Zero rent Tenancy lease agreement for a family member
If you let a family member (adult son/daughter) live rent free in your condo, should you still sign a Zero rent lease agreement and why?
Zero rent Tenancy lease agreement for a family member
- Last Updated:
- Jul 7th, 2021 9:44 am
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- Redcoffee [OP]
- Jr. Member
- Aug 3, 2020
- 190 posts
- 493 upvotes
10 replies
- realtorhome
- Sr. Member
- May 3, 2013
- 754 posts
- 456 upvotes
- Toronto
Depends on your relationship with the family member. If you sign a lease, they will have tenancy rights. If you don't, it doesn't mean they won't have tenancy rights as a verbal agreement is just as valid.
AFAIK, from contract law, an agreement is valid if there is consideration. A zero rent lease has zero consideration, for the lease to be valid, make it a $1 lease.
AFAIK, from contract law, an agreement is valid if there is consideration. A zero rent lease has zero consideration, for the lease to be valid, make it a $1 lease.
- licenced
- Deal Fanatic
- Jul 3, 2011
- 6517 posts
- 3793 upvotes
- Thornhill
This is a very good point. A contract requires a proise for a promise. The RTA in Ontario and probably other provinces as well speak to a rent being the element that forms a lease. Rent per realtorhome is the tenant's consideration - their promise to the lanlord in return for the pronise of the premises, but it can be something else. Essentially unless your lease has that promise for a promise the tenancy may not be covered under the respective Tenancy Act.realtorhome wrote: ↑ A zero rent lease has zero consideration, for the lease to be valid, make it a $1 lease.
Despite that though, a recognized lease agreememt doesn't matter if it's between family members or at arms-length parties and if it falls under the accepted definition of the lease the RTA will apply as is necessary for non-payment, eviction. complaints against the landlord etc.. Depending on what exactly you want of the agreement then, you would have a true lease agreement - a promise for a promise. But there could be a caretaker agreement that could if crafted properly fall outside the RTA (ONT).
- FrancisBacon
- Deal Addict
- May 12, 2014
- 3407 posts
- 3764 upvotes
- Montreal
What if this person gets married?
What if they or their spouse refuse to move out (eg in case of divorce/breakup)?
What if there's a fire, water leak, etc (ie insurance issues)
Also there may be tax issues (eg if the property is held in a company).
Too many scenarios to give a blanket answer.
You won't be able to protect against all scenarios. You'll have to think about which risks you want to mitigate, and which you'll assume.
Then a good answer can be given.
What if they or their spouse refuse to move out (eg in case of divorce/breakup)?
What if there's a fire, water leak, etc (ie insurance issues)
Also there may be tax issues (eg if the property is held in a company).
Too many scenarios to give a blanket answer.
You won't be able to protect against all scenarios. You'll have to think about which risks you want to mitigate, and which you'll assume.
Then a good answer can be given.
- Jon Lai
- Deal Expert
- May 30, 2005
- 48243 posts
- 9134 upvotes
- Richmond Hill
Doesn't sound like there's any benefit to the landlord in this case?realtorhome wrote: ↑ Depends on your relationship with the family member. If you sign a lease, they will have tenancy rights. If you don't, it doesn't mean they won't have tenancy rights as a verbal agreement is just as valid.
AFAIK, from contract law, an agreement is valid if there is consideration. A zero rent lease has zero consideration, for the lease to be valid, make it a $1 lease.
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- UrbanPoet
- Deal Expert
-
- Jan 27, 2004
- 51256 posts
- 15653 upvotes
- ONTARIO
Just be like
“Son… if you screw me over i’m cutting you out of the will. Lolz”
“Lolz”
“No i’m serious”
“K…”
“Son… if you screw me over i’m cutting you out of the will. Lolz”
“Lolz”
“No i’m serious”
“K…”
- Redcoffee [OP]
- Jr. Member
- Aug 3, 2020
- 190 posts
- 493 upvotes
So here is the scenarioFrancisBacon wrote: ↑ What if this person gets married?
What if they or their spouse refuse to move out (eg in case of divorce/breakup)?
What if there's a fire, water leak, etc (ie insurance issues)
Also there may be tax issues (eg if the property is held in a company).
Too many scenarios to give a blanket answer.
You won't be able to protect against all scenarios. You'll have to think about which risks you want to mitigate, and which you'll assume.
Then a good answer can be given.
1) The condo was rented out to a tenant, who has now left after 6 months of 2021.
Since it was rented out all of 2020, I claimed the expenses, declared the rent and included it in my 2020 tax returns.
2) Now my adult son has moved in and will stay here for about 2 years while in University. After that, he will be moving out to wherever he gets a job.
I am not concerned about payments from him or to think of landlord tenant issues. I am providing him relief during his University years (I also paid his rent so far after he started university and was renting)
So now that I have a vacant condo, he can move in till he finishes his studies.
The real issue is, as I am not getting a rental income, I obviously cannot claim the expenses (management fee, interest and property tax) for the last 6 months in my 2021 tax return.
So how do I deal with this?
The condo generated rental income for 6 months and now will not do so for the rest of the year due to family member living rent free.
- FrancisBacon
- Deal Addict
- May 12, 2014
- 3407 posts
- 3764 upvotes
- Montreal
I am not an accountant, and this may be definitely worth talking to one to see what the best financial option is.
I wonder if it's not just easier to have your son pay rent, allowing you to deduct the costs as for any normal tenant (you would include the income in your taxes). Between condo fees, depreciation, insurance, etc, this may not be too bad.
Or, consider selling the condo in return for a promissory note (0% interest loan) which would allow your son to claim the principal residence exemption when it's eventually sold since he's living there for 2 (++?) years.
I wonder if it's not just easier to have your son pay rent, allowing you to deduct the costs as for any normal tenant (you would include the income in your taxes). Between condo fees, depreciation, insurance, etc, this may not be too bad.
Or, consider selling the condo in return for a promissory note (0% interest loan) which would allow your son to claim the principal residence exemption when it's eventually sold since he's living there for 2 (++?) years.
- CNeufeld
- Deal Guru
-
- Mar 23, 2008
- 13006 posts
- 9978 upvotes
- Edmonton
Keep in mind that you can gift him money without the CRA caring, and then charge him market value. This should allow you to continue to deduct your regular landlord expenses.
Selling to him is going to have a slug of expenses, plus what are you going to do if he doesn’t want to sell it back to you?
But as always, seek actual professional advice rather than input from anonymous Internet users…
C
Selling to him is going to have a slug of expenses, plus what are you going to do if he doesn’t want to sell it back to you?
But as always, seek actual professional advice rather than input from anonymous Internet users…
C
- fogetmylogin
- Deal Addict
- Nov 13, 2013
- 4373 posts
- 2969 upvotes
- Ottawa
This is easy. Deduct and claim for the time it was rented. Same as if you were moving back yourself. I don't know why you would overcomplicate with a rental agreement. You certainly can't charge zero rent and deduct expenses but I think you know that.Redcoffee wrote: ↑ So here is the scenario
1) The condo was rented out to a tenant, who has now left after 6 months of 2021.
Since it was rented out all of 2020, I claimed the expenses, declared the rent and included it in my 2020 tax returns.
2) Now my adult son has moved in and will stay here for about 2 years while in University. After that, he will be moving out to wherever he gets a job.
I am not concerned about payments from him or to think of landlord tenant issues. I am providing him relief during his University years (I also paid his rent so far after he started university and was renting)
So now that I have a vacant condo, he can move in till he finishes his studies.
The real issue is, as I am not getting a rental income, I obviously cannot claim the expenses (management fee, interest and property tax) for the last 6 months in my 2021 tax return.
So how do I deal with this?
The condo generated rental income for 6 months and now will not do so for the rest of the year due to family member living rent free.
- Redcoffee [OP]
- Jr. Member
- Aug 3, 2020
- 190 posts
- 493 upvotes
Thank you very much. This appears to be the simplest solution.fogetmylogin wrote: ↑ This is easy. Deduct and claim for the time it was rented. Same as if you were moving back yourself. I don't know why you would overcomplicate with a rental agreement. You certainly can't charge zero rent and deduct expenses but I think you know that.
Of course I cannot deduct expenses if there is no rental income (due to the family member residing).
That was the confusion, but your solution will work. I did not realize I can claim for partial year's rent and expenses.