What happens to the arrears of rent that is owing when a property is sold to a new buyer? Can the new owner get an eviction order based on money owed to the previous owner of a property? These are some of the questions we will attempt to answer in this article.
The reason we say that we will attempt to answer is because the law is not completely settled on the subject but there are cases that provide solid guidance on what to expect at the Ontario Landlord and Tenant Board (“LTB”). Residential Tenancies Act, 2006, S.O. 2006, c. 17 (“RTA”) defines a landlord in section 2 (1) as:
(a) the owner of a rental unit or any other person who permits occupancy of a rental unit, other than a tenant who occupies a rental unit in a residential complex and who permits another person to also occupy the unit or any part of the unit,
(b) the heirs, assigns, personal representatives and successors in title of a person referred to in clause (a), and
(c) a person, other than a tenant occupying a rental unit in a residential complex, who is entitled to possession of the residential complex and who attempts to enforce any of the rights of a landlord under a tenancy agreement or this Act, including the right to collect rent; (“locateur”)
The term “…successors in title…” means the person(s) or entity that purchases, or otherwise has the rental property transferred to their name on the property title. When the new owner of the property takes over ownership of a rental property the new owner steps into the shoes of the old owner/landlord. We see this explained in the case of CEL-59323-16 (Re), 2016 CanLII 71330 (ON LTB) where at paragraph 21 the tribunal states:
21. Section 18 of the Act says: “Covenants concerning things related to a rental unit or the residential complex in which it is located run with the land, whether or not the things are in existence at the time the covenants are made.” It is commonly accepted that what this provision means is that when a property is sold and there are sitting residential tenants, any tenancy agreements “run with the land” meaning they remain in place on the same terms and conditions as existed prior to the sale. The new owner steps into the shoes of the previous landlord.
We can see a further illustration in the case of TEL-81897-17 (Re), 2018 CanLII 42843 (ON LTB), where the new landlord was entitled to collect the rent from the tenant that was owing to the previous landlord where the rent arrears had been accrued prior to the transfer of the property. The tribunal states at paragraphs 16 – 18:
16. As I explained several times at the hearing, the new Landlord is permitted to claim any and all outstanding rent that became due for the period before they bought the property.
17. Pursuant to section 18 of the Act, covenants “run with the land” which means when there is a transfer of title the new landlord steps into the shoes of the old landlord and they must accept the terms and conditions of the tenancy as they find them. In other words, the new Landlord must accept any debts or credits in the tenancy and is entitled to claim any outstanding arrears of rent.
18. Based on the evidence before me, I find that the new Landlord is entitled to collect any amount of rent that may be outstanding, including rent arrears for the period prior to the sale of the property.
It is always best to have the issues of who owns the arrears settled as part of the terms of the Agreement of Purchase and Sale as between the buyers, but in the event that is no longer possible, it appears that the default ownership of the arrears transfers with the land to the new buyers. If there is an existing LTB application in progress it is our position that the new landlords should take the place of the applicants at the Landlord and Tenant Board and the new landlords should complete the case under their name.
There are some unreported decisions that suggest that the old landlord is only entitled to an arrears only order (“an L9 Application”) up to the date the property transferred ownership and the new landlords have to start the eviction process all over again starting from the date of purchase. We of course do not agree with this position but there are unreported cases where this situation has played out. As far as we know there are no Divisional Court decisions that have resolved the issues as stated in this article but the legal logic explained in the cases above does appear to have a strong basis of support given the wording of the legislation as set out in the RTA.
As always you should get individual legal advice for your specific fact situation and nothing in this article should be taken as legal advice.