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Tenants and property owners Essay

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Updated: May 3rd, 2019

Introduction

Over the years, property owners have been involved in confrontation with their tenants. The confrontation normally occurs when the tenant fails to pay rental rates within the stipulated time. In most cases, property owners had been unfair to tenants.

Consequently, the government of Canada in collaboration with other stakeholders enacted the Landlord and Tenant (L&T) law (Whitman, 2004). The L&T law originated from the English feudal system.

The system has had a great influence on social ordering for many years. The establishment of the L&T law aimed to ensure that both the property owner and tenant have equal legal rights under the tenancy agreement.

Two major statute laws in Canada govern the Ontario property owner and tenant. These are the Commercial Tenancy Act (CTA) and the Residential Tenancy Act (RTA). In the legal perspective, the two acts focus on imposing various aspects of the contract law relating to real estates in Canada.

Collaborative efforts by various stakeholders in order to protect property owners and tenants led to the implementation of this law. The modern L&T law in Ontario protects tenants from the natural imbalances of power between them and property owners (Seiler et al., 1999).

Over a long period, property owners have been seen as financially invariable to their tenants, whereas the tenants are the subject of the landlord. An unfruitful tenant-landlord relationship necessitated the establishment and revaluation of policies and regulations relating to the wellbeing of tenants in Canada, especially in Ontario.

Landlord/Tenant Contracts for Real Estate Property transactions in Ontario

The transfer of real estate property right, whether it is a sale or a lease, is always done by way of a written and signed contract document. A contract safeguards the rights of both the property owner and the tenant.

The most commonly used contract documents in real estate transactions include Agreement of Purchase and Sale, Offer to Lease, and the different kinds of leases (Azuela, 1998). In real estate transactions, both the property owner and tenant should use the advice from a lawyer who specializes in real estate law.

However, both the property owner and the tenant should be familiar with whatever they are signing. They should understand the clauses in contract documents that require particular attention. A contract can pose considerable challenges in the future when someone wants to sell property, change tenants or renegotiate a mortgage.

Both the property owner and tenant should indicate what would happen if there is any form of disregard for the conditions in a contract document (Blake et al., 1997).

Tenancy Agreement

The tenancy agreement document is a written agreement between the tenant and the landlord. The basis of the agreement concerns the occupancy of a premise (Taggart, 1997). This document includes a license to occupy a premise.

There is an argument in Ontario that any lease that purports to transfer property ownership to the tenant for one year or more must be in writing according to the Statute of Frauds.

However, the Statute of Frauds is an inferior law. Its interpretation by the courts highlights aspects of inconsistency. The argument in the Statute of Fraud is that Residential Tenancy Act (RTA) is superior to the Statute of Frauds (Boiron & Boiron, 2008).

The provisions in the Statute of Fraud foster arrangements that seek to establish a monthly tenancy between the concerned parties. In this regard, the Statue of Fraud tends to favor a tenant more as compared to the property owner (Cohen & Dube, 2010).

Written agreements between the property owner and the tenant are effective concerning the accomplishment of the process of property leasing or buying.

This situation occurs where another person moves into a property in which there already exists a tenant and the property owner treats the new tenant as if he or she is the legally recognized tenant of the property.

Legally, this act results in the creation of a tenancy agreement by estoppels. According to the Residential Landlord and Tenant law, the property owner may have to evict the new occupant because the act violates the rights of the first tenant (Seiler et al., 1999).

Impact of common law in Canadian real estate

In the past, the common law in Canadian real estate considerably violated the rights of the tenants in Ontario real estate. It hindered the application of tenancy until a tenant gained possession of the property of concern. A tenant could make payments, but the contract commences after moving into the property (Gray & Mitham, 2009).

In legal terms, this refers to interesse termini. However, the Residential Tenancy Act (RTA) replaced the common law. With the RTA, a tenancy agreement takes effect as soon as the tenant signs the tenancy agreement form. He or she gains the right to occupy the property.

The landlord has legal rights to ask for payment irrespective of whether the tenant actually occupies the property. In this regard, the law favors the property owner because he or she will have the entitlement to receive rent from the tenant even if the tenant does not occupy the premise.

On the other hand, the tenant will immediately have the right over the ownership of the property. In Canada, this provision brings the residential landlord and tenant relationship in accord with the Canadian contract law (Seiler et al., 1999).

The Canadian contract law enforces rights of both the property owner and tenant, which arise at a particular time specified by the agreement made within the contract form.

Offer to lease

The offer to lease is the worst practice in commercial tenancy in Ontario real estate. It sometimes overrides on the residential tenancy practices and violates the rights of tenants without their prior knowledge.

Property owners and agents intend to bind tenants unilaterally without any negotiation of terms and conditions to sign a renewed full-tenancy agreement. The offer to lease tenancy agreement is often undisclosed to the tenant upon the initial negotiation of the contract (Whitman, 2004).

This is a violation of the tenants’ right to information. The practice does not favor tenants because it is an attempt by property owners to impose tenancy terms unilaterally.

In order to ensure that the law upholds their rights, tenants should be cautious when property owners or agents asked them to sign any document that they do not understand during the tenancy agreement process.

Appropriate negotiation requires the presentation of all terms during the first time the property owner and the tenant negotiate the agreement of tenancy. Tenancy agreement requires that only one signature from the tenant is appended on the document at the initial stage.

When property owners ask for such signs, tenants should ask property owners to present their final and full-tenancy agreement for review. Tenants should only append their signatures on tenancy documents only after a comprehensive review of all the tenancy terms.

Subleasing

Sub leasing takes place when a tenant decides to vacate a premise before the end of the tenancy term. Regulations related to the sublease prohibit a tenant from subletting a rental unit unless the property allows such an undertaking through a written consent.

The clause highlights the rights of both the property owner and the tenant. The clause favors the property owner by stating that if the rental rate for the sublease exceeds the amount paid by the tenant, the excess amount is payable to the property owner.

However, when the act concerns the tenant, unreasonable delays by the landlord shall be answered to the tenant within three working days.

If the property owner refuses to consent to the sublease, he will give his reasons for doing so by writing to the tenant within the same three working days (Taggart, 1997).

The property owner has legal ground to refuse to consent to a sublease if the use concerning the property under the sublease is not acceptable. However, it is difficult for the property owner to refuse a tenant’s request for a sublease because of his financial weakness.

The original tenant is the one responsible for paying the rental rates. There are few options in paying the rent in this situation. In case the sublease and the original rental rates for a premise are similar, an agreement between the property owner and the tenant allows the tenant to make direct payments to the property owner.

If the sublease is less than the original rental rates, the property owner will probably want to continue to receive payment from the original tenant. The latter situation may violate the rights of the original tenant in case the new tenant fails to honor the sublease agreement.

He may take advantage of the situation and refuse to release payment. This phenomenon is common because the short term sublease rental rate, usually less than two years, is lower than the original sublease (Taggart, 1997).

One of the frequently neglected aspects concerns the creation of a true sublease whose term should be for the length of the original lease, or less by one day. In most cases, concerned parties forget the details while some are not even conversant with such details.

Consequently, the original tenant may find himself in a situation whereby he pays for something he is not using. Such an occurrence results in violation of the rights of the original tenant because of his own ignorance. If the sublease is for the remaining term of the original tenant, it is an assignment of the head-lease as opposed to a sublease.

The property owner enjoys a lot of flexibility in the case whereby a tenant demands consent to a sublease (Seiler et al., 1999). Although the property owner may behave unreasonably, he will be within his rights. The property owner may insist that the original tenant pay a certain amount of money following his consent to sublease.

The property owner may also decide to delay the sublease request due to time considerations. This is not favorable when the tenant identifies a keen subtenant. Any delays by the landlord may cause the subtenant to change his mind and seek similar services elsewhere.

This raises doubts about the reasonableness of the landlord (Whitman, 2004). In some cases, there is a great temptation by the landlord to introduce barriers that hinder the original tenant from subleasing in order for the landlord to give up his lease.

This approach allows the property owner to lease the property at higher rates. The tenant is generally disadvantaged when it comes to proving that the landlord was unreasonable in declining his request for a sublease. On the other hand, the landlord can be creative in their reasons concerning the delay.

However, it is inappropriate for landlords to exploit such situations. It should be noted that any unreasonable delays by the landlord in responding to a request for consent to a sublease without logical reasons might be unreasonable in the perspective of the court.

The problem is that the tenant will have suffered great damages while waiting for the court to reach a decision. The case can take several years and the damages suffered by the tenant during the period of legal proceeding are always difficult to prove or quantify. Thus, the sublease needs a clear scrutiny to avoid introducing a stalemate in contract negotiations.

The rights of Tenant and Landlord in case of default payment of commercial premises

Tenants have rights, even if they default to pay. They are entitled by law a period to remedy their problems, as well as a redemption period (Wilson, 2009). The property owner must ensure that whatever he seizes is the property of the tenant.

However, the value of goods and equipment seized under the property owner’s rights must have a value that is approximately equal to the amount of money owed to the property owner. In Ontario real estate, it is an accepted practice for the property owner to seize up to four times the retail value of the possessions of the tenant.

This is because the sale of such items entails a fire sale, where it is difficult to realize the true value of the goods. It is necessary to secure proper appraisals for goods and equipment seized prior to their sale.

The property owner must not attempt to terminate the lease at the same time as he detrains. Otherwise, a court could rule that the relationship between the proprietor and the tenant was not an ongoing process (Taggart, 1997).

Right under Tenant Bankruptcy

When a tenant incurs huge arrears for rent and other debts, he can decide to declare himself bankrupt. Bankruptcy refers to a situation whereby an individual who cannot pay his debts divides all of his residual assets among his legitimate creditors, including the proprietor (Whitman, 2004).

Thereafter, the person is relieved from the responsibility of making any payments to the property owner. The declaration of bankruptcy gives an individual an opportunity to start a new life. Under the Bankruptcy and Insolvency Act of Canada, the governor in the legal counsel appoints the superintendent of bankruptcy.

The superintendents issue licenses to trustees and official receivers, who are officers from the bankruptcy division within the court. There are three such officers in Ontario. Creditors can petition a person into bankruptcy or one can declare himself bankrupt.

To file a petition, one should seek the services of specialized lawyer. The bankruptcy process involves three steps. The first step concerns the sending of a notice by a lawyer to a tenant indicating that a bankruptcy petition will result if there is a failure in payments before a specified date.

The second step involves an agreement by a trustee to take relevant actions regarding the petition. Lastly, if there are significant assets to warrant the proposal of bankruptcy, the party concern with overseeing the bankruptcy process places a notice in the newspaper indicating the date of the meeting by creditors (Seiler et al., 1999).

Upon the accomplishment of all the relevant procedures, creditors share the money obtained from the sale of the bankrupt individual’s assets. Secured creditors precede the unsecured creditors in sharing the money. This process is unfair to property owners.

They come behind the secured creditors, but before the unsecured creditors. It implies that landlords face the risk of losing their money if all assets of the bankrupt person (tenant) are distributed to the secured creditors (Williams & Rhodes, 1973).

Conclusion

The Ontario real estate provides an appropriate sample to evaluate the key features that influence property owners and tenants’ rights in Canada. With over 10 million people, Ontario has the largest population in Canada’s ten provinces.

The laws that control the contract between a property owner and a tenant evolved from the common law due to rampant cases of the violation of the rights of tenants by proprietors. This trend continued until the enacting of the Residential Tenancy act (RTA) and Commercial Tenancy Act (CTA).

An evaluation of the tenancy law highlights the balance between the rights of tenants and property owners in Ontario. For example, when a tenant is declared bankrupt, the property owner has a legal right to receive part of the tenant’s assets to recover his debts.

However, this right is limited to the compensation of the secured creditors. On the other hand, the bankrupt person (tenant) can start a new life without worrying about debts. Another aspect relating to the equal rights of both the tenant and the property owner is the tenant’s failure to pay rent.

The tenant has the right to demand that the property owner give him time to pay the arrears. However, the regulations in this regard allow the property owner to impound assets belonging to tenants who have failed to pay their debts.

The rights of the landlord exceed those of a tenant. This is evident under the sublease agreement. The landlord can refuse to accept the sublease proposed by the original tenant without having to substantiate his decision. It is also difficult for a tenant to prove such an occurrence in a court of law.

This highlights how the law is unfair to tenants. Sometime, landlords exploit the ignorance of tenants to attain personal goals. An example is the case whereby a landlord asks his tenant to sign a preliminary document, which was not disclosed at the time of the initial agreement.

When the tenant signs such a document unknowingly, he or she becomes vulnerable to the tenancy laws due to his or her ignorance. Generally, one can conclude that the Canadian law of tenancy is fair to both tenants and property owners.

The tenancy law regulates the Ontario real estate without discrimination. However, depending on the situation, it unfairly favors either the tenant or the proprietor.

References

Azuela, A. (1998). Evictions and the right to housing experience from Canada, Chile, the Dominican Republic, South Africa, and South Korea. Ottawa, Ont.: International Development Research Centre.

Blake, R. B., Bryden, P., & Strain, J. F. (1997). The welfare state in Canada past, present, and future. Concord, Ont.: Irwin Pub..

Boiron, P., & Boiron, C. (2008). Commercial real estate investing in Canada: the complete reference for real estate investors and professionals. Mississauga, Ont.: J. Wiley & Sons Canada.

Cohen, S., & Dube, G. E. (2010). Legal, tax & accounting strategies for the Canadian real estate investor. Mississauga, Ont.: J. Wiley & Sons Canada.

Gray, D. A., & Mitham, P. (2009). The Canadian landlord’s guide: expert advice to become a profitable real estate investor. Mississauga, Ont.: J. Wiley & Sons Canada.

Seiler, M., Webb, J., & Myer, N. (1999). Diversification Issues in Real Estate Investment. Journal of Real Estate Literature, 7(2), 163-179.

Taggart, M. (1997). The province of administrative law. Oxford: Hart Pub..

Whiteman, J. (2004). The Two Western Cultures of Privacy: Dignity versus Liberty. The Yale Law Journal, 113(6), 1151-1221.

Williams, E. K., & Rhodes, F. W. (1973). Williams’ The Canadian law of landlord and tenant (4th ed.). Toronto: Carswell Co..

Wilson, C. A. (2009). Tenants in time family strategies, land, and liberalism in Upper Canada, 1799-1871. Montreal [Que.: McGill-Queen’s University Press.

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