What Is Going to Happen to Tenants Unable to Pay Rent Because of Covid19?
With Many People Laid Off Due to Covid19, Many Tenants Are Unable to Pay Rent. Similarly, Many Landlords Are Struggling to Pay Mortgages on Rental Properties, With a Mutual Interest In Maintaining Positive Relations, Landlords and Tenants Should Respectfully Negotiate Special Arrangements.
Understanding How to Manage Rent Difficulties Arising From Covid-19 Including Payment Deferral Arrangements
The Covid19 crisis has caused the lay off of hundreds of thousands of people, including tenants. many of whom are now struggling to pay rent soon coming due. Of course, many landlords are commonly in the same boat; such as, the smaller landlords with basement apartments or just a few rental units and who are unlike large corporate landlords with buildings containing hundreds or thousands of units. Like tenants who are struggling to pay bills, the smaller landlords are also suffering from lay-offs while also facing continuing mortgage payments, land taxes, insurance premiums, among other things. To ease tensions that may arise from financial stresses, landlords and tenants should explore ways to balance mutual interests and maintain harmony within the landlord and tenant relationship.
Rent Payment Plan
Negotiating An Arrangement
During difficult times, upfront communication is key. A landlord and tenant are only able to maintain a respectful and understanding relationship when there is open talk about the challenges that each face. Where a tenant is suddenly facing the predicament of being unable to make rent payment, the tenant should be contacting the landlord to discuss payment arrangement options, among other negotiable solutions. Equally, a landlord should be contacting a tenant to express openness to discussion and to share in the process of exploring solutions. With this said, it is very important that both the landlord and the tenant appreciate the legal rights of one another. This encouragement for landlords and tenants to work together towards a mutually agreeable solution to the current challenges is encouraged by the Ontario government who have implemented a temporary ban on evictions while also reminding tenants of the importance to pay rent so as to avoid falling into arrears and running into eviction troubles when the ban is lifted. Specifically, the government has said:
"In response to the evolving COVID-19 outbreak, no new eviction orders will be issued until further notice and sheriff’s offices will postpone any scheduled enforcement of current eviction orders. Tenants must pay rent while an eviction order is not being enforced."
Source: Government of Ontario
As a special concern, a landlord and tenant need to remain aware that, to serve any real purpose, a negotiated solution must be legal and enforceable. For example, a negotiated solution where a tenant may agree to take on various maintenance duties in exchange for a temporarily reduced rent is unlawful being contrary to section 20 of the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17 which mandates that the maintenance responsibility is held by the landlord. Furthermore, section 4 of the Act forbids a landlord and tenant from entering into agreements that contradict the Act such as an attempt to shift the maintenance responsibilities.
Additionally, when working out a payment arrangement, it is highly important to memorialize the arrangement using the proper Payment Agreement document as provided by the Landlord Tenant Board. Accordingly, whereas it may be difficult to enforce a payment arrangement that is improper, obtaining the assistance of an experienced lawyer or paralegal, such as United Legal Services, may be highly beneficial.
As a particular concern, the payment arrangement form provided by the Landlord Tenant Board is intended only for use as a settlement document; accordingly, the steps for initiating a late rent proceeding, even if intending to promptly or immediately resolve the late rent proceeding, should be followed. Additionally, where it is unlawful for property managers, real estate agents, among others (other than the landlord), to provide legal advice, assistance with legal forms, or other tasks defined as legal services, to ensure enforceability of any processes initiated at the Landlord Tenant Board, obtain the assistance of a lawyer or paralegal, such as the legal help available from United Legal Services.
Note that ensuring the 'rent payment plan' process is done correctly is highly important. If done incorrectly, the landlord could unwittingly the rent amount that is legally remains due after the Covid19 crisis ends whereas the law, generally, allows a landlord to decrease a rent; however, the law imposes strict limits on an amount of a subsequent increase. Accordingly, the manner in which a temporary rent leniency arrangement is made must be done in a way that is indeed only temporary. If a landllord fails to make the temporary arrangement properly, the arrangement could become permanent.
Documenting the Arrangement
As above, once a payment solution is negotiated, so to preserve and protect future rights to collect outstanding rent, if necessary, at the Landlord Tenant Board, a landlord must carefully follow specific administrative processes involving the preparation and service and issuance of mandatory documents. Additionally, and also as above, a landlord will want to ensure that the process is followed so to avoid accidentally amending the rent rate in a manner that becomes permanent as a new rate legally enforceable by the tenant. To protect the rights of the landlord only the processes of, and documents of, the Landlord Tenant Board must be used. Accordingly, any 'written on napkins' type deals should be avoided.
To begin, and even when a payment arrangement is agreed to and the tenant is abiding by the payment arrangement, the landlord will need to create the paper trail usual to that of a defaulting tenant. Said another way, to ensure that the landlord may pursue a further defaulting tenant, if the negotiated payment arrangement is subsequently defaulted upon, the landlord must follow the usual administrative processes. Of course, the landlord should communicate clearly with the tenant so to help avoid any misinterpretations. The tenant should be informed and helped to understand that the formality of issuing and serving various documents is merely a necessary formality that will become moot and irrelevant if the tenant abides by the agreed payment arrangement.
The necessary formalities that preserve and protect the rights of the landlord involve the issuance and filing of the Landlord Tenant Board documents, the N4 Form and L1 Form, in the same manner as would be done during normal circumstances without the Covid19 crisis; however, whereas the Landlord Tenant Board is on hold and will, currently during the crisis, be refraining from actually moving forward with eviction hearings, the documents merely create a record with the Landlord Tenant Board rather than initiating a hearing that could be conducted any time soon. Accordingly, by issuing and filing the usual documentation, all that the landlord is accomplishing is creation of an official documented record for the status of the rent due as well as establishing a spot in the queue of backlogged matters for the Landlord Tenant Board to address when the crisis is over. The backlog of matters for the Landlord Tenant Board to handle will surely be very lengthy.
Step 1: Issue and Serve the N4 Form
N4 - Notice to End a Tenancy Early
for Non-payment of Rent
Step 2: Issue and File the L1 Form
L1 - Application to Evict a Tenant for Non-payment of Rent
and to Collect Rent the Tenant Owes
Step 3: File the Payment Agreement Form
The N4 Form is issued as the mandatory document that is, after fourteen (14) days, generally followed by an L1 Application document submitted to the Landlord Tenant Board as the steps for initiating a failure to pay rent proceeding. For the full protection of the rights of the landlord, the landlord should follow these steps, even if a payment arrangement is expected including where a tenant already agrees to the payment arrangement. In regards to issuing and serving Notice (N4) and subsequently, if necessary, filing an Application (L1), the Government of Ontario says:
"Landlords can still give eviction notices, however, landlords are encouraged to work with tenants to establish fair arrangements to keep tenants in their homes, including deferring rent or other payment arrangements."
"Landlord and Tenant Board counter services are closed, but the most common types of applications can still be filed online."
Source: Government of Ontario
The exacting requirements imposed by the Landlord Tenant Board processes mandate the following of certain procedures so to ensure rights remain available. Again, the assistance of an experienced lawyer or paralegal, such as United Legal Services, may be highly beneficial.
The world is experiencing unprecedented times. Unprecedented legal issues are surely to occur. Just how the law will address these legal issues remains unclear. By being proactive, communicating respectfully, and extending courteous accommodations, landlords and tenants will best ensure that legal issues are avoided or minimized and that quality relationships are maintained.