Tenancies and the Common Law (19:XI)

Since a tenancy agreement has elements of both contract and interest in land, privity of contract and privity of estate exists between the parties to the agreement. Covenants relating to either the estate or the agreement are enforceable between such parties. Where either the reversionary (landlord) or the tenant assigns his or her interest, privity of estate only exists between the assignee and the remaining original party. Terms and covenants that run with (touch and concern) the land are enforceable between these parties. One of the more common situations involving a covenant running with the land is where a security deposit is paid to a landlord, and the property is then subsequently sold. After the building is sold to the second landlord, the security deposit obligations carry over to that second person. So a tenant who had lived in the building all along would be able to claim the return of his or her security deposit from a new landlord, even though the tenant had originally paid the security deposit to a different person. See s 90 of the RTA regarding covenants that run with the land.

A sub-lessee has privity of estate and contract with the head landlord and is bound by all the covenants in the original lease.

Covenants in leases are independent at common law, which means that one party’s breach does not relieve the other party of performance obligations unless the lease is forfeited. The innocent party in a tenancy breach situation is under no duty to mitigate damages under the common law of property. However, s 7(2) of the RTA invokes a clear-cut duty to do so in a residential tenancy (see also RTB Policy Guideline 5: Duty to Mitigate). For commercial tenancies or other residential leases to which the RTA does not apply, the courts have begun to view them as contracts with all attendant rights and obligations, including the duty to mitigate where the plaintiff is seeking damages under contract (as opposed to property) law; see Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd. (1971), 17 DLR (3d) 710 (SCC). However, there appears to be no duty to mitigate where the landlord does not accept the tenant’s repudiation of the lease, and simply sues for rent as it comes due under the principles of property law. Should this situation arise, clients are strongly advised to consult an experienced lawyer.

A. Common Law and Residential Tenancies

Subject to the RTA, the common law respecting landlord and tenant applies (RTA, s 91).

1. General Effects of Breach of the Agreement

The common law rules of contract respecting the effect of one party’s breach of a material term on the other party’s performance obligations apply to a residential tenancy agreement (RTA, s 91; see also Chapter 10: Consumer Protection). Thus, material terms are dependent, and the innocent party is entitled to withhold performance. However, withholding rent because a landlord has breached a material term is barred by the RTA. A tenant may withhold rent only as permitted by the RTA.

Under the law of contract, a party may not be able to repudiate a contract due to another’s breach of a non-material term, but a right of “forfeit” can arise under tenancy common law. Under s 45(3) of the RTA, where the landlord breaches a material term, the tenant may elect to treat the agreement as ended (an Arbitrator may have to decide whether a term is “material”). The landlord may end the tenancy only in accordance with the RTA, because of abandonment, or due to an agreement. The RTA does not abolish the doctrines of privity of estate and contract, but it enables a person having a reversionary interest (i.e. a landlord) and a tenant under the RTA to enforce against each other all conditions and terms, whether material or not, contained in the tenancy agreement for the possessed rental unit (s 49(1)).

See also RTB Policy Guideline 8: Unconscionable and Material Terms.

2. Status of Other Statutes and Legal Doctrines

a) Tenant Rights before Possession

At common law, where an agreement for lease is entered into, or a tenancy agreement executed, and a tenant has not entered and taken possession, that tenant has only contractual rights. The tenant may not exercise rights incidental to the possession of the property by suing a person in possession of or upon the rental unit for trespass, assigning, or subletting the rental unit. However, s 16 of the RTA provides that property and contractual rights under a residential tenancy agreement take effect at law from the date the agreement is entered into. The tenant may obtain an order respecting his or her right to possess or occupy the rental unit. Problems will arise when another tenant has come into possession; the tenant with the earlier commencement date may prevail over the later tenant, but the tenant in possession will probably be allowed to remain in possession.

b) Implied Surrender: Abandonment

At common law, a lease may be ended by “surrender” due to conduct of the parties, consistent only with a “merging” of the tenancy interest back into the landlord’s (owner’s) estate. Surrender occurs, for example, where the tenant abandons the rental unit and the landlord repossesses and re-rents. Generally, no further rent or compensation for the unexpired portion of the tenancy may be claimed on surrender. However, following Highway Properties Ltd. v. Kelly, Douglas & Co. Ltd. (above), claims for lost rentals are allowed.

Abandonment is cause for ending a tenancy, but regardless of the wording of the tenant’s notice, or the wording of the acceptance of surrender, or the absence of a notice, abandonment gives rise to the landlord’s duty to mitigate.

c) Frustration

The doctrine of frustration applies to residential tenancy agreements (RTA, s 92) and commercial leases (Commercial Tenancy Act, s 30). If some unforeseen event occurs that prevents the agreement from being performed, it will be considered to have been frustrated and is thereby terminated at the time of the event. Frustration will rarely be found where the event appears to be largely self-induced (and the result of acts or omissions which might themselves constitute a breach of covenant, e.g. a municipal closure order made pursuant to a fire bylaw where the landlord failed to install sprinklers). If the event is totally self-induced, the perpetrator will not be able to establish frustration. Two factors to consider beyond the normal contract law concerns are: 1) the length of the unexpired term at the time of frustration, and 2) the possibility of alternative use of the rental unit. If the lease is one to which the RTA doesn’t apply, by common law the doctrine of frustration would not apply.

d) The Right to Distrain the Tenant’s Personal Goods

Under the RTA, a landlord has no right to distrain (i.e. seize) a residential tenant’s personal goods for default in rental payment, nor may the landlord seize a tenant’s personal goods to satisfy another claim or demand, unless the seizure is made by a person authorized by a court order or an enactment (s 26(3) and (4)). If a landlord seizes goods contrary to s 26(3), the tenant may apply to the court for an order to return the property, or for a monetary claim for damages. A landlord may, where personal property has been abandoned by the tenant, remove it from the residential property, and must deal with it in accordance with the Residential Tenancy Regulations, which impose specific obligations on landlords in these circumstances. See Sections 24 and 25 of the RTR for specific obligations of landlords.

B. Damages, Debts, Compensation, and Specific Performance

Where an enforceable term or condition has been breached, a number of remedies are available. The availability of remedies is restricted, however, by the type of breach (i.e. material term, or not) and conduct involved.

1. Termination (Ending the Tenancy)

A term’s breach may entitle the innocent party to put an end to the agreement, and either regain possession (landlord) or vacate the rental unit (tenant). Compensation or damages, in addition to termination, may also be available. However, it is risky to assume a breach is fundamental enough to put an end to an agreement, for if the party who makes that assumption is wrong, they may be held to be in breach and liable for damages. It is better to have such matters adjudicated.

2. Damages

A person suffering loss due to the breach of an express, implied, or statutory term may apply for damages through dispute resolution under s 58(1) of the RTA, or, if not precluded by the RTA, by civil action in Small Claims or Supreme Court. Damages may be available where the tenant harms or destroys property. See RTB Policy Guideline 16: Claims in Damages.

=== 3. Debt ===

Under s 6 of the RTA, action for debt may be taken for rent arrears, e.g. a tenant does not pay their rent in full.

=== 4. Duty to Mitigate ===

Under s 7(2) of the RTA, any time a monetary claim arises between landlord and tenant, both have a duty to mitigate damages (i.e. minimize losses). For example, if a tenant breaks a lease that was for a fixed term of one year, the landlord could sue the tenant for the balance of the rent payments. Nonetheless, the landlord has a duty under s 7(2) to try to minimize his or her loss by re-renting the rental unit as soon as possible, rather than just suing the tenant for the whole year’s rent. A landlord who makes such a claim must prove that they took reasonable steps to re-rent the unit and was not able to do so. See RTB Policy Guideline 5: Duty to Mitigate Loss.

=== 5. Compensation ===

An Arbitrator may award compensation to a party (a tenant or landlord) who has suffered a direct loss due to a contravention of the RTA by the other party.

Only persons who are party to the tenancy agreement have the right to enforce said agreement.

Section 95 is a penalty section, which states that breaches of the listed sections (mostly landlord breaches) are punishable by fine. Recently, the RTB has established a Compliance and Enforcement Unit to conduct investigations of repeated or serious non-compliance with tenancy laws or orders of the Residential Tenancy Branch, issue warnings to ensure compliance and if necessary, administer monetary penalties.

The Compliance and Enforcement Unit only handles cases in which all attempts to resolve the issue through the RTB has been made, yet there is still no compliance. Usually, the first step that the unit takes would be simply informing the parties of their responsibilities. For continued non-compliance, fines of up to $5000 per day may be levied.

Example of matters that the unit investigates:

• Renters repeatedly not paying rent

• Landlords repeatedly attempting to evict renters illegally

• Refusal to complete health and safety repairs; and

• Illegal rent increases

C. Joint Hearing

RTA cannot make orders for landlords and tenants not participating in a hearing, so class action lawsuits do not exist for RTB hearings. However, tenants can seek a joint hearing where they can join their claims into a single hearing. If several tenants seek a joint hearing, under the RTA, they must apply separately for Dispute Resolution and then submit an application to join their claims together. The scheduled hearing date may then be a preliminary hearing to allow the parties a chance to argue why the matters should or should not be joined, or an Arbitrator may decide to immediately hear the cases jointly without the consent of the landlord

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