August 21st, 2018

What to know if you rent to a family member

In this post, we’re going to go over everything that a landlord needs to know before deciding to rent out their unit to a family member.

If you already have a tenant in your unit and need to evict them for this unique scenario, the landlord has the responsibility to file Form N12, available via the Landlord and Tenant Board (in Ontario). The N12 Form is a notice to end a tenancy based on the landlord's "personal use".

Personal use

Personal use can be declared by the landlord when they would like to move in an immediate family member (their parent, spouse, child, step-child, etc.).

The landlord can be seen as serving this notice in "bad faith" if, within one year:

  • The unit gets advertised for rent again at a higher price,
  • The unit gets rented out to someone other than the former evicted tenant or a family member,
  • The building goes up for sale,
  • The rental unit gets demolished, or, 
  • The rental unit gets converted into a commercial property.

Of course, circumstances change and all of the above can be proven to the contrary, if innocent, in a tribunal.

Taking in a family member

Many proverbial landlords have been known to kick out tenants under the pretence of a family member moving in, only to re-list that property (perhaps after a superficial renovation) at a higher rental price.

This is an illegal eviction and has led to court cases in the past, especially in hot rental markets such as Toronto.

If you're considering the N12 eviction, odds are a member of your family has fallen onto hard times or might just need a place to stay after university or a divorce. It could be anything!

When you have a rental property, you’ll get these types of phone calls. And though it’s tempting to forgo the normal rental price you've established, or offer discounts on utilities to your loved ones, it’s very important to stick to collecting a fair market rent for your unit, unless you’d like to disqualify yourself from tax deductions.

Fair market rent

When you’re renting to anyone, including relatives and friends, you must charge them a fair market rent.

If you charge under the market value, your property can be disqualified from “rental” status in the eyes of the government. In order to claim any tax credits related to being a landlord, you’ll have to prove you’re charging the right price – 10% discounts are easier to justify for a relative than 20% discounts.

Further, if you’re renting out your unit to a family member who only uses the space temporarily, the rental unit could be considered a secondary property rather than a rental property.

How to evict for personal use

There are laws set up to protect tenants, and in this case, compensate them for having to deal with this eviction process.

Effective September 1st, 2017, Ontario’s Residential Tenancies Act, 2006 contains amendments that require the following:

  • Landlords pay the tenant one month’s rent compensation when terminating a tenancy based on personal use, or, offer the tenant an acceptable alternative rental unit
  • The new relative given the rental unit must occupy the unit for a minimum of twelve months
  • Landlords give 60 days written notice using the N12 Form
  • Landlords act in good faith. If found to be acting in “bad faith” (as detailed at the beginning of this article), a conviction can occur along with a $25,000 fine for the offense.