illegal-rent-change – Retainer Of Services

Unlawfully Using Fresh Lease Agreement

Involving Rent Increase Beyond Statutorily Allowable Guideline Percentage

Page last modified : December 06 2023

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If a Tenant Agrees to Sign a Fresh Lease With An Above Guideline Increase Will the Rent Increase Be Legal?

It Is Unlawful to Use a Fresh Lease As a Means to Impose a Rent Rate Above the Statutorily Allowable Increase. Even If a Tenant Agrees and Signs a Fresh Lease the Tenant May Subsequently Apply to Nullify the Increase and Obtain Reimbursement of Money Collected Unlawfully.

Understanding When a Fresh Lease Can Be Used to Increase the Rent Charged

Typically, a residential tenancy lease is for a year, and it will be

Water leaks or other calamitous events could happen and make it impossible to occupy a space while it is being built, renovated, or maintained.

discussed before the landlord-tenant relationship began. Rent demands that must be paid on the first of the month or on a different day are also common. Section 38 of the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17, states that the tenancy relationship statutory converts into a month-to-month arrangement after the one-year term ends, or another period if the term was atypical.Moreover, only the allowable rent rate increase may be imposed in accordance with the Court of Appeal decision in Honsberger v. Grant Lake Forest Resources Ltd., 2019 ONCA 44, as this is when the tenancy statutorily converts to a month-to-month arrangement. This is because section 120 of the Residential Tenancies Act, 2006 restricts the amount of rent increase that may be applied at the end of the typical one-year lease period.

Honsberger v. Grant Lake Forest, 2019 ONCA 44 at paragraphs 24 and 25

[24] A landlord cannot raise the rent they charge a tenant or an assignee under section 95 during the term of the tenancy by more than the guidelines, as stated in RTA s.120(1). Subject to specific inapplicable exceptions, [emphasis added].Every calendar year, the Minister of Municipal Affairs and Housing establishes the guideline, which cannot exceed 2.5 percent.A landlord is only permitted to raise the rent once every 12 months under Section 119.

[25] Part VII of the RTA has a section titled “Deemed renewal where no notice,” 38 (1). This subsection offers the following:

The landlord and tenant will be considered to have renewed a fixed-term lease as a monthly lease with the same terms and conditions as the expired lease, subject to any increases in rent assessed in compliance with this Act, if the lease expires and has not been renewed or terminated.

Attempting to Issue Fresh Lease to Circumvent

When a Lease Ends Can a Higher Rent Rate Be Required Within a Renewal Lease?

A landlord may want to raise rent in some situations above the maximum increase allowed by Residential Tenancies Act of 2006, Section 120. Under such conditions, a landlord might try to enforce a new lease, which is sometimes called a renewal or an update. But, no matter how a new lease is labeled, named, or referred to, it cannot get around the established rent control limitations. In other words, a renewed lease with the same tenant or tenants is regarded as an extension of the initial tenancy period rather than a renewal or restarting of the tenancy relationship when a lease period ends. Put even more succinctly, a new lease does not permit a new beginning. Honsberger made this stance abundantly evident when they stated:

Honsberger v. Grant Lake Forest, 2019 ONCA 44 at paragraphs 26 to 32

[26] The main thrust of the appellant’s argument is that the tenancies were terminated when the tenants signed new one-year tenancy agreements, making the new rent legal and rendering the RTA’s notice and rental increase clauses meaningless.

[27] There are compelling arguments opposing the appellant’s reading of the RTA.

[28] To start, the RTA specifically allows for the creation of a new rental rate with a new tenant (s. 113). The goal of the Act would be defeated if a comparable carve-out were recognized for an ongoing relationship involving the same tenant, the same landlord, and the same properties. Renter renewals do not constitute new tenants. Stated differently, the overall structure of the RTA’s rent control provisions is at odds with the appellant’s suggested statutory interpretation. The Act’s goals and structure would be undermined if, at the start of each year,

By signing a new tenancy agreement, a landlord could raise the rent. The RTA’s explicit provisions require the landlord to provide 90 days’ notice of any increase in rent in a tenancy agreement involving the same parties and the same premises. Furthermore in line with this court’s rulings in Matthews and Nanne v. 3011650 Nova Scotia Limited (Michipicoten Forest Resources), 2015 ONCA 391, is this conclusion.

[29]Second, it’s important to understand the meaning of the phrase “during the term of their tenancy” as it appears in s. 120(1). This section’s language deals with the maximum amount that a landlord can charge; it does not change or restrict the RTA’s Part VII requirements, which include the notice requirement. Under Section 116 of the Act, notice of any increase in rent is required. Moreover, the rise could not surpass the yearly threshold.

[30] Third, neither the Divisional Court nor the LTB heard the appellant’s s. 120(1) argument. Generally speaking, an appeal should not consider entirely new issues: At paragraph 87 of Orr v. Metropolitan Toronto Condominium Corp. No. 1056, 2014 ONCA 855

[31] In response to the appellant’s claim that the LTB improperly relied on section 38(1) of the Act, the Divisional Court acknowledged that section 38(1) did not apply in this particular case but concurred with the LTB that the landlord was required by Part VII of the Act to provide 90 days’ notice of an increase. I concur with that conclusion and would reject this appeal’s basis. In concluding that the LTB’s decisions were reasonable, the Divisional Court made the right decision.

[32] The appellant’s remaining arguments are likewise without merit. The freedom of the parties to contract is expressly made subject to the application of the RTA, as is evident from the RTA and especially from s. 3 of the Act. It was not incorrect for the Divisional Court to reject rental increases that were limited by the RTA’s written notice requirements even though they were derived from a contract. Additionally, refer to 1086891 Ontario Limited v. Barber, 284 D.L.R. (4th) 568 (Div. Ct.), 2007 CanLII 18734 (ON SCDC).

Permissible Exceptions

Can the Rent Be Increased If the Tenancy Arrangement Is Changed?

In the recent case of Schlell v. Clarke, 2020 ONSC 7169, and citing the aforementioned Honsberger decision, the Divisional Court inferred that it may be legal to use a new lease with an increase in rent in cases where there are significant modifications to the tenancy agreement, such as adding more space or amenities or even adding a new tenant. In particular, it was stated:

Schell v. Clarke, 2020 ONSC 7169 at paragraphs 4 to 13

[4] There is no dispute over the following facts. The tenant leased a residence in Wingham, Ontario from the landlord from May 1, 2015 until its departure on April 21, 2017. Tenant agreed to pay $650 each month under the terms of the initial oral tenancy agreement, which was month-to-month in nature. The tenant’s tenure came to an end when the landlord told him in February 2016 that he intended to sell the residence. The landlord received an offer from the tenant in February 2016 to pay extra to stay in the home. The parties worked out a $200 monthly rent increase, bringing the monthly leasing cost from $650 to $850. In February 2016, a formal lease documenting the $850 monthly rental amount was signed.

[5] The LTB determined that, despite the landlord’s failure to provide notice of the rent increase, there was a clear and explicit agreement between the landlord and tenant on the increase, meaning it was not an unlawful charge based on these factors.The tenant’s allegation of an unlawful rent increase was rejected by the LTB, which concluded that the parties had negotiated a new leasing agreement.Price v. Turnbull’s Grove Inc., 2007 ONCA 408 was cited as support for the idea that this was not an unlawful charge in cases where there was an express agreement.

[6] The Court of Appeal for Ontario rendered its decision in Honsberger et al. v. Grant Lake Forest Resources Ltd., [2019] ONCA 44, following the LTB’s Decision. This decision made it clear that, in the event that an existing lease expires and the parties and premises covered by the agreement remain the same, a new tenancy agreement cannot be made outside of the restrictions on rental increases outlined in s. 120 of the RTA.

[7] According to the landlord, it falls under the Honsberger exceptions.He argues that the written agreement modified the oral agreement by permitting the renter to rent the garage and permitting the tenant’s spouse to live in the house, both of which were not included in the oral agreement.

[8] The tenant and her children were the only occupants during the tenancy, according to paragraph 2 of the Decision. This was incorrect if it was intended to apply to both the oral and written tenancies, as the written agreement lists the tenant’s spouse as an occupant.The signed lease allows the tenant to utilize the “entire driveway and garage” and addresses the rental property as 86 Mary Street, Wingham, Ontario. The $850 monthly rent is related to the rental property. Parking and other extra services are not included in the price.

[9] The tenant points out that the LTB is directed to ascertain the real substance of the transaction pursuant to s. 202 of the RSA. The LTB found that the tenant agreed to a new rental amount of $850/month largely to deter the landlord from his plan to sell the rental unit. The tenant submits that the real substance of this transaction was to preserve the tenancy, not to end it. The tenant argues that the fact that her spouse was not named as a tenant and that no monetary value was attached to the use of the garage underscores that the real substance of the transaction was that the written agreement was entered into to deter the landlord from his plan to sell the rental unit and not to create a new tenancy. She submits that the LTB erred in law when it found that this ended the tenancy.
rather than to start a new lease on a rental unit. She argues that the LTB made a legal error in concluding that this terminated the tenancy.

[10] I agree that the LTB misapplied the Price ruling when it relied on it to buttress its conclusion that the rent increase was lawful because there was an express agreement.This makes it impossible to uphold the decision to reject the tenant’s allegation of an unlawful rent increase. That does not, however, resolve the issue.

[11] This case’s hearing took place before Honorsberger was freed. Attorneys present in this court were not attorneys at the LTB. Whether or not the parties or premises altered under the written agreement does not seem to have been a point of contention before the LTB.

[12] The decision makes no mention of any modifications to the rented space. Whether this was a change to the parties or the premises from under the oral lease is not addressed in the written lease, which names the tenant’s spouse as an inhabitant and includes the garage as part of the leased premises. I disagree with the landlord that a change in the parties under the written agreement may be inferred from the statement in Paragraph 59 of the Decision regarding the tenant’s husband refusing a contractor admission into the unit.

[13] Regretfully, there isn’t a transcript of the hearing that could help the court decide whether or not there was enough evidence to conclude that the Honsberger exceptions apply. Given these facts, I’ve come to the conclusion that the proper course of action is to send this case back to the LTB for consideration in order to ascertain whether the parties and the property that are covered by the written tenancy agreement differ enough from those covered by the oral lease to qualify for the Honsberger exceptions. In addition, it will ascertain the amount due in the event that this rent increase was unlawful and if the RTA’s s.135.1(2) statute of limitations is applicable.

Summary Comment

What Is the Short Answer?

The tenancy relationship may be extended when a tenancy period ends and a new lease is signed. However, the new lease cannot treat the tenancy relationship as though it were a completely new relationship, and as a result, it may only contain terms and provisions that are permitted for extending or continuing a tenancy. It is against the law to use a new lease to raise rent above what is allowed by the Residential Tenancies Act, 2006’s rent control provisions. This is true whether or not the tenant signs the new lease, accepts its terms, and pays the rent amount increase imposed within a fresh lease.