What Is a Cash-For-Keys Deal?
Rather Than Risk the Win-Lose Outcome That Will Be the Result of a Landlord Tenant Board Hearing a Landlord and Tenant May Pursue a Win-Win Outcome By Negotiating a Termination of Tenancy In What Is Known As a Cash-For-Keys Deal.
A Helpful Guide For How to Understand the Legality and Benefits of a Negotiated Termination of Tenancy
At some point in time a landlord may wish to buy-out the rights of tenure as held by a tenant; and accordingly a negotiated agreement may be established betweent the landlord and the tenant in what is colloquially known and referred to as a cash for keys deal.
The Residential Tenancies Act, 2006, S.O. 2006, Chapter 17 provides for very limited circumstances in which a tenant may be evicted whereas, generally, a tenant is granted security of tenure. Specifically, the security of tenure provisions within the Residential Tenancies Act, 2006 state:
SECURITY OF TENURE
Termination only in accordance with Act
37 (1) A tenancy may be terminated only in accordance with this Act.
Termination by notice
(2) If a notice of termination is given in accordance with this Act and the tenant vacates the rental unit in accordance with the notice, the tenancy is terminated on the termination date set out in the notice.
Termination by agreement
(3) A notice of termination need not be given if a landlord and a tenant have agreed to terminate a tenancy.
When notice void
(4) A tenant’s notice to terminate a tenancy is void if it is given,
(a) at the time the tenancy agreement is entered into; or
(b) as a condition of entering into the tenancy agreement.
When agreement void
(5) An agreement between a landlord and tenant to terminate a tenancy is void if it is entered into,
(a) at the time the tenancy agreement is entered into; or
(b) as a condition of entering into the tenancy agreement.
(a) in a residential complex owned, operated or administered by or on behalf of the post-secondary educational institutions; or
(b) in a residential complex where a non-profit housing co-operative provides housing units primarily for post-secondary students.
(7) Subsections (4) and (5) do not apply to rental units in a residential complex with respect to which the landlord has entered into an agreement with one or more post-secondary educational institutions providing,
(a) that the landlord, as of the date the agreement is entered into and for the duration of the agreement, rents the rental units which are the subject of the agreement only to students of the institution or institutions;
(b) that the landlord will comply with the maintenance standards set out in the agreement with respect to the rental units which are the subject of the agreement; and
(c) that the landlord will not charge a new tenant of a rental unit which is a subject of the agreement a rent which is greater than the lawful rent being charged to the former tenant plus the guideline.
(a) upon a tenant ceasing to be a student of a post-secondary educational institution that is a party to the agreement with the landlord, the landlord takes action to terminate the tenancy in accordance with an agreement with the tenant to terminate the tenancy or a notice of termination given by the tenant; or
(b) a tenant sublets the rental unit to a person who is not a student of a post-secondary educational institution that is a party to the agreement with the landlord.
(11) Either party to an agreement referred to in subsection (7) may terminate the agreement on at least 90 days written notice to the other party and, upon the termination of the agreement, the exemption provided by subsection (7) no longer applies.
Deemed renewal where no notice
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.
(2) If the period of a daily, weekly or monthly tenancy ends and the tenancy has not been renewed or terminated, the landlord and tenant shall be deemed to have renewed it for another day, week or month, as the case may be, with 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.
(3) If the period of a periodic tenancy ends, the tenancy has not been renewed or terminated and subsection (2) does not apply, the landlord and tenant shall be deemed to have renewed it as a monthly tenancy, with 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.
Restriction on recovery of possession
39 A landlord shall not recover possession of a rental unit subject to a tenancy unless,
(a) the tenant has vacated or abandoned the unit; or
(b) an order of the Board evicting the tenant has authorized the possession.
Accordingly, without the tenant providing legal cause for termination, such as the failure to pay rent, the engaging in unlawful conduct, or where a landlord requires use of the rental unit for use by the landlord or close family member, among a very few other reasons, bringing a tenancy to an end may be difficult and problematic for a landlord.
Negotiated Termination Agreement, cash for keys
A cash for keys agreement involves an agreement between a landlord and a tenant whereby the tenant agrees to vacate the rental unit. Essentially, the landlord offers the tenant something of value, usually money, in exchange for the keys to the rental unit (vacating by tenant). The cash for keys agreement is an incentive to have the tenant agree to, and sign, a Form N11 - Agreement to End the Tenancy document. The agreement must be mutually agreed to and signed by both the landlord and the tenant. By signing the Form N11, the landlord is provided with a formal document confirming the negotiated termination agreement and should the tenant subsequently fail to vacate the rental unit as agreed, the landlord may file a Form L3 - Application to End a Tenancy and Evict a Tenant with the Landlord Tenant Board in request for an Order that the tenant abide by the previously negotiated N11 agreement.
A cash for keys agreement is lawful in Ontario. The agreement must be signed by both parties consensually. A landlord should propose the agreement to the tenant with an acceptance date clearly written in the agreement. The acceptance date provides the tenant with time to consider the agreement and to seek legal advice as the tenant deems fit. By providing the tenant with an opportunity to seek legal advice, the landlord minimizes the risk of having the tenant successfully argue at a Landlord Tenant Board hearing that the N11 was signed under duress or undue influence. As was shown within the case of SRC v. ABT, SWL-13259-18-RV (Re), 2018 CanLII 88610, where a tenant was provided with an opportunity to review and consider a cash-for-keys offer to vacate, the tenant will find difficulty arguing that the N11 termination agreement was entered into merely to relieve undue pressure from the landlord; and accordingly, the agreement to terminate will be held enforceable. Specifically, within the SRC case the Landlord Tenant Board stated:
13. The Tenant testified that the Landlord threatened a short/unlawful eviction if the Tenant did not agree to move out by way of the N11. The Landlord did not admit this, but contested the allegation.
14. Moreover, the Tenant testified that during the conversation regarding the termination and in contemplation of the same, the Tenant was hysterical and unable to comprehend the notice. An occupant of the rental unit corroborated that the Tenant was hysterical and unable to comprehend the agreement.
15. I find it difficult to reconcile the Tenant’s testimony regarding the agreement with the notion of duress or a lack of comprehension for two reasons. First, the Tenant was given time to consider and reply to the Landlord’s request regarding the agreement. Second, the Tenant proposed changes to the agreement suggesting that the Tenant understood the agreement and was actively engaged in negotiation.
16. Specifically, the Tenant testified that the decision to sign the N11 in this instance was made after some reflection and conversation with a neighbour. The Tenant was not rushed into a decision, and in fact contacted the Landlord’s Agent the day after the initial conversation to request additional terms (compensation) in exchange for the agreement.
17. This does not suggest the Tenant was badgered into acquiescing – the Tenant considered the agreement, demanded more and received the same. I see no evidence that there was not a meeting of the minds in this instance.
Alleged Extortion Concern
In some circumstances a tenant may allege that an attempt to negotiate a cash for keys arrangement was a form of unlawful extortion engaged by the landlord; however, a cash for keys agreements fails to constitute as extortion as is defined within section 346(1) of the Criminal Code, R.S.C. 1985, c. C-46, which provides the elements that comprise as criminal extortion. For an extortion to occur, the landlord would need to use threats, accusations, menaces, or violence, as a means to force the tenant to sign the N11 agreement. Accordingly, where the cash for keys agreement is signed by the landlord and the tenant via genuine mutual agreement and consent without any undue pressure or illicit conduct, allegations of extortion are without proper grounding. If the landlord were to use any of the means outlined above to influence the tenant to sign an N11, the landlord risks criminal prosecution and civil litigation. On the issue of extortion, the Criminal Code specifically states:
346 (1) Every one commits extortion who, without reasonable justification or excuse and with intent to obtain anything, by threats, accusations, menaces or violence induces or attempts to induce any person, whether or not he is the person threatened, accused or menaced or to whom violence is shown, to do anything or cause anything to be done.
Why Should a Landlord Make a Cash For Keys Offer?
A landlord may consider making a cash for keys offer to encourage a tenant to relocate. The cash for keys offer allows the landlord to control the expense to control the terms and applicable circumstances by establishing such within the cash for keys agreement. If a landlord chooses instead to evict a tenant, the landlord then loses the control over the situation whereas the ultimate decision will be put in the hands of the Landlord Tenant Board. Additionally, if the landlord loses at the Landlord Tenant Board, the tenant may become entrenched in the position of remaining in place with the confirmed assurance in security of tenure which would only serve to drive up the price the tenant would demand to give up such rights.
With the Landlord Tenant Board process of eviction, the landlord must serve the tenant a proper notice, which may sometimes be nullified for the slightest of errors, file an Application with the Landlord Tenant Board, then await a hearing from the Landlord Tenant Board, and then await the decision from the Landlord Tenant Board as well as await any review requests or appeals by the tenant. This entire process can become very expensive and time consuming.
The cash for keys agreement allows the landlord to decide how much to offer the tenant and allows for the landlord and tenant to work together to find a reasonable termination date. When a cash for keys agreement is successful, the landlord may successfully terminate a tenancy without the expense, wait, and risks, for the Landlord Tenant Board to possibly order an eviction of the tenant.
What Are the Terms and Conditions That Should Be Included Within a Cash-For-Keys Deal?
The cash for keys agreement is open to negotiation which allows a landlord to include as many or as few terms as desired; however, the terms must be mutually agreeable to the tenant; and accordingly, for the practicality of a productive negotiation, the Landlord should include terms that are realistic and fair with a reasonable likelihood of gaining the agreement of the tenant.
Suggested Terms and Conditions For a Cash-For-Keys Deal Include:
- An acceptance date;
- A termination date;
- A cleanliness 'broom-swept' condition;
- An undue damage condition;
- A removal of all belongings condition;
- A removal of pets condition;
- A cleanliness incentive clause;
- A satisfactory inspection clause;
- A payment exchange details clause;
- A nullification clause;
- A last month rent interest clause; and
- A legal fees for breach of terms clause.
The cash for keys agreement may be more cost effective for the landlord. The landlord controls the amount to offer to a tenant and the amount is not paid until the landlord has vacant possession of the rental unit. This guarantees that the landlord is only paying the tenant when all the agreed upon terms in the cash for keys agreement are fulfilled. The landlord avoids the expense the Landlord Tenant Board process.
Further to the cash for keys agreement being cost-effective, a cash for keys it is also time-efficient. The landlord can reduce the amount of time that the tenant is in possession of the rental unit. If the cash for keys agreement is successful, the landlord could have vacant possession of the rental unit as quickly as agreed upon by the tenant. The cash for keys saves the landlord the time of entire Landlord Tenant Board process including the drafting, serving, and filing of the required paperwork, the wait for a hearing date, the wait for a decision, and the wait for any request to review or appeal by the tenant (or landlord if the landlord loses at the hearing). Accordingly, a cash for keys termination arrangement may save the landlord many months expended in the effort to evict a tenant.
A cash for keys agreement provides the landlord with a predictable outcome. The landlord can assume that the tenant will vacate the rental unit by the termination date as agreed to in the Form N11 - Agreement to End the Tenancy. Further, the landlord can assume that the tenant will have left the rental unit in the condition as outlined in the agreement to will receive the incentive being offered. The agreement allows the landlord to inspect the unit before the incentive is paid to the tenant to ensure that the tenant has satisfactorily met the terms and conditions of the agreement.
Furthermore, the landlord and tenant agreed to the terms within a signed Form N11 - Agreement to End the Tenancy as a binding agreement that provides the landlord with the right and opportunity to file a Form L3 - Application to End a Tenancy with the Landlord Tenant Board if the tenant fails to comply with the agreed terms such as failing to provide vacant possession of the rental unit per the agreement.
Control Over the Circumstances
Further, the cash for keys agreement provides the landlord with control over the circumstances whereas the landlord can choose the terms and conditions in the agreement and negotiate such terms with tenant rather than risking the terms and conditions that may be imposed by the Landlord Tenant Board. This control provides the landlord with opportunity to negotiate and establish terms that are at the convenience of the landlord such as the termination date, the amount payable to the tenant, the payment date for the cleanliness incentive, the inspection right, among other benefits that would otherwise be terms beyond what the Landlord Tenant Board would grant, if any at all.
The cash for keys agreement is beneficial for the tenant because the tenant is given the ability to negotiate the terms and conditions of the agreement. The Tenant may want a termination date that provides more time to find a suitable replacement unit or less time if the tenant is already looking for, and perhaps found, a substitute rental unit and would like to vacate sooner. The tenant can also negotiate the amount being offered with the landlord. Of course, the tenant should keep in mind that the agreement must be accepted by the landlord; and accordingly, the negotiations should be realistic and fair.
A cash for keys agreement is usually a financial gain for the Tenant. The Tenant should consider the option of accepting a cash for keys agreement as a cost-effective way to vacate the rental unit. If the tenant chooses to decline the cash for keys agreement, the tenant may be responsible for the costs of moving an action to the Landlord Tenant Board. These costs may be the cost of representation for the tenant as well as the costs incurred by the landlord for legal representation as well as the costs and fees relating to the Landlord Tenant Board hearing.
Preserves the Relationship
A cash for keys agreement may also help to preserve the relationship with the landlord and other tenants. If the tenant declines a cash for keys offer, a Landlord Tenant Board heading may result and may involve the tenant fighting an eviction that, if granted, will be absent the compensation that the cash for keys offer contained. Additionally, a contentious battle at the Landlord Tenant Board may harm the relationship with the landlord, among others. The evidence that may be brought to the attention of the landlord during preparation for a hearing and at the hearing may change the opinions of the tenant as previously held by the landlord. Further, Landlord Tenant Board proceedings may harm the relations with other tenants should such other tenants be required as witnesses at a Landlord Tenant Board hearing.
Potentially Positive Reference
The cash for keys agreement requires that the tenant provide vacant possession of the rental unit to the landlord; and accordingly, the tenant will need to relocate; often seeking to make home within a substitute rental unit. By accepting a cash for keys arrangement, the tenant may preserve a positive relationship with the landlord and thereby receive a positive reference for review and consideration by the landlord of the substitute rental unit and perhaps a positive reference for further landlord relationships well into the future.
A cash for keys arrangement between a landlord and tenant can provide for a negotiated agreement that provides significant advantages to both the landlord and tenant; and accordingly, a cash for keys deal enables opportunity for a win-win situation rather than a win-lose that will be the result, in favour of one or the other, following a contentious dispute process via the Landlord Tenant Board.