Rent arrears during COVID-19: What landlords, tenants ought to know

Published Monday, May 04, 2020 | The Lawyer's Daily 

The impact on renters and landlords of the COVID-19 crisis is complex; there are many issues and clearly, the sector needs assistance. In the end, more funding for renters is going to be needed to avoid large scale evictions which will impact other areas of the economy. Large scale evictions will serve no one and will only make a bad situation worse.

Landlord tenant board during COVID-19 crisis

The legal avenue for landlords to evict renters and recover unpaid rental arrears is through an application at the Landlord Tenant Board (LTB).

To date, the Ontario government has made the following decisions that directly impact the LTB.  It has:

• Suspended limitation periods and procedural time periods relevant to tribunal hearings;
• Suspended the issuance of eviction orders and all hearings, except for matters related to urgent issues such an illegal activity or serious impairment of safety;
• Postponed all in-person hearings, with possible alternative hearing options such as written and telephone hearings; and
• All front-line counter services were closed as of March 16, 2020, until further notice.

These decisions mean that, until the LTB is back and running, and the suspension of eviction orders is lifted, landlords have no enforcement mechanism against tenants who are not paying their rent.

Even if eviction was possible in these times, it would be very hard for a landlord to evict a tenant both from an ethical and a practical standpoint. From an ethical perspective, we are all facing COVID-19 together and we have all been asked to sacrifice. Evicting one of our fellow citizens in these desperate times is a difficult choice for a landlord.

From a practical standpoint, eviction would lead to a vacant unit that would be very difficult to fill with a replacement renter. The landlord would then have a unit that was not generating any revenue. The result would not place the landlord in a better financial position than it would have been if the non-paying tenant was not evicted.

So, what is a landlord to do?

Where possible, landlords should be having honest dialogue with their tenants, and where possible, agree to reduce rents or defer payments.

Even if the landlord gets part of their rent, it is better than not getting anything. As rent arrears accumulate, logic dictates that renters will find it harder and harder to pay it back.

Although the LTB is not currently holding hearings to deal with arrears, new applications are still being processed. Landlords should therefore continue to give their notices and file their applications to get in queue for when the LTB gets back to normal.

The question that remains is what happens post COVID-19, when landlords are faced with a larger than normal amount of rental arrears?

Repayment agreements

The first option is to get the rental arrears paid back via repayment agreements. Landlords and tenants can make arrangements that allow tenants to pay back their rent arrears in small increments within a defined period of time. For example, if a tenant is $4,000 in arrears, the landlord and tenant can agree that the tenant pays an extra $400 in rent for a 10-month period, assuming that the renter has the extra $400 per month to pay back. The mechanics of these repayment agreements are fairly straightforward, but there are some nuances (described below) for the landlord to consider.

How formal should repayment agreement be?

Repayment agreements are contractual agreements between the landlord and tenant. At a minimum, the agreement should include the amount to be paid in total, the period of time for repayment and interest amounts (if any) agreed to by the parties.

These agreements can be done with or without the endorsement of the LTB. The advantage of having the agreement endorsed by the LTB is that a breach of the agreement means that the landlord can go to the LTB and seek an eviction order on an ex parte basis — so reducing the time and effort required to evict.

Endorsement requires that the landlord file an application with the LTB after giving the proper notice and then negotiate the agreement through a LTB mediator. The agreement is then presented to the adjudicator for endorsement.

How long should repayment plan be for?

If the repayment plan requires large sums over a shorter period of time, there is a risk that the tenant will default as the excess amount on top of their regular rent (and all of their other expenses) may be too burdensome. On the other hand, if the time period for repayment is too long, the landlord will be carrying the financial risk over that time period.

So, a careful balance must be had through negotiations with the tenant to ensure that the incremental amount is fair to the landlord, while realistic for the tenant to be able to pay.

This is part two of a five-part series. Click for Part one