This is part two of a two-part series. Read Part 1 here.
Risks to Buyers when a Tenant fails to leave the Residential Property on the Possession Date
One of the recent legislative changes made by the Province was to impose a punitive award of 12 months’ rent in favour of the tenant when a tenant is evicted because the landlord or purchaser intends to use the property, and the property is then not used for that purpose. The author calls the award “punitive” because it may be in excess of the tenant’s actual damages and may result in a windfall to the tenant. The intention of this legislative change was to deter landlords from using this basis of eviction as a ruse to obtain vacant possession.
In particular, the legislation provides as follows:
Tenant’s compensation: section 49 notice
51 (2) Subject to subsection (3), the landlord or, if applicable, the purchaser who asked the landlord to give the notice must pay the tenant, in addition to the amount payable under subsection (1), an amount that is the equivalent of 12 times the monthly rent payable under the tenancy agreement if
- steps have not been taken, within a reasonable period after the effective date of the notice, to accomplish the stated purpose for ending the tenancy, or
- the rental unit is not used for that stated purpose for at least 6 months’ duration, beginning within a reasonable period after the effective date of the notice.
(3) The director may excuse the landlord or, if applicable, the purchaser who asked the landlord to give the notice from paying the tenant the amount required under subsection (2) if, in the director’s opinion, extenuating circumstances prevented the landlord or the purchaser, as the case may be, from
- accomplishing, within a reasonable period after the effective date of the notice, the stated purpose for ending the tenancy, or
- using the rental unit for that stated purpose for at least 6 months’ duration, beginning within a reasonable period after the effective date of the notice.
This provides that a buyer of a property, who asks an owner to evict a tenant on the basis that the buyer intends to move into the property, must pay the tenant 12 months’ rent as a penalty to the tenant if the buyer ends up not actually moving into the property after the tenant leaves in response to the notice.
The buyer is excused from this obligation if there are “extenuating circumstances”. However, the meaning of that term is largely undefined by case precedent and by policy guidelines. Arbitration decisions of the Residential Tenancy Branch of B.C. are not binding or precedential either. The result is that the question of whether the circumstances are “extenuating” is unpredictable. This creates a source of significant risk for the buyer, as follows.
- What if the buyer backs out of the contract for an unrelated reason after all conditions are waived, but the tenant leaves in response to the eviction notice that was already served? The buyer is prima facie liable to the tenant to pay 12 months’ rent, subject to the buyer showing extenuating circumstances. An arbitrator may not agree that backing out of the contract necessarily constitutes extenuating circumstances. There is no case law, legislation, or policy guideline which gives any degree of certainty to the outcome.
- What if the buyer backs out of the contract on the basis that the tenant failed to leave on the possession date, and yet the only reason the tenant has not left is because the tenant has started a legal proceeding to set aside the notice the buyer asked be delivered?
- What if the buyer even included language in the contract to the effect that the contract is terminated if the premises are not vacant on possession? The tenant isn’t bound by that agreement, and so if the tenant leaves in response to the notice, the buyer is still responsible to pay 12 months’ rent, subject to an arbitrator agreeing the buyer is discharged due to extenuating circumstances.
As with the above examples for sellers, the current contractual language typically used by buyers and sellers does nothing to address these issues.
Suggestions Moving Forward
Until standardized clauses dealing with these issues are created and used by the industry, legal counsel is necessary to draft language dealing with the issues described above when selling tenant occupied property. Dealing with these outcomes in a way that properly protects a party’s interests can be complex, since it involves drafting a contractual language which addresses multiple unpredictable outcomes, and so it requires the services of a lawyer.
Further legislative reform in this area is needed so that innocent buyers and sellers are not accidentally caught with liability that was intended for unscrupulous landlords and not for them. This could include, for example, legislative reform clarifying the meaning of “extenuating circumstances” that discharge a buyer from having to pay 12 months’ rent to a tenant, and consequences for tenants (and landlords) filing frivolous claims before the Residential Tenancy Branch of B.C. (currently there are very few consequences).
Read Part 1 here.
– Michael Drouillard is vice chair of the board of directors of LandlordBC, and the Principal Legal Counsel at Drouillard Lawyers.
*This article was originally published in the spring 2021 edition of The Key magazine.