Landlord Punished for Double-Dipping: Understanding Sublets and Substitutions

by Chris on September 10, 2018

An Ontario landlord is in the news after she was ordered to return rent she collected from students while at the same time subletting the property on Airbnb.

After apparently signing a tenancy agreement, the students asked the landlord for permission to sublet their rooms over the summer so they could return home. The landlord allegedly withheld consent. Instead, she continued to collect rent from her tenants while at the same time leasing out a room to someone else and advertising for short-term renters on Airbnb.

Believing that the sublet request was rejected, one student attempted to return to her room only to be told that she was no longer a tenant. The student claims the landlord refused to allow her to collect her furniture for several weeks.

While one of the tenants may have consented to the arrangement, the Landlord and Tenant Board concluded that the landlord breached the tenancy agreement by collecting rent from her tenants while simultaneously collecting rent from sublets. The landlord was ordered to refund nearly $5,000 in rent she received as a result of the double-dipping. She claims that left her in the red given that the short-term sublets did not yield as much rent.

Still, it’s not clear what the relationship was between the parties. Was it a sublet? A substitution? Was the lease terminated?

This case highlights how important it is for both tenants and landlords to understand their rights and responsibilities under the tenancy agreement and the applicable tenancy laws. One of those responsibilities is understanding the consequences of swapping occupants during the tenancy.

Most tenancy agreements contain language regarding sublets and substitutions and some address early termination, but when tenants need to be absent, the best path forward is not always clear.

For example, the cleanest way for the landlord to handle an exiting tenant or roommate may be to terminate the entire tenancy agreement. The landlord could then re-lease to some of the same roommates along with the new tenants — or substitute roommates. But the break in the original tenancy term allows the landlord to inspect the property for damage at a time when the responsible parties are still available.

However, many landlords opt for a substitution, which basically combines the lease termination and new lease into one document — a lease amendment. The exiting tenant signs an addendum allowing the new tenant to move in, and the new tenant agrees to be bound by the terms of the tenancy agreement.

A landlord can at the same time release the exiting tenant from the terms of the tenancy agreement, although that option is risky, and the landlord should talk to an attorney before making that contractual commitment. The legal rights of the parties to this transaction depend upon the language in the addendum. And, of course, all parties to the lease need to agree.

Sublet is the term most typically applied when the tenant is seeking another person to cover the rent during a temporary absence. An example is the student who will be gone for the summer but plans to return to the property again in the fall.

Airbnb rentals are considered sublets only to the extent that the tenant host is collecting the money and then paying the rent to the landlord. In a typical sublet, the tenant remains responsible for all the conditions of the tenancy agreement. That places the onus on the tenant to make sure the person subletting follows the provisions of the tenancy agreement. Sublets are temporary, and the tenant either continues to live at the property or intends to return during the term of the lease. Any action to enforce the lease — such as eviction — typically is limited to the tenant, not the sublessee.

The term does not apply to a student who turns over the keys and vacates the property after recommending a friend to take over the lease. That’s more akin to a substitution. In that situation, whether the original tenant remains liable on the tenancy agreement depends on whether the landlord agrees to release them.

It’s easy to see how the distinctions becomes exponentially more difficult to navigate when renting to multiple tenants who are making conflicting demands for the property. This is one of many reasons why landlords need to educate tenants — particularly roommates and first-time renters — on the rules for joint and several liability. Co-tenants need to understand their legal responsibilities under the tenancy agreement before an errant roommate disappears, leaving behind a clueless replacement who has not undergone a tenant background check.

The other factor that makes these transactions difficult is the reality that a landlord may need to accept a tenant’s sublessee or substitution to minimize income loss. A landlord can’t count on the tenancy agreement to force any of the tenants to remain. If a tenant needs to terminate the lease early, the landlord will be required to locate a suitable replacement as soon as possible. Then, the original tenant may be off the hook.

As a practical matter, it’s better if the process of switching occupants is amicable and the landlord cooperates with the tenants to find a suitable replacement — whether that’s a sublessee or a substitute. Forcing angry or anxious tenants to remain in possession of the property can lead to damage or neglect. By cooperating, the landlord has the opportunity to run a tenant background check on the replacement and maintains control over who is living in the rental unit.

This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).

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Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.

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