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5. Non-Rent Charges and Security Deposits
You can't talk about "non-rent" amounts without appreciating what "rent" is [see s.1: "Overview", above]. Essentially "rent" is any consideration paid for the "right to occupy a rental unit and for any services and facilities and any privilege, accommodation or thing that the landlord provides for the tenant in respect of the occupancy of the rental unit" [Act s.2 "rent"].
While this definition seems exhaustive it has not always been adequate to achieve the full coverage required to facilitate an effective scheme of rent control. Landlords and their advisors as a class have been quite persistent in formulating additional charges and levies on a tenant in an effort to circumvent rent control laws. As such, similar legal ingenuity has had to be expended to define, regulate and outlaw all such additional "non-rent" charges.
Notorious early forms of such 'extra charges' were "key money" (money paid literally to get keys to the unit), "sublet fees" (usually a recouping of a last month's rent deposit as a "fee" for assigning a tenancy) and NSF (not sufficient funds) charges for bounced rent cheques. Perhaps the first successful prosecution for such a "sublet fee" equal in amount to the last month's rent deposit was conducted by the author in the case of Kelly v Carslake (1990) 20 ACWS (3d) 408 (Ont Provincial Court). I also acted for the prosecution in a similarly successful [unreported] prosecution against the same landlord for illegal "key money" charges, which were levied ostensibly as security against loss of the keys.
This section discusses such "non-rent" charges and security deposits (including the well-known last month's "rent deposits"), along with their illegality and the few "legal" exceptions. Also relevant to these issues are the remedies available to recover such amounts [see Ch.12, s.7; Act s.135] and prosecutions for illegal charges [see Ch.17, s.3(m): "Offences: Strict Liability Offences: Collecting or Requiring Illegal Charges"].
(b) Prohibited Non-Rent Charges
Landlords and "superintendent(s), property manager(s) or other person(s) who acts on behalf of a landlord with respect to a rental unit" are prohibited (subject to some exceptions, see below) - with or without the authority of the landlord from - directly or indirectly [Act s.134(1)(2)]:
Landlords and "superintendent(s), property manager(s) or other person(s) who acts on behalf of a landlord with respect to a rental unit" shall not, directly or indirectly, "with respect to any rental unit, collect or require or attempt to collect or require from a former tenant of the rental unit" any amount of money purporting to be rent [Act 134(1.1,2)]:
- collecting, requiring or attempting to collect or require "from a tenant, prospective tenant or former tenant of the rental unit a fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable";
- requiring or attempting to require "a tenant or prospective tenant to pay any [non-rent] consideration for goods or services as a condition for granting the tenancy or continuing to permit occupancy of a rental unit", or
- renting premises for several rents, which in aggregate exceed the lawful rent for the rental unit (eg. by separate rents to sharing tenants).
Tenants, and anyone acting on their behalf are prohibited (subject to some exceptions, see below) from - directly or indirectly [Act s.134(3)]:
- any period after the tenancy has terminated and the tenant has vacated the rental unit; or
- any period after the tenant’s interest in the tenancy has terminated and the tenant has vacated the rental unit.
This latter 'tenant's interest' provision passed in 2017 appears to be directed at new provisions that allow a joint tenant or a child suffering abuse [see Ch.8, s.5 "Terminations of Tenancies and of Interest in Joint Tenancies on Abuse"] to 'break' a joint tenancy, whereas otherwise they would bear continued liability for it. A landlord trying to collect 'rent' in such a case, would fall under this provision.
- subletting a rental unit for a rent that is greater than the lawful rent for it, regardless of the number of such tenants;
- collecting, requiring or attempting to collect or require "from any person any fee, premium, commission, bonus, penalty, key deposit or other like amount of money, for subletting a rental unit, for surrendering occupancy of a rental unit or for otherwise parting with possession of a rental unit"; or
- requiring or attempting to require "a person to pay any [non-rent] consideration for goods or services as a condition for the subletting, assignment or surrender of occupancy or possession".
Case Note: Drewlo Holdings Inc. v. Weber (Div Ct, 2011) (c) Allowed Non-Rent Charges
In this case the tenancy was exempt from above-guideline rent increases by virtue of a categorical exemption set out in RTA s.6(2) [see Ch.10, s.6]. The landlord circulated a letter stating that the purpose of a nine percent increase was to compensate the landlord for the allegedly higher-than average damage costs that the presence of pets in units posed. The Board (upheld by the court), having regard to it's jurisdiction to ascertain the "real substance of all transactions and activities" [RTA 202], held this to be an illegal penalty charge and ordered a compensating abatement of rent. Abatement of rent was ordered as the Board accepted the characterization that “…a tenant’s reasonable enjoyment of the property…includes the expectation that they [sic] will not be made subject to premiums, penalties or other charges for otherwise lawful conduct.” The court's reasons suggest that if the landlord had simply been silent as to the reason for the increase, it likely would not have incurred this problem (though logically this is solely as a matter of not inadvertently giving the tenant evidence against it).
The following non-rent charges may be made in addition to rent [Reg s.17] (ie. they are "legal"):
(d) Security Deposits
- Keys and Related Costs
Respecting "keys, remote entry devices or cards", the actual cost, the actual or expected direct cost of:
- additional copies requested by the tenant,
- replacement copies, excepting those "required because the landlord, on the landlord's initiative, changed the locks",
- a "refundable key, remote entry device or card deposit". [this is a legalization of one form of the old illegal "key money" charges]
- NSF Charges
NSF (not sufficient funds) bank charges made to the landlord in their actual amount, plus the landlord's "administrative charge of not greater than $20", respecting dishonoured (bounced) tenant cheques;
- Legal Settlement
Payments by a tenant, former tenant, subtenant or former subtenant made in settlement of potential or active Board or court legal proceedings (ie. monies paid in such settlements are not governed by rent controls or considered illegal charges) [see Ch.14, s.2 and 3: "Hearings, Orders and Enforcement: Mediated and Unmediated Settlements"];
This allows legal disputes to be settled by payment of money without running afoul of these 'extra charge' prohibitions.
- Mobile Home Park and Land Lease Community Site Rentals
Site rental in a "mobile home park or land lease community at the commencement of a tenancy" [see Ch.2, s.4];
- Transfer Between Some Social Housing Units Units
A "transfer fee" of up to $250 for rental unit transfers made at the request of the tenant:
- "between rental units to which subsection 6 (1) or (3) of this Regulation applies, if the rental units are located in the same residential complex" [these are "Privately-Contracted RGI" and "Rural and Native Rental Housing Program" units: see Ch.2, s.8(d) and (e)], or
- some social housing units listed in Act s.7(1) paras. 1-4 [see Ch.2, s.8(b): "Special and Exempt Premises: Social Housing: SHRA, Federal and Related Housing Program Exceptions"];
- Mobile Home and Land Lease Home Property Tax Reimbursement to the Landlord
While the distinction can break down in actual residential L&T practice, "deposits" are technically distinct from "charges" in that they are a form of security - ostensibly only being "held" pending a possible future circumstance. On their face they are sought to secure a landlord against future potential losses, though practically they have also been used in persistent landlord efforts to develop additional "non-rent" amounts which might be levied free from rent controls.
With the notable exception of the common last month's "rent deposit" (this is the term the RTA uses) [and any deposits allowed as "legal" charges listed in (c) above] all security deposits are illegal [Act s.105(1)]. While a "legal" "rent deposit" is supposed to be applied only to last month's rent [Act s.106(10)], it is common in disputed landlord-initiated terminations for it to be held back and treated as a credit to the tenant in settling the landlord's total claimed account (rent, damages and anything else). Note now the prosecution provision related to this [Ch.17, s.3(g): "Offences: Strict Liability Offences: Failure to Apply Rent Deposit to Last Month's Rent"].
The legal definition of "security deposit" is set out here:
Act s.105(2). Requiring a Rent Deposit
"security deposit" means money, property or a right paid or given by, or on behalf of, a tenant of a rental unit to a landlord or to anyone on the landlord's behalf to be held by or for the account of the landlord as security for the performance of an obligation or the payment of a liability of the tenant or to be returned to the tenant upon the happening of a condition.
As noted above, a security deposit that is dedicated to "payment of the rent for the last rent period before the tenancy terminates" is legal [Act s.105(1), 106(10)]. This does not however mean that all tenants must pay it. Whether a tenant has to pay it turns on whether - and how - the landlord requires it.
A landlord may only require such a "rent deposit" "on or before entering into the tenancy agreement" [Act s.106(1)]. Note that a tenancy agreement is entered into, or "executed" on the date of the written, oral or implied acts that reflect the fact of agreement - as distinct from the dates that the tenant has the right to take possession, or the date that the tenant in fact exercises that right [see Ch.1, s.2(c): "Fundamentals: Formation of a Tenancy: Commencement"]. Basically, a landlord seeking to "add" a "rent deposit" burden on a tenant after the date of agreeing to [or "executing", if written] the tenancy agreement, has no right to do so.
. Where Possession Not Taken or Tenancy Transferred
Where a landlord has taken a rent deposit and the tenancy "is not given" then it must be refunded to the prospective tenant [Act s.107(1)] (ie. it must not be retained as some sort of non-refundable "application fee").
If of course there is a change in the agreed rental unit before possession is taken the landlord may apply such a rent deposit with respect to the new rental unit, subject to refund to the tenant of any excessive amount [Act s.107(2)].
Case Note: Musilla v Avcan Management (Ont CA, 2011) . Rent Deposit Amount and Annual Top-Up
This was a tenant's appeal from a Divisional Court ruling which denied their application for return of a one month's rent deposit. The tenant paid one month's rent deposit and tendered the rental application - which the landlord accepted. Then, when the tenant repudiated the arrangement and refused to execute the full tenancy agreement (which was a requirement of the rental application), the landlord claimed the deposit was forfeit as per terms of the rental application. In their application to the Board, the tenant relied on RTA s.107(1):
RTA s.107(1)The landlord claimed loss of several months rent despite mitigation efforts.
A landlord shall repay the amount received as a rent deposit in respect of a rental unit if vacant possession of the rental unit is not given to the prospective tenant.
The Board refused the application, and the Divisional Court concurred, on grounds that some element of refusal or inability on the part had to be present to satisfy the requirement that possession be "not given". However the tenant's appeal to the Court of Appeal was granted on grounds that the landlord could not rely on terms of the rental application which were both illegal (insofar as they purported to justify a forfeiture of the deposit) and inadequate [insofar as they only allowed retention of the deposit against last month's rent if a tenancy agreement was entered into (which it wasn't)]. The Court of Appeal did agreed with the Board and Divisional Court in interpreting the phrase "not given" to require some degree of refusal or inability on the part of the landlord, not the tenant's unilateral behaviour in reneging on the tenancy agreement.
The amount of a rent deposit may not exceed one month's rent, the rental "period" used by most tenancies. However where a shorter period is used (such as in a weekly tenancy), the rent deposit shall be in an amount equal to the rent amount for that shorter period [Act s.106(2)].
On the occurence of a rent increase [made typically (though not necessarily) on an annual basis] the landlord is entitled to have the rent deposit "topped up" to the new rent level. This has typically been achieved by a landlord notice to add the supplementary amount to the rent paid for date that the rent increase takes effect [Act s.106(3)]. Now perhaps more often this will be done by "setting-off" the interest due on such deposits [see below: "Interest Accrual on Rent Deposits"].
. Rent Deposits and Changing Landlords
It is a basic principle of landlord and tenant law that "covenants run with the land", such that purchasers of rental property take the property 'subject to' the tenancies' continuance - and on the same terms as existed between the previous parties [Act s.18]. Another way of putting this is that the purchaser 'steps into the shoes' of the vendor.
Thus, except as noted below, the status of a rent deposit through such a transaction is preserved as a credit to the tenant without the need for any activity on their part. It is the duty of the transferor and transferee (ie. seller and buyer of the property) to make appropriate adjustments in their sales transaction to also "transfer" the security deposit to the new landlord.
. Rent Deposits and Mortgage Proceedings
However, this is not the case where the transfer is by way of mortgage power of sale or foreclosure (these are two different procedures). In a foreclosure the mortgagee (typically a bank or mortgage company) takes (usually temporary) ownership of the premises meaning to sell it on the market later, while in a power of sale procedure the mortgagee does not take ownership - they simply sell it under a contractual right to do so.
In both of these cases the security deposit is - along with the discharge of the mortgage in question, interest and sales expenses - only one of the priorities of payout from the sales proceeds (actually the fifth) [Mortgages Act, s.27]. As such it is implicit that there is no "running" of the security deposit to the eventual non-mortgagee purchaser.
Note:Consistent with this 'paying-out' of the security deposit to the tenant (where funds remain), there is (in fairness to the tenant) a bar on the eventual "new" landlord/purchaser - either mortgagee-in-possession (from foreclosure) or subsequent purchaser (through a power of sale) requiring any new security deposit, except that the subsequent purchaser (through either a power of sale or a foreclosure) may require a security deposit in the amount of any security deposit "refunded" to the tenant (as per Mortgages Act 27, above) [Act s.106(4),(5)].
Indeed, but for express statutory provisions confirming the "running" of tenancies themselves through such mortgage proceedings [Mortgages Act, s.47], there appears to be no common law running of tenancy covenants through mortgage proceedings at all [see Ch.2, s.9: "Special and Exempt Premises: Mortgage Proceedings"].
It also appears to be a necessary consequence of this legal structuring that - where there is no mortgage proceeds "refund" to the tenant (and while they cannot be required to pay "another" security deposit) - neither can they claim the original rent deposit as a credit against the new landlord. All they are left with is a monetary claim against the old landlord [see Ch.16: "Civil Remedies"].
. Interest Accrual on Rent Deposits
Tenants who have paid a rent deposit are entitled to be paid or credited [by way of set-off from rent: Act s.106(9)] annually with interest accruing on it at the same rate as the currently-applicable guideline increase percentage [Act s.106(6)].
As noted above, the landlord may apply this annual interest amount to "top-up" the rent deposit to the maximum amount allowed (typically, at the date of annual rent increase). If the rent increase is in the guideline amount the application of the interest thus serves to automatically increase the rent deposit in precisely that amount [Act s.106(7)].
(e) Suite Meter-Related Electricity Charges
Effective 01 January 2011, the RTA was amended to facilitate the installation of "suite meters", which are electricity meters that measure the consumption of specific rental units in the hope that tenants (in conjunction with a shift to their direct responsibility for the electricity bill) will thus be assisted and motivated in conservation efforts. The change to direct tenant responsibility for electricity costs brings with it the likelihood of ancillary "charges, fees and security deposits" by the electricity provider. Such charges etc are exempt from the 'illegal charge' provisions of the RTA.
These 'illegal charge' exceptions are discussed in more detail in Ch.12, s.8(j): "Other Rent Proceedings: Suite Meters".
6. Exemptions from Some Rent Control Provisions
In late 2018 the conservative provincial government essentially exempted rent control on units newly-built or newly-available as of 15 November 2018, as set out below.
Note: When these exempting provisions are in dispute before the LTB, the burden of proving the rent control exempting impact lies on the landlord [Act 6.1(6)].
These provisions can be confusing. When considering these provisions note the distinction between 'rental units' and 'residential units' - in particular that 'rental units need not be residential'. In addition, these exemptions only apply to a tenancy agreement that "was entered into" after November 15, 2018 [Act 6.1(4,5)]. Note that a "tenancy agreement takes effect when the tenant is entitled to occupy the rental unit" [Act 13(2)], but that 'takes effect' and 'entered into' are different legal acts. The exemptions apply when leases are 'entered into' after 15 November 2018, even though it's performance (ie. taking possession) doesn't happen to later. This is akin to a contract being binding prior to actual performance.
Case Note: Drewlo Holdings Inc. v. Weber (Div Ct, 2011)(b) Newly-Built or Newly-Available Rental Units After 15 November 2018
In this case the tenancy was exempt from above-guideline rent increases by virtue of a categorical exemption set out in then RTA s.6(2) [since repealed but replaced in s.6.1 with similar, but later, provisions]. The landlord circulated a letter stating that the purpose of a nine percent increase was to compensate the landlord for the allegedly higher-than average damage costs that the presence of pets in units posed. The Board (upheld by the court), having regard to it's jurisdiction to ascertain the "real substance of all transactions and activities" [RTA 202], held this to be an illegal penalty charge and ordered a compensating abatement of rent. Abatement of rent was ordered as the Board accepted the characterization that “…a tenant’s reasonable enjoyment of the property…includes the expectation that they [sic] will not be made subject to premiums, penalties or other charges for otherwise lawful conduct.” The court's reasons suggest that if the landlord had simply been silent as to the reason for the increase, it likely would not have incurred this problem if they had not given the tenant evidence against it.
These exempting provisions apply to two classes (the 'classes' are my terms) of accomodation:
i. "Building, Mobile Home Park or Land Lease Community" ["Class A Accomodation"](c) Exempted Rules
A 'rental unit' located in Class A accomodation (or in an addition thereto), and where none of it was occupied for residential purposes on or before 15 November 2018, is exempt from the rent review rules listed in (c) below [Act 6.1(2)]. For these purpose an 'addition' includes "an expansion beyond the boundaries of the mobile home park or land lease community" [Act 6.1(1)].
ii. "Detached, Semi-detached House or Row House" ["Class B Accomodation"]
A 'rental unit' located in Class B accomodation it is exempt from the rent review rules in (c) below [Act 6.1(2)], if it meets all of the following terms [Act 6.1(3)]:
- Accomodation Had One or Two Residential Units Prior to 15 November 2018
The subject Class B accomodation in which the rental unit is located, at or before November 15, 2018, contained one or two residential units.
A 'residential unit' means any accomodation regardless of whether it is rented or not, so it covers owner-occupied accomodation. As well (just to confuse things), some of the units concerned may have been 'residential' but exempt from the RTA entirely, as "living accommodation whose occupant or occupants are required to share a bathroom or kitchen facility with the owner, the owner's spouse, child or parent or the spouse's child or parent, and where the owner, spouse, child or parent lives in the building in which the living accommodation is located" [Act 5(1); Ch.2, s.2(j)].
- Rental Unit Self-Contained
The rental unit meets all of the following:
. it has its own bathroom and kitchen facilities.
. it has one or more exterior or interior entrances, and
. at each entrance, the unit has a door which is equipped so that it can be secured from the inside of the unit, and at least one door is capable of being locked from the outside of the unit.
- Rental Unit Converted to Residential After 15 November 2018
The rental unit was converted to self-contained (as above) residential after November 15, 2018, and
- Both or Either of these Other Conditions:
. an owner lived elsewhere in the accomodation when the rental unit was first occupied after conversion,
. the rental unit was unfinished space before conversion.
The rental units listed in (b) above are exempt from the following RTA rules [Act s.6.1(2,3)]:
The s.165 [increase in rent where assignment of mobile home lease and purchase of mobile home: see Ch.2, s.4(d) "Rent Increases on Assignment and Subsequent Sale"] and s.167 [spreading of increase on capital work where government infrastructure work on mobile homes: see Ch.2, s.4(g) "Above-Guideline Rent Increase Changes"] are exempted for Class A accomodation ["Building, Mobile Home Park or Land Lease Community"] where otherwise applicable.
- Guideline increase limit [Act s.120] [see s.3 above];
This is the main rent control provision: ie. no rent increases except approved AGI increases or agreed increases on an increase of services or capital expenditures (next following).
- Agreements to increase rent where increased capital expenditures or services, and related tenant application where failure [Act s.121,122] [see Ch.12, s.5];
- Above-guideline rent increase applications and related provisions [Act s.126-127, 129] [see Ch.11];
- Rent reduction where property tax decrease and municipal notice, and applications to vary [Act s.131-133] [see Ch.12, s.2].
(d) Transitional Rules
These provisions '15 November 2018' provisions are awkward as they came into force 06 December 2018, some three weeks after that date. So there will be three weeks of leases that are post-15 November 2018, but entered into (written, oral or implied) before these amendments were in effect on 06 December 2018. These rules continue to apply to leases entered into in these three weeks [Act 6.1(7)]:
- agreed increases on an increase of services or capital expenditures [Act 121-122] [see Ch.12, s.5];
- variation of rent reduction on a municipal property tax reduction [Act 132];
- rent reduction in municipal taxes and charges [Act 133]; and
- increase in rent where assignment of mobile home lease and purchase of mobile home [see Ch.2, s.4(d) "Rent Increases on Assignment and Subsequent Sale"] [Act 165].