Both landlords and tenants must work through eviction scenarios after a power of sale is complete. Their rights are clearly outlined under the Residential Tenancies Act (RTA). This is an excellent starting point to understand the impact of the power of sale evictions on property tenants.
This act clearly outlines all tenants’ and landlords’ responsibilities and rights. The RTA came into effect on January 31st, 2007.
Property tenants have rights under the RTA when a lender takes possession of a rental property by default. Renters should take the time to understand the impact of the power of sale eviction on their rights and how they can proceed.
Understanding the Mortgages Act and Tenant Rights
The Mortgages Act considers the lender the landlord after a power of sale on a rental property. That means they are legally obliged to adhere to the RTA, which protects the people renting the property from being evicted unfairly.
One key takeaway is that tenants can’t be evicted solely because a property has been sold through a power of sale. It’s important to remember that if a property is sold under a power of sale, the new owner must abide by any existing leases.
Under the RTA, the new owner has no right to evict tenants unless they have a valid reason. Those reasons include if the new owner or an immediate family member wants to live in the unit. If that’s the case, compensation and proper notice are required.
What Happens When a Lender Becomes the Landlord?
Under the RTA, the lender is considered the landlord when they take possession of a rented property through a power of sale. There are some legal requirements, such as the fact that the lender needs to notify the property’s tenants in writing and tell them how to redirect rent payments. Even though the lender is the new landlord, they need to adhere to the rules of the RTA to evict tenants. Those rules include:
- If the lender or one of their family members wants to move in.
- If significant repairs or renovations need to be done and the house needs to be empty to carry them out.
- If the tenants fail to pay the specified rent or violate the terms of any lease agreement.
Those requirements are outlined in the RTA. The lender needs to serve a detailed notice if they intend to evict the tenant, and if they don’t vacate, that same lender can apply to the Landlord and Tenant Board (LTB) for an eviction order.
Does a Power of Sale Nullify the Lease Agreement?
Under the RTA, the existing lease agreements generally hold up to preserve the tenant’s rights. This is the case even if the ownership changes after a power of sale. Usually, a new owner is considered a landlord and is held to the same existing lease agreements.
This means tenants can occupy the rental under the same conditions as their original lease; however, there are some exceptional circumstances.
- The lease agreement can be set aside if it’s fraudulent. For example, the lender can apply to a Superior Court of Justice to have the least set aside if they can prove that the landlord defaulted on a mortgage intending to sabotage their interest. That’s covered under Section 52 of the Mortgages Act.
- Another situation in which the lender can nullify a lease agreement is one with a term of more than three years unless it is registered on the property’s title.
It’s important to remember that under the RTA, the tenants can stay in the exact location and rent even after the property gets sold as long as they adhere to the lease agreements.
When Can a Lender Interfere with Tenant Occupancy?
There are some circumstances under which a lender can interfere with a tenant’s occupancy. This blog has already outlined these, but a deeper dive can provide a better explanation.
Breaching The Terms of The Lease
Every lease has agreed-upon terms. Some ways a tenant can breach a lease that hasn’t already been covered include engaging in illegal activities and willfully damaging the property. Another breach can occur if the tenant has animals that are prohibited by the lease or if they disturb other tenants.
The lender must provide a written notice of termination and apply with the Landlord and Tenant Board (LTB).
Not Paying The Rent
A process for eviction can start after a tenant fails to pay what’s owed in rent on a due date. The lender, who is the landlord, can now serve a Notice to End your Tenancy Early for Non-Payment of Rent (N4) form.
It’s important to note that the tenant can pay all arrears within 14 days to avoid the N4 notice. Otherwise, both parties will have to attend a hearing with the LTB.
Sham Leases
Under Section 52 of the Mortgages Act, a lease agreement can be set aside in several scenarios. These situations usually involve sham leases designed to undermine the lender’s rights.
- A sham lease usually attempts to lower the property’s market value by charging below-market rents. Another situation is when a lease is written to cause a default, and the power of sale is in motion.
In these situations and a few others, the lender must file an application to set aside the agreement under Section 52(1) of the Mortgages Act.
Once again, it’s important to remember that the tenants have reasonable protection under the RTA.
If you’re dealing with a power of sale situation as a property owner, Jonathan Alphonso is a real estate professional who can help. Get in touch with him today for some free advice.
