Is Asking for Months of Rent in Advance Legal in Toronto?
According to this CBC article, it is now a common practice for Toronto landlords to accept rent payments for a year in advance in order to provide housing to newcomers who have not yet established a credit score in Canada. Is this practice legal, and should you consider it for newcomers without credit scores?
You can accept an offer, but cannot ask for rent months in advance
Technically, a landlord can only legally ask for the first and last month’s rent in advance. The payment for the first month must be applied to the tenant’s first month, and the last month’s must be applied to the last month. It cannot legally be used as a “damages” deposit which is withheld if there are damages to the unit. If there are damages beyond normal wear and tear, the landlord must submit an application to the Landlord and Tenant Board (LTB) to recover the funds.
Some landlords opt not to ask for the last month’s rent, particularly long-term tenants, as they are responsible for paying the tenant yearly interest on this amount according to a schedule laid out by the Residential Tenancies Act.
It is not technically illegal to accept months of rent in advance as long as those funds are applied to the months they cover, with one important consideration: you cannot ask for it, the tenant or their agent (typically a real estate agent) has to offer it. This is extremely vital, as any form of communication that shows you asking for it can land you in legal hot water.
Why we don’t recommend it for tenants with less than stellar credit scores
If the prospective tenant has a less than amazing credit score, we don’t recommend renting to them on principle. This includes newcomers who have not yet established credit in Canada.
When we take care of your property, we only rent to people with impeccable credit scores. It’s one of our non-negotiables, simply because this makes a tenant an “unknown”. Someone could have the best job in the world, but that doesn’t mean they will pay rent. A credit score is the only good predictor of their willingness to pay; a secure job only tells you they have the ability to pay.
If you accept rent months in advance, this can severely impact their eventual ability to pay, as they may have to take out high-interest credit in order to give you the rent payments in advance. In essence, you’re just kicking the can down the road and you are still starting a relationship on blind faith, even if you have the first six months to a year’s worth of rent payments in the bank.
But what if they have a really good job?
In the current economic climate, a really good job is not an excellent predictor of future ability to pay. Sectors like tech, especially, are being hit hard by layoffs. People with six-figure salaries are being let go from top positions in that sector regularly. That doesn’t mean you shouldn’t rent to anyone with a tech job, it just means that nobody’s job is stable and willingness to pay is more important than ability to pay. The only metric that can measure willingness to pay is a good credit score.
If the prospective tenant has established a good credit score in Canada, you can certainly choose whether or not to accept an offer of rent payments in advance based on your own comfort level, but remember: do not ask!
One of the single greatest values in hiring a property manager is effective tenant screening. There are lots of prospective tenants out there with excellent credit scores you can rent to. Nightmare tenant scenarios are becoming increasingly common as the LTB is backed up on cases for 1-2 years. “Professional” tenants know this and game the system, often presenting themselves as high net worth individuals who are just temporarily down on their luck with a less than perfect credit score. We know exactly what to look for in a good tenant, and an established credit score is just part of the equation.
Sometimes, landlords won’t get a bunch of bites on a listing and will resort to taking tenants with less than stellar credit to rent the place out. This isn’t the way to go – we have lots of tactics that we use to maximize your listing to attract tenants, including the ability to add them to MLS because we are also Realtors.
Contact us today to help protect your investment with our property management services.
