Why Pre-Paid Rent Is Not (Always) A No-No

Article by Joe Hoffer

A recent decision of the Divisional Court (Corvers v. Bumbia, 2014 ONSC 985) has affirmed the legality of a landlord accepting “pre-paid rent” as long as the landlord does not “require” it as a condition of tenancy. The case vindicates a position often taken by landlords at the landlord and Tenant Board (LTB), without success, where Board Members have routinely treated most pre-paid rent arrangements as “illegal charges”. In some cases landlords have even been prosecuted and fined for accepting pre-paid rent.

In Ontario, landlords are careful to ensure that tenancy applicants are properly screened for their creditworthiness and tenancy history. If a landlord is not careful with screening and later had to apply to the LTB for judgment and eviction, the process can take several months. A professional tenant can easily get a few adjournments from the LTB and then, when the eviction order issues, can file an appeal to Divisional Court to automatically “stay” enforcement of the eviction order, all the while, not paying rent. Even where a “motion to quash” an appeal is filled, a properly drafted Notice of Appeal can result, at best, in an order requiring the tenant to pay the arrears into court pending an appeal hearing 6 months later. Landlords know the combination of lost rent and legal fees invariably runs from $10 to $15K, all because the landlord took a chance on a marginal rental application. The landlord is left with a large legal bill and a worthless judgment (and in some cases personal bankruptcy). So why take the risk?

Landlords considering rental applications from recent immigrants or foreign students, or from other individuals with no reliable credit or tenancy history, will be more likely than not to reject such applications and choose instead an applicant with an established financial track record. Where the landlord explains the reason for declining to rent, then an offer of prepaid rent may be made by the applicant to give the landlord comfort that there will be no payment issue. Prior to Corvers landlords would reject such Offers because to accept would expose them to provincial offence charges under the RTA(where fines can range up to $100K) and a tenant who pre-paid the rent could simply apply, after moving in, for a full reimbursement of the sum on the basis that the payment was an “illegal charge”. So why take the risk?

The Corvers decision, which is binding on LTB Members, removes the risk as long as the tenant offers to pay rent in advance and the Landlord then accepts it. The prepayment is not an illegal charge because it is not a “security deposit”. Prepaid rent is payment of rent in advance of the date it is due, and it should make no difference if it is paid 12 days before its due or 12 months. So, as long as you don’t make prepayment of rent a pre-condition of acceptance of a rental applicant, then you should attract no legal liability if a tenant offers to pre-pay the rent and you decide to accept.

For More Information:

Joe Hoffer
Cohen Highley LLP
Phone: 519.672.9330
Email: [email protected]

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