Residential Tenancies in Ontario are a complex and diverse subject. In addition to understanding operation of the Residential Tenancies Act, a good knowledge of contract law is also required. At times, there can be circumstances in which the Act remains silent and easy guidance can not be sought. Frustrated contracts is one of these situations.
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What is a Frustrated Contract?
A contract frustration occurs when unforeseen events make the performance of a contract impossible, or radically different from what was agreed upon. In this scenario, one or both parties to the contract may choose to declare it ‘frustrated’ and no longer able to operate, or have binding effect.
In the context of residential tenancies, a frustrated contract would occur when a tenant is no longer able to physically rent a unit from the Landlord. This can be for a multitude of reasons like fire & destruction of the unit, bankruptcy, or other issues beyond the landlord or tenant’s control.
The Residential Tenancies Act
The Residential Tenancies Act specifically states that the doctrine of frustration and the Frustrated Contracts Act applies to residential tenancies.
19 The doctrine of frustration of contract and the Frustrated Contracts Act apply with respect to tenancy agreements. **2006, c. 17, s. 19.**
Rather than dictate how a contract can become frustrated or the responsibilities of a Landlord or Tenant, the Act simply points the reader towards the Frustrated Contracts Act, where inferences can be made.
Frustrated Contracts are an important framework of residential tenancies. In Ontario, a tenancy continues indefinitely, until certain conditions are met, such as an owner occupying the unit or a tenant choosing to vacate. Frustrated Contracts are another way that tenancies could end if certain conditions are met.
Frustrated Contracts Act
The Frustrated Contracts Act is an Ontario Law that can be referred to in the case of contracts that become frustrated. It outlines certain requirements that need to be met in order for a contract to qualify as being considered frustrated. It’s important to note that the Act does not declare or decree any agreement frustrated, it merely provides legal framework for interpretation by parties and their legal counsel for the purposes of discourse.
Requirements for a Frustrated Tenancy Agreement
There are three main conditions that must be met in order for a contract to qualify as potentially frustrated:
1. Unforeseen Event
In order for a contract to be eligible for frustration, the event must be unforeseen and not stipulated in the Agreements made between the parties.
2. No Fault of Either Party
The event leading to frustration must occur without any fault or contribution from either the Landlord or the Tenant.
3. Impossibility of Performance
The event must make it impossible (not just difficult or expensive) to fulfill the contractual obligations
Frustration in Residential Tenancy
Applying the above principles, we can surmise a few scenarios in which it might be possible to declare a tenancy frustrated.
Damage or Destruction to the Unit
The most common example of this would be a destruction of the premises. A substantial fire or flood could render the rental unit uninhabitable. In CET-53895-15 (Re), 2016 CanLII 44625 (ON LTB), a fire occurred in a rental unit, rendering it uninhabitable, leading to the application of the doctrine.
It’s important to note that Contract Frustration would apply in situations where the unit might be totally or substantially damaged. A unit with a fire requiring temporary relocation would not qualify for a frustrated contract. Courts typically only agree with contracts being frustrated when there is no adequate timeline for repair or restoral, as in Y.Y. v. A.T. and L.W., TEL-32649-12 (Re), 2013 CanLII 51226.
1. The Residential Tenancies Act, 2006 did apply to this unit from June 1, 2012 until December 1, 2012. At that time the unit was deemed uninhabitable and the tenancy agreement became frustrated pursuant to the Frustrated Contracts Act and as permitted under section 19 of the Residential Tenancies Act, 2006 (RTA).
2. As a result of the lengthy period of time required to make repairs to the unit there is no foreseeable date that the Tenants would be permitted back into the rental unit. There is no requirement under the RTA for the Landlord to offer the Tenants first right of refusal when the unit does become habitable.
3. Based on the evidence provided and the fact this vacancy of the rental unit is not for a short period of time I have deemed the rental contract to be frustrated as of December 1, 2012.
Legal Prohibitions and Orders
Another situation could be where legal prohibitions hinder operation of the rental unit. These cases are during expropriation, zoning changes, or health orders.
Despite the above, it is important to note that one party cannot unilaterally render the contract frustrated. For example, if a Landlord decides to demolish a building for another purpose, the Tenant would still be entitled to compensations as outlined in the Act. Courts also look at the cause of frustration, in order to avoid rulings that would create self-imposed frustration situations (such as a tenant starting the fire themselves).
Conclusion
Its important to understand that contract frustration in Ontario Tenancies is rare and has a high means test. Frustration of Contracts should not be used as leverage during a tenancy situation. Understanding if the contract is frustrated should be left to a Legal Professional.
If you have any additional questions on Frustrated Contracts as it relates to Ontario Tenancies, Contact Us.
