What Does a Landlord and Real Estate Agent Need to Know When Selling a Tenanted Property?

The Tenant Residing Within a Property That Is Listed For Sale Holds Many Legal Rights That Require Proper Attention From a Selling Landlord and Real Estate Agent. Liabilities May Flow If Those Rights Are Breached,
A Helpful Guide On How to Show and Sell a Tenanted Property While Respecting the Rights of the Tenant and Realty Agent Code of Ethics

Residential Lease Agreement A landlord will expect that a real estate agent will be work in a diligent fashion with the best interests of the landlord in mind when the real estate agent is tasked with selling a property.  Reasonably so, as a landlord will require that a real estate agent works hard so to fully earn and deserve a sales commission.  However, where a listed property is tenant, the landlord and real estate agent must appreciate the rights of the tenant.

Mandated Conduct Concerns

There are many rights of a tenant that, if disregarded, may give rise to legal issues, for the landlord, the agent, and the brokerage, during the course of efforts to sell a property.  These rights are prescribed within the Residential Tenancies Act, 2006, S.O. 2006, Chapter 17, which should be carefully reviewed and understood by both the selling landlord and the listing real estate agent acting on behalf of the landlord.  Additionally, the listing real estate agent owes certain duties and must take heed of and comply with the Code of Ethics per O. Reg. 580/05 as prescribed by the Real Estate and Business Brokers Act, 2002, SO 2002, Chapter 30, Schedule C (soon becoming renamed and known as the Trust in Real Estate Act).  In particular, the realty agent should remain aware of, and obey, the Obligations of Registrants provided within, among others, section 3, section 5, section 6, and section 40, of the Code of Ethics which state:

3. A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.

5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.

6. (1) A registrant shall demonstrate reasonable knowledge, skill, judgment and competence in providing opinions, advice or information to any person in respect of a trade in real estate.

(2) Without limiting the generality of subsection (1) or section 5,

(a) a brokerage shall not provide an opinion or advice about the value of real estate to any person unless the opinion or advice is provided on behalf of the brokerage by a broker or salesperson who has education or experience related to the valuation of real estate; and

(b) a broker or salesperson shall not provide an opinion or advice about the value of real estate to any person unless the broker or salesperson has education or experience related to the valuation of real estate.

40. A registrant shall not abuse or harass any person in the course of trading in real estate.

As per the Code of Ethics, the regulatory duties of real estate agents are significant and should be carefully adhered to.  Furthermore, whereas principles of vicarious liability are involved, whereas the real estate agent is acting on behalf of both a landlord and a realty brokerage, wrongful conduct by the real estate agent may result in liabilities and repercusions to these principal parties.

Risks, watch out for these
Vicarious Liabilities

The concept of vicarious liability is quite simple and can be understood from the Latin expression of Qui facit per alium facit per se which means, 'He who acts through another does the act himself'.  The vicarious liability principle whereas a seller as well as brokerage may be liable to a third party for the conduct of a real estate agent was confirmed in the case of Scholl v. Royal Trust Corp. of Canada, (1986) O.J. No. 1443.  While the Scholl case was about vicarious liability against the seller and brokerage in favour of a buyer, the same principles would apply where a real estate agent acts wrongfully against any third party while performing under the authority, or apparent authority of the seller and brokerage.

Issues in Breach of Rights

A tenant holds a right of tenure, obviously during a lease period, and also following a lease period whereas a residential tenancy automatically converts to a month-to-month tenancy in accordance to section 38 of the Residential Tenancies Act, 2006 which says:

38 (1) 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.

This security of tenure protection in favour of the tenant is held very sacred in law and any wrongful conduct interfering with this protection, whether by misfeasance or malfeasance, is often treated harshly.

Where during the effort to sell a property a tenant is within a lease period or is month-to-month, and the seller wishes to sell the property, or the buyer wishes to buy the property, with the property vacant, the tenant must bought out in a 'cash for keys' arrangement or must be evicted in accordance to the Residential Tenancies Act, 2006 and by using the proper forms and procedures of the Landlord Tenant Board including the N12 – Notice of Termination for Landlord's, Landlord's Family Member, or Purchaser's, Own Use document which is the exclusive and mandatory document used when a purchaser wishes, upon taking ownership of the property, take possession of the rental unit occupied by the tenant.  When the selling landlord serves the N12 notice upon the tenant, and must do so at least sixty (60) days in advance of the termination date, the tenant should move out by the date on the notice.  However, if the tenant believes that the notice was given in bad faith, meaning that the tenant believes the buyer is without a genuine intent to occupy the unit currently occupied by the tenant, then the tenant may choose to contest the notice at a hearing at the Landlord Tenant Board. It is notable that once the landlord as seller provides notice to the tenant, the landlord can then file the notice with the Landlord Tenant Board immediately utilizing the L2 - Application to End a Tenancy and Evict a Tenant form.  Notable concerns when attempting to evict for a purchaser's own use include:

  • The lease of the tenant must be expired;
  • The purchaser must be a person rather than a corporation;
  • The N12/L2 termination process is unavailable if the rental complex contains more than three (3) units; and
  • The proposed real estate sale transaction for which the termination process is pursued must involve a person who is other than a relative of the selling landlord.

Landlords and real estate agents must remain aware that an ingenuine N12/L2 process commenced in bad faith is taken very seriously and may constitute an offence per section 233 of the Residential Tenancies Act, 2006.  As an offence, the Landlord Tenant Board has the authority to impose significant fines to a maximum of twenty-five thousand ($25,000) dollars against an individual as landlord or one hundred thousand ($100,000) dollars against a corporation as landlord as per section 238 of the Residential Tenancies Act, 2006.  Furthermore, the real estate agent may also become a subject of litigation for any role in providing wrongful assistance to the selling landlord or buyer or both by way of a tort law claim for what is known as a 'conspiracy to injure by unlawful means', among other things.  Of course the real estate agent could also become party to a Real Estate Council of Ontario (RECO) disciplinary procedure.

To reduce the risk of misfeasance or malfeasance allegations, a selling landlord, or real estate agent acting on behalf of the selling landlord, should encourage, and keep record of, efforts to inform the tenant of the right to obtain independent legal advice from a lawyer or paralegal.

Improperly Assisting With Procedural Documents

The Form N12 and Form L2 documents are forms that a real estate agent should avoid preparing on behalf of the selling landlord whereas it is unlawful for a real estate agent to do so.  Where it is found that a real estate agent prepared Landlord Tenant Board forms on behalf of a selling landlord (or any party to a Landlord Tenant Board process), the forms may be deemed invalid and null by the Landlord Tenant Board.  The concern for real estate agents completing documents intended to commence legal proceedings arises from restrictions within the Law Society Act, R.S.O. 1990, c. L.8 which restricts the practice of legal services to licencees of the Law Society of Ontario.  While many real estate agents may perceive that completing documents for a landlord as seller within a realty transaction is common practice and permissible, such real estate agents should carefully review section 1(5) through section 1(8) of the Law Society Act which states:

(5) For the purposes of this Act, a person provides legal services if the person engages in conduct that involves the application of legal principles and legal judgment with regard to the circumstances or objectives of a person.

(6) Without limiting the generality of subsection (5), a person provides legal services if the person does any of the following:

1. Gives a person advice with respect to the legal interests, rights or responsibilities of the person or of another person.

2. Selects, drafts, completes or revises, on behalf of a person,

i. a document that affects a person’s interests in or rights to or in real or personal property,

ii. a testamentary document, trust document, power of attorney or other document that relates to the estate of a person or the guardianship of a person,

iii. a document that relates to the structure of a sole proprietorship, corporation, partnership or other entity, such as a document that relates to the formation, organization, reorganization, registration, dissolution or winding-up of the entity,

iv. a document that relates to a matter under the Bankruptcy and Insolvency Act (Canada),

v. a document that relates to the custody of or access to children,

vi. a document that affects the legal interests, rights or responsibilities of a person, other than the legal interests, rights or responsibilities referred to in subparagraphs i to v, or

vii. a document for use in a proceeding before an adjudicative body.

3. Represents a person in a proceeding before an adjudicative body.

4. Negotiates the legal interests, rights or responsibilities of a person.

(7) Without limiting the generality of paragraph 3 of subsection (6), doing any of the following shall be considered to be representing a person in a proceeding:

1. Determining what documents to serve or file in relation to the proceeding, determining on or with whom to serve or file a document, or determining when, where or how to serve or file a document.

2. Conducting an examination for discovery.

3. Engaging in any other conduct necessary to the conduct of the proceeding.

(8) For the purposes of this Act, the following persons shall be deemed not to be practising law or providing legal services:

1. A person who is acting in the normal course of carrying on a profession or occupation governed by another Act of the Legislature, or an Act of Parliament, that regulates specifically the activities of persons engaged in that profession or occupation.

2. An employee or officer of a corporation who selects, drafts, completes or revises a document for the use of the corporation or to which the corporation is a party.

3. An individual who is acting on his or her own behalf, whether in relation to a document, a proceeding or otherwise.

4. An employee or a volunteer representative of a trade union who is acting on behalf of the union or a member of the union in connection with a grievance, a labour negotiation, an arbitration proceeding or a proceeding before an administrative tribunal.

5. A person or a member of a class of persons prescribed by the by-laws, in the circumstances prescribed by the by-laws.

Recently, in the case of Parmar v. Chanski, EAL-81351-19, a proceeding of the Landlord Tenant Board was dismissed where a person without authorization per the Law Society Act prepared and filed documents on behalf of a landlord.  In rendering the decision to dismiss in Parmar, the Landlord Tenant Board said:

5.  The property management company does not own the rental unit and the lease was not signed by the property management company. Therefore, the property management company does not permit occupancy of the rental unit and does not meet the definition of "landlord" as set out in the Residential Tenancies Act, 2006.

6.  It was also agreed that the 'N-4' notice and the L-2 application were drafted, signed and served by Mr. Thompson, who is neither a lawyer nor a paralegal, nor otherwise exempt from the licensing requirements of the Law Society Act.

7.  JD submitted that in Law Society of Upper Canada v. Chiarelli, 2014 ONCA 391, it was established by the Court of Appeal for Ontario, that although Chiarelli operated a property management company, he did not meet the Act's definition of Landlord and furthermore since he was an unlicensed individual he was not authorized to provide legal services to the Landlord.

8.  JD stated that legal services includes the drafting of notices and application and the serving of notices and is not limited only to representation on the day of the hearing. Therefore, the notice was invalid as was the application and the application ought to be dismissed.

9.  JD also cited the decision of the Board in TEL-97410-18 where the presiding Member dismissed the application based on finding that the applicant (third party property management company) did not have standing to serve the notice or file the application with the Board. This decision is currently awaiting review.

10.  Also cited by JD was the Board Order EAL-80406-19 in which the presiding Member concluded that since the application was signed by the owner of a private property management company retained by the landlord, who was not authorized to provide legal services, the application was not properly before the Board. The application was dismissed.

.....

14.  I have considered the argument made by JT that there having been no demonstrated prejudice to the Tenants or abuse of process, the matter ought not be dismissed on what appears to be a technicality.

15.  However, the principles set out in the Chiarelli case are binding upon me. I have re-examined the Chiarelli case at length. The decision quotes relevant sections from the Law Society Act (the 'LSA') in deciding what activities are the "provision of legal services".

16.  Section 1.(6) of the LSA specifically includes the giving of advice regarding legal interest rights or responsibilities (sub-paragraph 1.(6)(1)), the selection, drafting, completion or revision of documents for use in a proceeding before an adjudicative body (sub-paragraph 1.(6)(2)), and representing a person in a proceeding before an adjudicative body (subsection 1.(6)(3)).

17.  In the Chiarelli case, the decision was unanimous on this point: an unlicensed person, such as a property manager, who is not a statutory party to an application (i.e. meets the definition of Landlord) may not provide legal services, including the completion of forms and documents, and does not have standing before the Board.

18.  Therefore, I have concluded that JT does not have standing before the Board, and as such could not represent the Landlord at the hearing, nor file the application, nor complete and serve the N-4 on the Landlord's behalf.

19.  Although decisions of the Board are not binding in the same way as decisions of Divisional Court or Court of Appeal are binding, I find both Board decisions (TEL-97410-18 and EAL-80406-19) to be informative and to be consistent with the direction set by the Chiarelli decision and the analysis remains valid.

20.  As a result, since the notice and application were not completed by the Landlord or the Landlord's authorized and licensed representative as required by the Chiarelli decision, they are not valid. Furthermore, the Landlord was also represented by an agent at the hearing who is not a licensed representative and thus did not have standing before the Board. For these reasons, the application is denied.

Should a real estate agent engage in legal services, such as providing assistance in preparing documents and initiating a Landlord Tenant Board proceeding, if the matter is dismissed, the real estate agent may become subjected to errors and omissions exposures (for which coverage is likely excluded for practicing outside of the scope of a real estate agent), complaints to the Real Estate Council of Ontario; and of course, a very dissatisfied client.  Additionally, as explained above, the broker as principal of the real estate agent may also be involved based on vicarious liability principles.

Proper Notice, right of entry

Generally, upon proper notice, a tenant must allow a selling landlord, or real estate agent acting on behalf of a selling landlord, from showing a property, including a rental unit to potential buyers.  It is especially notable that the Notice of Entry must state a reasonable time window during the allowable 8:00am to 8:00pm period so to ensure that the tenant is without a feeling of being left in limbo.  The time of the tenant must be respected; and accordingly, real estate agents are required to adhere to scheduled times.  Furthermore, the tenant may choose whether to attend the showing or otherwise.  These rights in favour of, and duties owed by, the landlord are provided within section 27(2) and section 27(3) of the Residential Tenancies Act, 2006 which states:

(2) A landlord or, with the written authorization of a landlord, a broker or salesperson registered under the Real Estate and Business Brokers Act, 2002, may enter a rental unit in accordance with written notice given to the tenant at least 24 hours before the time of entry to allow a potential purchaser to view the rental unit.

(3) The written notice under subsection (1) or (2) shall specify the reason for entry, the day of entry and a time of entry between the hours of 8 a.m. and 8 p.m.

Surprisingly, especially considering that the Landlord Tenant Board provides specific forms for use in many respects, the Landlord Tenant Board is without a form for use as a notice of entry.  Accordingly, a landlord, or agent on behalf of a landlord, may craft a form.  The crafted form should includes details regarding the date of the form, the date and time of intended entry, the name of the tenant(s), the name and contact number for the landlord or agent, and the reason or purpose of the entry.  Additionally, reminding the tenant to secure pets is prudent.

Privacy Rights, taking images

Another right held by a tenant that a selling landlord and agent must respect involves the right to privacy including the right to decide whether images of the rental unit containing the personal belongings of the tenant may be published or distributed via an online virtual tour, brochure, leaflet, or other medium.  This privacy right of a tenant was outlined within the case of Juhasz v. Hymas, 2016 ONSC 1650 wherein it was decided that a landlord, which by the vicarious liability principle would include those acting on behalf of the landlord, is without the unilateral right to photograph a tenanted unit.  Within the Juhasz case it was determined that a landlord may enter a tenanted unit and take photographs for the purpose of aiding maintenance and repairs as obligations of the landlord; however, entering a tenanted unit for the purpose of obtaining photographs to aid marketing of the property was improper.  Specifically, the Divisional Court stated:

[26]  The Divisional Court recently considered the issue of entering a tenant’s premises for the purpose of taking photographs in the context of a dispute raised by the tenants about appropriate repairs and maintenance of the rental unit: see Nickoladze v. Bloor Street Investments/Advent Property Management, 2015 ONSC 3893 (CanLII).  In that context, the decision upheld the right to take photographs as to the maintenance and repairs of the unit: see, for instance, paras 8 and 9 of that decision:

8.  While it might be prudent for a landlord to expressly state in a notice to enter a rental unit that photographs may be taken, the failure to do so does not render the entry unlawful.  Section 27 of the RTA expressly authorizes a landlord to enter a rental unit for the purposes of conducting an inspection and that it is what happened in this case.  The entry was therefore lawful.

9.  Further, the fact that photographs were taken does not, by itself, constitute an infringement of the tenant’s privacy rights.  It would only constitute an infringement if it was done for an improper purpose.  In this case, the Board determined that the photographs were taken for the purpose of the inspection and for use at the hearing of the tenant’s outstanding applications.  It was open to the Board, on the evidence, to reach that conclusion.  In this day and age, it is not at all surprising that either a tenant or a landlord would take pictures of relevant items in order to use them at a hearing before the Board.  Indeed, I understand that, on a prior occasion, the tenant had done precisely that to advance his position.

[27]  The Nickoladze decision is distinguishable from this case. In Nickoladze, the tenant raised issues about his privacy interest being compromised. Justice Nordheimer concluded that, as the photographs were taken in the context of a proceeding before the Board initiated by the tenant, no privacy interest was engaged.  We also note that this decision was in relation to an inspection of the rental unit, an activity which is a specifically permitted ground for entry pursuant to s. 27(1)(4) of the RTA.

[28]  We distinguish the decision of Nordheimer J. in Nickoladze. By way of contrast, in this case, taking photographs of a person’s home and personal belongings without their consent and posting these photographs on the internet clearly infringes privacy interests. In this case, a privacy interest is clearly engaged – an interest enhanced, perhaps, by the tenant’s disability of a post-traumatic stress disorder.

[29]  We agree with the conclusion in the Review Order of the Board in File No. CEL-31023-13-RV (Re) that absent a specific term of the lease, or with the tenant’s consent, there is no authority under s. 27 of the RTA to require entry into a tenant’s premise to take photographs for marketing purposes to advance the sale of the property.  It follows that the refusal by a tenant to allow entry for such purpose cannot be proper grounds for eviction.

Per the Juhasz decision, it is clear that the landlord, which again would include an agent acting on behalf of the landlord, must obtain proper consent from the tenant via agreement per a clause within a lease or via subsequent consent.  Without consent, the selling landlord and real estate agent should refrain from taking photographs or images for the purpose of aiding in the marketing of the property.  Furthermore, potential buyers and inspectors acting on behalf of potential buyers should be dissuaded from taking photographs or images unless the tenant expressly approves.

Harassment and Interference

The Residential Tenancies Act, 2006 contains express prohibitions against conduct that may harass a tenant or interfere with the right to reasonable enjoyment of the rental unit or residential complex; and accordingly, both a selling landlord and real estate agent should engage carefully with a tenant during the selling effort process, especially being a time where a tenant may feel particularly vulnerable.  Specifically, the Residential Tenancies Act prohibits:

22 A landlord shall not at any time during a tenant’s occupancy of a rental unit and before the day on which an order evicting the tenant is executed substantially interfere with the reasonable enjoyment of the rental unit or the residential complex in which it is located for all usual purposes by a tenant or members of his or her household.

23 A landlord shall not harass, obstruct, coerce, threaten or interfere with a tenant.

While the Residential Tenancies Act, 2006 lacks a definition of harassment, many cases of the Landlord Tenant Board as well as within the common law define harassment as conduct that would be unwelcome by the person exposed to the conduct and which is also without a legitimate purpose.  Such a definition was succinctly stated by the Landlord Tenant Board in the case of L.N. v. R.E., HOT-03572-18 (Re), 2019 CanLII 87139 where it was said:

4.  Section 23 of the Act specifies that a landlord shall not harass, obstruct, coerce, threaten or interfere with a tenant. Harassment is generally defined as “a course of conduct which one knows or should know to be unwelcome by the other person and which one pursues for no legitimate purpose” (Grimard v. Knight 2006 O.R.H.T.D.).

As indicated, the definition of harassment appears quite broad; accordingly, the selling landlord and real estate agent should maintain extra vigilance to avoid any oversteps with the tenant.

Inherits the Tenants, as is

A selling landlord and real estate agent should also ensure to avoid misrepresenting to the tenant that new lease terms will be required by a buyer.  This is especially true for a long-term tenant who is month-to-month and may be enjoying below market value rent and where there may be a desire to entice the tenant to vacate the premises or enter into a fresh lease at higher rents based on hints or threats that a buyer will become a fresh landlord and may seek even higher rents.  Suggesting that a fresh landlord holds the right to seek a fresh lease to replace a month-to-month situation is completely untrue; and accordingly, any misrepresentation or undue influence attempting to pursuade the tenant to agree to detrimental terms could be viewed as a form of harassment.  The landlord and real estate agent must avoid making any statements, expressly or impliedly, suggesting that the rights of the tenant and obligations of the landlord change when the ownership changes.  Instead, if the tenant has questions or concerns, the tenant should be informed that a buyer inherits the terms as are in place with the selling landlord and that the duties and obligations of the landlord continue despite change of ownership.  The tenant should also be encouraged to obtain independent legal advice.

The transfer and continuance of all terms, among other things, as established with the selling landlord to the buying landlord is prescribed by section 18 of the Residential Tenancies Act, 2006, which states:

18 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.

Furthermore, even if the tenant were to agree to a new, unfavourable lease, based on undue influence and containing unfavourable or unlawful terms, the Landlord Tenant Board may deem such a fresh lease unenforceable.  If a fresh lease were established under false pretences a landlord and realty sale agent could both become the subject of legal troubles brought by the tenant as well as the buyer whereas the buyer was duped into believing that the fresh lease was a valid lease.

Summary Comment

A selling landlord and the real estate agent that is acting on behalf of the landlord must show due regard for the rights and protections of the tenant during the selling process.  Specifically, the selling landlord and real estate agent should, among other things, take good care:

  • To act in good faith within any efforts to evict the tenant so to provide vacant possession to a buyer;
  • To provide proper notice of entry for any showings or inspections;
  • To refrain from taking any pictures or images of belongings of the tenant unless consent is expressly obtained; and
  • To avoid any behaviour that could be construed as harassing or interfering.

During the sales process, a selling landlord and real estate agent must both act prudently and be viewed as acting prudently.

Jorge Andres Steinmetz. B. A.. Licensed Paralegal provides services for clients located in Mississauga, Milton, Toronto, Kitchener, Hamilton, among other places!

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