyers, paralegals, and clinics would tell a tenant that the chance of recovering very much, against a landlord, was low.  The concept of general damages---the award of pure pain and suffering money--at the Landlord and Tenant Board is more theoretical than real.  Even when an adjudicator is convinced to make an award the sum is generally quite modest (low).  

There are major barriers for any tenant wishing to retain a lawyer or paralegal to pursue a T2 claim against a landlord for the issues described.  One is that paying a lawyer or paralegal an hourly rate to represent them is financially challenging.  The cost of legal representation problem is compounded by the fact that the Residential Tenancies Act makes illegal any type of contingency fee that exceeds 10% of the amount that is recovered.  Given that the absolute maximum knock it out of the park home run after a hearing is $35,000 (soon to be $50,000 on October 1, 2025), the maximum legal fee on a contingent basis is $3500 (see section 214 RTA and O.Reg. 516/06 s. 60 for the contingency fee cap).   You can safely presume that getting the Landlord and Tenant Board to award $35,000 for substantial interference with reasonable enjoyment is highly improbable.  The LTB favours an abatement analysis for damages which is a percentage of the rent paid--even when a case is proven.  That approach limits the value of damages and measures them relative to the rent as opposed to a more abstract conception of fairness, harm, and putting the victim back into the position they were in (as far as money allows) before the harm.

The low awards, limit the contingency fees to be earned.  The work involved (for the legal representative) is virtually guaranteed to exceed any reasonable or modest fee that may be charged for hourly work.  This explains why lawyers and paralegals are not lining up to take on tenant cases (the inability to earn a reasonable living even when winning a case is quite dissuasive).

Another major issue (barrier) is that Residential Tenancies Law has incorporated a fault analysis into liability that looks at the reasonableness of a landlords behaviour in response to the issues raised.    This approach is adopted from cases such as Onyskiw where the Ontario Court of Appeal affirms an approach where the landlord escapes liability on repair issues where they can establish that they proceeded diligently in dealing with the repair problems.  The legal logic of these cases is applied when tenants do file T2 applications against their landlords because they are being harassed, intimidated or threatened by other tenants and their guests.  Landlords typically defend the case on the basis that they have investigated the issues/complaints, written letters, served Notices of Termination where appropriate, and are simply waiting for a hearing at the Landlord and Tenant Board.  A defence (roughly in these terms), tends to be successful as the LTB is reluctant to make the landlord liable for the behaviour of other tenants, guests, or intruders.

The problem, of course, is that a landlord who responds to issues in the building by investigating transgressions and then initiating LTB proceedings, is doing very little (to nothing at all) to prevent the behaviours from occurring in the first place.   There is little incentive, vis a vis liability to tenants, to properly vet prospective tenants to see if they are a good fit for the building.  Tenant past history, trouble at other apartments, can be ignored without any real risk to the landlord.  The idea of liability being imposed on the landlord for not properly selecting prospective tenants and carefully ensuring that the housing mix is appropriate is nothing that gets traction at the LTB.   Given limited liability and risk to a landlord when they fail to proactively protect the residential complex, fail to have adequate security, and fail to harden the property against criminality, tenants have little to no success in any claims against landlords for the incidents they have to put up with.  The best that tenants can do, today, is to establish that a landlord failed to respond to incidents in a timely way and that they should therefore be liable for the actions of those tenants/guests who are causing the problems.  You will note that this is a solution that arises only after the fact--after suffering or experiencing an incident---and then only with moderate financial success.

Is anything changing?  There is a very interesting case in Ottawa called Yasin v. Ottawa Community Housing Corporation et. al. .

The link to this case (above) is an endorsement in a civil action respecting pleadings.  It is technical and procedural.  However, the endorsement by C. MacLeod RSJ is something to take note of.  The facts in that case (as pleaded--not yet proven), is that a tenant's rental unit was invaded by a guest of another tenant who was high and paranoid.  The tenant whose unit was invaded was so terrified that she jumped from her balcony--10 metres--suffering physical and psychological injuries.

What is interesting about this case is how it is framed.  The plaintiff is alleging that the defendant landlord breached a broader duty of care.  How RSJ MacLeod responds to the pleading is far more familiar to tort lawyers than it would be to Landlord and Tenant lawyers--it is an occupiers liability framework.  The measurement of damages seems to follow more of the general damages pain and suffering model than the LTB's abatement of rent model.

It also appears, in Yasin , that the plaintiff is aiming not just at the immediate actions of another tenant, or another tenant's guest, but at the entire organization of the residential complex, the landlord's knowledge of problems in the area, and basically the foreseeability of danger and hazards in the residential complex before those dangers have manifested.   This is very interesting---and will be of great interest to tenants living in community housing buildings where they have little option of moving elsewhere.   This case potentially challenges the housing programs that focus on housing the unhoused without immediate or close analysis of the impact of housing the unhoused on the tenants who are already living in the building.    It is not uncommon to be contacted by tenants in subsidized housing complaining about their residential complex and them describing it in terms similar to the alleged facts in Yasin.  As alleged in Yasin, it is not uncommon to hear of landlords who move in new tenants with problems that quite predictably cause severe distress and trauma for other tenants in the building.   It seems that the plaintiff, in Yasin, is putting that kind of landlord practice under the microscope.

Hopefully, Yasin will end up with a trial judgment for us all to review.  It raises interesting questions that will perhaps re-shape how the LTB considers T2 applications and the obligations of landlords in tenanting a building and ensuring that there is adequate and appropriate security.  Landlords should have a duty to their sitting tenants and should ensure that in filling a building that they are making reasonable choices, not just for themselves, but also for the tenants who will need to live next to each other.

Michael Thiele

www.ottawalawyers.com

COMMENT RECEIVED AND REPLY

So, I have had a comment/discussion with someone who asked about the "occupier's liability framework" statement that I made in the article. As opposed to what other approach--is the discussion. What I meant by the "occupier's liability framework" is as follows. In a case where liability is premised on a breach of the Occupier's Liability Act the Court would look at the core duty established under the OLA which mandates that an occupier of premises owes a duty to take such care as in all the circumstances of the case is reasonable to see that persons entering on the premises are reasonably safe while on the premises. Now compare that to the LTB's approach which can be summarized as follows: Statutory obligation (s.22RTA), Duty to Investigate (2020 CanLII 31379 ON LTB), Reasonable Steps taken standard (Kovacevic v. Ranee 2024 ONLTB 6-701 CanLII para 19), and then remedies.
The landlord's liability under the RTA for tenant-on-tenant interference centres on the statutory duty and any failure to adequately intervene. The difference to an OLA analysis is therefore (and potentially) quite significant.  MKET