If a Tenant Signs a Fresh Lease With An Above Guideline Increase Is the Rent Increase Legal?

The Use of a Fresh Lease As a Means to Impose a Rent Rate Above the Statutorily Allowable Increase Is Unlawful. 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.

Similar Questions About Using a Fresh Lease or Renewal Lease to Increase Rent Include:

  • Can A Fresh Lease Be Used to Increase Rent Beyond the Guideline Percentage?
  • If a Landlord Requires a Renewal Lease With a Big Rent Increase Is the Increase Legal?
  • Can a Renewal Lease Be Used to Increase Rent Beyond the Allowable Amount?
  • What Happens If a Landlord Uses a Renewal Lease to Increase the Rent?
  • If a Tenant Signs a Fresh Lease With a Large Rent Increase Is the Increase Legal?

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

Residential Lease Document A typical lease provides for a one-year term of residential tenancy and will be negotiated prior to the start of the landlord and tenant relations.  Also typical is a requirement for payment of rent on the first of each month or on an alternative date. Subsequently, when the one-year term ends, or other period if the term was atypical, the tenancy relationship statutorily converts into a month-to-month arrangement as per section 38 of the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17.  Furthermore, the statutory rent control guidelines as per 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 as being when the tenancy statutorily converts to the month-to-month arrangement; and accordingly, only the allowable rent rate increase may be imposed as per the Court of Appeal decision within Honsberger v. Grant Lake Forest Resources Ltd., 2019 ONCA 44 which says:

[24]  According to s.120(1) of the RTA, “No landlord may increase the rent charged to a tenant, or to an assignee under section 95, during the term of the tenancy by more than the guideline …” [emphasis added] subject to certain inapplicable exceptions. The guideline is established by the Minister of Municipal Affairs and Housing each calendar year and shall not be more than 2.5%. Under s.119, a landlord may only increase the rent once every 12 months.

[25]  Section 38 (1) of Part VII of the RTA is entitled ‘Deemed renewal where no notice’. That subsection provides:

If a tenancy agreement for a fixed term ends and has not been renewed or terminated, the landlord and tenant shall be deemed to have renewed it as a monthly tenancy agreement containing the same terms and conditions that are in the expired tenancy agreement and subject to any increases in rent charged in accordance with this Act.

Attempting to Issue Fresh Lease to Circumvent
When a Lease Ends Can a Higher Rent Rate Be Required Within a Renewal Lease?

In certain circumstances, a landlord may wish to increase rent beyond the allowable increase permitted by section 120 of the Residential Tenancies Act, 2006.  In such circumstances, a landlord may attempt to impose a fresh lease, often referred to as a renewal or update; however, and regardless of what a fresh lease may be labelled, named, or referred to as, a fresh lease is unable to circumvent the prescribed rent control limits.  Simply said, when a lease period ends, a fresh lease, involving the same tenant(s), is treated as an extension of the original tenancy period rather than a refreshing or restarting of the tenancy relationship.  Even more clearly said, a fresh lease fails to enable a new beginning.  This position was made very clear within Honsberger where it was said:

[26]  As mentioned, the crux of the appellant’s argument is that when the Tenants entered into the new one-year tenancy agreements, the term of the tenancies was severed, and thus the rental increase and notice provisions of the RTA were inapplicable, and the new rent lawful.

[27]  There are strong factors weighing against the appellant’s interpretation of the RTA.

[28]  First, s. 113 of the RTA expressly permits the establishment of a new rental rate with a new tenant. Recognition of a similar carve-out for an existing relationship involving the same tenant, the same landlord, and the same premises would undermine the purpose of the Act. A renewing tenant is not a new tenant. Put differently, the appellant’s proposed statutory interpretation is inconsistent with the scheme of the RTA’s rent control provisions considered as a whole. The structure and purpose of the Act would be undercut if at the commencement of each year, a landlord could increase the rent simply by entering into a new tenancy agreement. A tenancy agreement involving the same parties and the same premises requires the landlord to give 90 days’ notice of an increase pursuant to the clear provisions of the RTA. This conclusion is also consistent with this court’s decisions in Matthews and Nanne v. 3011650 Nova Scotia Limited (Michipicoten Forest Resources), 2015 ONCA 391.

[29]  Second, the words “during the term of their tenancy” found in s. 120(1) must be read in context. The language in this section addresses the amount that a landlord may charge; it does not detract from or limit the Part VII provisions of the RTA, including the notice requirement. Any increase in rent required notice under s. 116 of the Act. Additionally, the increase could not exceed the annual guideline amount.

[30]  Third, the appellant did not advance the s. 120(1) argument before either the LTB or the Divisional Court. Entirely new issues should typically not be entertained on appeal: Orr v. Metropolitan Toronto Condominium Corp. No. 1056, 2014 ONCA 855, at para. 87

[31]  As for the appellant’s argument that the LTB inappropriately relied on s. 38(1) of the Act, the Divisional Court recognized that s. 38(1) was inapplicable to this case but agreed with the LTB that the landlord was required to give 90 days’ notice of an increase pursuant to Part VII of the Act. I agree with that determination and would not give effect to this ground of appeal. The Divisional Court did not err in determining that the decisions of the LTB were reasonable.

[32]  There is also no basis for the appellant’s remaining arguments. As is clear from the RTA and particularly s. 3 of the Act, the parties’ freedom to contract is expressly made subject to the RTA’s application. The Divisional Court did not err in refusing to validate rental increases that, despite their origin in contract, were constrained by the provisions of the RTA that required written notice. See also 1086891 Ontario Limited v. Barber, 2007 CanLII 18734 (ON SCDC), 284 D.L.R. (4th) 568 (Div. Ct.).

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

Interestingly, in Schell v. Clarke, 2020 ONSC 7169, while relying upon the Honsberger decision, the Divisional Court suggested, that a fresh lease may be permitted where the nature of the tenancy significantly changes by adding tenants or adding to the rented space.  Specifically, the Divisional Court stated:

[4]  The following facts are uncontested.  The tenant rented a house in Wingham, Ontario from the landlord from May 1, 2015 to April 21, 2017, when the tenant vacated the house. The tenancy agreement was originally a month-to-month oral agreement, with the tenant agreeing to pay $650 per month. In February 2016, the landlord informed the tenant that he was planning to sell the house, thereby ending the tenant’s tenancy. In February 2016, the tenant made the landlord an offer to pay more to remain in the house.  The parties negotiated a rental increase of $200 per month, changing the rental price from $650 per month to $850 per month. A written lease recording the $850 per month rental price was signed in February 2016.  The landlord did not serve a notice of rent increase on the tenant.

[5]  The LTB found that notwithstanding that the landlord did not give notice of the rent increase, on these facts there was an express agreement to the increase between the landlord and tenant which was therefore not an illegal charge. The LTB found that the parties negotiated a new tenancy agreement and dismissed the tenant’s claim of an illegal rent increase. Price v. Turnbull's Grove Inc., 2007 ONCA 408 was relied upon as authority for the proposition that where there was an express agreement, this was not an illegal charge.

[6]  Subsequent to the LTB’s Decision, the Court of Appeal for Ontario released its decision in Honsberger et al. v. Grant Lake Forest Resources Ltd., [2019] ONCA 44, which clarified that upon the expiry of an existing lease, where the parties and premises that are the subject of a tenancy agreement do not change, a new tenancy agreement cannot be created outside of the rental increase constraints of s.120 of the RTA.

[7]  The landlord asserts that it comes within the exceptions set out in Honsberger. He submits that the written agreement changed the oral agreement by (a) allowing the tenant’s spouse to be an occupant of the house and (b) allowing the tenant to rent the garage, which were not parts of the oral agreement.

[8]  Paragraph 2 of the Decision states that the tenant and her children were the only occupants during the tenancy.  If this was meant to refer to both the oral tenancy and the written tenancy, this was not correct because the written agreement refers to the tenant’s spouse as an occupant. The written agreement refers to the rental premises as 86 Mary Street, Wingham, Ontario and gives the tenant the use of the “full driveway and garage”.  The rent of $850/month is attributed to the rental premises.  No amount is attributed to parking or additional services.

[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.

[10] I agree that it was a misapplication of the decision in Price for the LTB to rely upon it to support its finding that the increase in rent was not an illegal charge because there was an express agreement. The decision to dismiss the tenant’s claim of an illegal rent increase cannot be sustained on this basis.  However, that does not end the matter.

[11] The hearing in this case was held prior to the release of Honsberger.  Counsel who appeared in this court were not counsel before the LTB.  The matter does not appear to have been argued before the LTB on the basis of whether or not the parties or premises changed under the written agreement.

[12] There is no finding in the Decision regarding a change to the leased premises.  The written lease naming the tenant’s spouse as an occupant and designating the garage as part of the leased premises does not answer whether this was a change to the parties or premises from under the oral lease.  I am unable to agree with the landlord that the reference in Paragraph 59 of the Decision to the tenant’s spouse denying a contractor entry into the unit is sufficient to infer that there was a change to the parties under the written agreement.

[13] Unfortunately no transcript of the hearing exists which might assist the court in determining whether or not there was evidence to find that the exceptions in Honsberger applied.  In these circumstances, I have concluded that the correct result is to refer this matter back to be heard by the LTB to determine whether the parties and premises that are the subject of the written tenancy agreement changed from under the oral lease sufficient to meet the exceptions set out in Honsberger.  It shall also determine the amount owing if this was an illegal rent increase and whether the limitation period under s.135.1(2) of the RTA applies.

Summary Comment
What Is the Short Answer?

When a tenancy period ends and a fresh lease is entered into, the fresh lease may be used to extend the tenancy relationship; however, the fresh lease is unable to treat the tenancy relationship as if the tenancy is an entirely new relationship; and as such, a fresh lease may contain only terms and provisions as allowable for extending or continuing a tenancy.  It is unlawful to use a fresh lease to increase a rent rate beyond that which is contained within the rent control provisions of the Residential Tenancies Act, 2006, and such applies regardless of whether the tenant agrees to the fresh lease, the terms within the fresh lease, signs the fresh lease, and even if the tenant actually pays the rent rate increase imposed within a fresh lease.

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