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

Using a Fresh Lease Agreement to Impose a Rent Rate Increase Beyond 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 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 Landlord Requires a Renewal Lease With a Large Rent Increase Is the Increase Legal?
  • Can A Fresh Lease Be Used to Increase Rent Beyond the Allowable Percentage?
  • If a Tenant Signs a Fresh Lease With a Big Increase Is the Rent Increase Actually Legal?

A Helpful Guide Explaining How to Determine and Understand Whether a Fresh Lease Can Be Used to Increase a Rent Rate

Lease Document Containing Unlawful Terms Involving a Rent Rate Increase Generally, a one-year lease term is arranged at the start of a landlord and tenant relationship.  The lease usually requires that rent payment be made on the first of each month; however, an alternative date is possible depending upon the agreement. When the lease ends, being at the end of the one-year term, or at the end of another period if the lease was for a period of other than one-year, the tenancy relationship converts to a month-to-month arrangement as per the statutory mandate described within section 38 of the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17.  Furthermore, per the statutory rent control restrictions described within section 120 of the Residential Tenancies Act, 2006, there is a maximum allowable rent increase that may be imposed and applied as was confirmed by the Court of Appeal in the matter of Honsberger v. Grant Lake Forest Resources Ltd., 2019 ONCA 44 wherein it was stated:

[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

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.).

Summary Comment

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

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