Real Estate

Prepaid rent offered by applicants (implications)?

  • Last Updated:
  • Apr 27th, 2020 10:41 pm
Tags:
[OP]
Sr. Member
Feb 11, 2013
789 posts
105 upvotes
BC

Prepaid rent offered by applicants (implications)?

Hey folks,

I'm trying to rent out my house and have gotten a few applicants that have offered pre-paid rent, anywhere between 4 months to 9 months. These applicants are offering prepaid rent because their credit is low and for one applicant, he has sufficient funds but unable to get a mortgage due to bad credit. I have researched online regarding the pre-paid rent and was able to gather some articles back in 2014 stating that as long as the tenant is offering and not being asked, it's okay. However, I'm wondering if this is still valid in 2020? My only concern is to finalize the lease and subsequently get asked to return their prepaid rent back.

If someone knows anything about this or has gone through a similar situation that can shed some light on this matter, I'd appreciate it. The articles discussing pre-paid rent are listed below:


https://www.thestar.com/business/person ... front.html

https://www.rentalhousingbusiness.ca/on ... -up-front/
12 replies
Deal Fanatic
Oct 7, 2007
8323 posts
4278 upvotes
I am not a lawyer or an expert on the subject, but I have found myself needing to lay someone off because some funding didn't come through. The person we had to let go then came back and asked if they could work for free just because they wanted the experience. We were a bit nervous because we didn't want any trouble but then decided that we would draft up a letter detailing the terms and conditions of our arrangement that we had her sign so that it was on the record that it was on her terms that we were not paying her and that the reason we laid her off in the first place. It all worked out fine. If you decide to accept the prepaid rent, you could and should draft up a carefully worded letter describing the terms of how it would all work and why the prospective tenant wants to offer the prepaid rent in the first place. You could even draft something in there about refundability of the funds. I have found so many times in my life that drafting things up in writing really saves a lot of headaches later on and usually results in much better outcomes. I think it helps keep both parties honest in any arms' length relationship.
Deal Fanatic
Jul 3, 2011
5781 posts
2953 upvotes
Thornhill
Contact the Landlord Tribunal. The language in the revised Act hasn't changed and it had been ruled based on the previous version that tenants may offer to pre-pay. The thing is though that the tenant can turn around and say it was coerced and since the tenancy agreement may not call for it, the rule suggests the pre-payment will be returned to the tenant.
Banned
Jul 8, 2017
628 posts
699 upvotes
NA
I would rent to someone with a low credit score but willing to prepaid their rent only if they have at least 200K in their bank/investment account with at least 3 years of transaction history. And the transaction history has to show an increasing in their net worth not the other way around. You need to.keep in mind right now you can't evict anyone if they can't come up with their rent and this rule might last for another year or two.
Deal Addict
Nov 13, 2013
2546 posts
1280 upvotes
Ottawa
Silver1234 wrote: I would rent to someone with a low credit score but willing to prepaid their rent only if they have at least 200K in their bank/investment account with at least 3 years of transaction history. And the transaction history has to show an increasing in their net worth not the other way around. You need to.keep in mind right now you can't evict anyone if they can't come up with their rent and this rule might last for another year or two.
I 'm pretty pessimistic about the prospects for a lot of this. and a "bear" on almost all assets prices, but 2 years of no eviction is basically impossible. If it lasts beyond summer a huge proportion of people will stop paying rent and mortgages and the whole system will collapse.
Deal Fanatic
User avatar
Sep 8, 2007
9004 posts
10280 upvotes
Way Out of GTA
In this market unless are an essential worker or A+ credit. I would not take anyone with bad credit or a shifty job. Doug Trudeau took away landlords rights to evict for any reason. You don't want to be caught in this for the sake of a months rent. What if they extend that order a year out? You've heard these crackpot federal and provincial govt's talking of not reopening until there is a vaccine (which may not happen).

Prepayment might protect you short term but not longer term. Until the govt's give some assurance of reopening and willing to accept that you can't save every single life....do not take any risk on the tenant front. You will thank me later.
Deal Addict
Dec 23, 2010
1897 posts
929 upvotes
Moon
I think prepaid rent is good. It is the only realistic way to rent to someone right now as legally tenants currently don't need to pay rent. I think the 9 month offer is solid
Deal Addict
Nov 13, 2013
2546 posts
1280 upvotes
Ottawa
Applesmack wrote: I think prepaid rent is good. It is the only realistic way to rent to someone right now as legally tenants currently don't need to pay rent. I think the 9 month offer is solid
Yeah I agree. I don’t i a time it’s likely someone has a plan to do that and then go to LTB tonget their prepayment back and stop paying rent. If so you need to vett better. You better believe if I was putting 9 months rent down up front in this market I want a steep discount on January’s going rate.
Deal Addict
Aug 31, 2017
4278 posts
2178 upvotes
If you're having doubts already, I would listen to your gut and not do it.
Deal Addict
Dec 23, 2010
1897 posts
929 upvotes
Moon
fogetmylogin wrote: Yeah I agree. I don’t i a time it’s likely someone has a plan to do that and then go to LTB tonget their prepayment back and stop paying rent. If so you need to vett better. You better believe if I was putting 9 months rent down up front in this market I want a steep discount on January’s going rate.
There is no steep discount required. Tenant signs agreement on the monthly pay to keep the lease and just prepay 9 months of that pay. In 9 months covid eviction restrictions should be lifted and if tenant doesn't pay you cns begin eviction.
Deal Addict
Nov 13, 2013
2546 posts
1280 upvotes
Ottawa
Applesmack wrote: There is no steep discount required. Tenant signs agreement on the monthly pay to keep the lease and just prepay 9 months of that pay. In 9 months covid eviction restrictions should be lifted and if tenant doesn't pay you cns begin eviction.
I guess you are not tryin to rent something out right now. The market is very weak and you are taking a risk doing it. I know in OPs case the prospective tenant had weak credit so maybe not needed.
Deal Fanatic
User avatar
Sep 8, 2007
9004 posts
10280 upvotes
Way Out of GTA
licenced wrote: Contact the Landlord Tribunal. The language in the revised Act hasn't changed and it had been ruled based on the previous version that tenants may offer to pre-pay. The thing is though that the tenant can turn around and say it was coerced and since the tenancy agreement may not call for it, the rule suggests the pre-payment will be returned to the tenant.
1) is LTB even open to order a return of prepayment to tenant? Or by the time they get to the case perhaps restrictions have been loosen sufficiently that returning the prepayment isn’t that big of an issue?

2) Perhaps as part of the lease an attachment where the tenant attests that they offered the prepayment of their own free will and it was not initiated by the landlord. Knowing the LTB... even this may not be sufficient, but at least it might work....
Deal Fanatic
Jul 3, 2011
5781 posts
2953 upvotes
Thornhill
cartfan123 wrote: 1) is LTB even open to order a return of prepayment to tenant? Or by the time they get to the case perhaps restrictions have been loosen sufficiently that returning the prepayment isn’t that big of an issue?

2) Perhaps as part of the lease an attachment where the tenant attests that they offered the prepayment of their own free will and it was not initiated by the landlord. Knowing the LTB... even this may not be sufficient, but at least it might work....
The agreement would essentially want to state that the tenant offered, but the ACT can't be circumvented.

Prior to the change I know the offer by the tenant stood up in court, I'm not sure if it still would.

Top