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