I was recently speaking with Shamon Kureshi, the owner of Hope Street Property Management, who told me a story about “re-rental fees” that I thought may be instructive for you. It deals with some of the issues surrounding security deposits, lease enforcement, and of course “re-rental fees.”
First of all let me be clear that any time you deviate from the standard rental lease agreements by adding or omitting charges you are walking into murky waters. If you require a standard form I recommend the one posted here: http://www.hopestreet.ca/resources/ Click “Fixed Term Tenancy Agreement.”
Shamon was speaking at a conference on Property Management and was asked the following question by an attendee: “I have a customized fixed term lease that states if a tenant breaks the lease they will be charged $500 as a re-rental fee. My tenant broke the lease, but I was able to re-let the premises for the next month and I did not lose any money. Am I entitled to keep the $500 from her security deposit for the re-rental fee?”
First, let’s get my opinion out on the table. Without delving into the letter the decent and best business practice in this case would be to forget about the $500 fee. No harm, no foul, no fees. If you’re in business for the long haul, as most Landlords are, the $500 isn’t worth a possible fight and potential for a black spot on your name. Free money is never free. And situations like this have a way of biting one in years down the road.
That being said, here’s Shamon’s more technical response. His years of experience certainly qualify him to speak to this issue.
Shamon:
Security deposits can only be deducted provided a property inspection report has been completed prior to move in and when the tenant moves out. Obviously this is not an issue of structural damage so it will not appear on this form.
This “re-rental fee” is therefore immediately walking on thin ice.
If you did not actually spend any money or suffer any damage as a result of lost rental income, this it is very likely that the “fee” is more properly a penalty. And it can be challenged by your tenant. The courts do not readily enforce penalties and, in fact, have the authority under the Judicature Act, to relieve from penalties in a contract. In these circumstances, it is my opinion that because you have not suffered any out of pocket expenses or loss in relation to the breach of the tenancy and re-letting, and because the “fee” is quite high, that you are likely to loose if challenged in court by the tenant. If you incurred costs and could prove the costs (i.e. cost of placing an ad in the local paper) then you may have an argument for reimbursement.
Of course, it seems unlikely that any Landlord would pay $500 to advertise a suite.
If you want to be 100% safe, the landlord would refrain from retaining any monies other than for legitimate damages to the property. If you choose to do otherwise, there is no guarantee you will be immune from an investigation and potential prosecution by the appropriate government authority.
So whether dealing with my gut / “best business practice” response or Shamon’s more technical response I think it’s safe to say that we would advise against pursuing the enforcement of the “Re-rental” fee.
