Understanding Sublease Agreements in Ontario: A Comprehensive Guide

What is a Sublease Agreement?

A sublease agreement in Ontario is a legally binding contract that is used when a tenant (the sublessor) wants to rent his or her residential unit to another party (the sublessee). This is different from a standard lease agreement where the landlord rents the premises directly to a tenant. The sublease agreement normally has similar provisions to the original lease agreement the tenant has with the landlord.
Some of the general responsibilities of the sublessor for the new tenant include: It is important for the sublessor and sublessee to understand the terms of a sublease agreement. A sublease agreement can be either oral or in writing. Although the requirements of a sublease agreement are not governed by statute , it is advisable that the sublease agreement be in writing. A written sublease agreement helps prevent the loss of the sublease conditions or the improper memorization of the rental unit terms. It could also help avoid a sublease dispute if the parties have a disagreement.
The sublease agreement must comply with the provisions of the residential tenancy agreement. For example, the sublease agreement cannot attempt to change the duration of the rental period and must comply with any portion of the standard lease agreement that cannot be agreed upon by both parties like the amount of rent to be charged and the security deposit for the rental unit.

Legal Criteria for Subleasing in Ontario

Sublease agreements in Ontario also need to comply with the provisions of the Residential Tenancies Act, 2006. While many of the provisions of the Act are not relevant to a sublease agreement, such as those relating to rental increases and security deposits, the sublessor may not sublet the premises unless such subletting is permitted by the landlord. The original tenant must also obtain permission from its landlord under its lease to sublet the unit, unless the lease authorizes subletting without the landlord’s consent.
The Residential Tenancies Act defines a "subtenant" as any person who, as a consequence of a rental unit, has the right to receive all or part of the units rent from the "sublessor". The "sublessor", in turn, is a person "who receives all or part of the rent payable under a tenancy agreement by a subtenant in in respect of a rental unit".
In effect, a "subtenant" is like a tenant and a "sublessor" is like a landlord in the context of the Residential Tenancies Act. As a result, a sublease agreement must be drafted having regard to all the rules and regulations that govern tenancies in Ontario. For example, a sublessor, like a landlord, cannot take any retaliatory action against a subtenant for making a legal application to the Landlord and Tenant Board.
The obligations of a tenant under a lease do not apply to a subtenant unless the subtenant is authorized by the tenant to occupy the unit. However, the Act does impose additional obligations on a subtenant who occupies a rental unit as a subtenant to pay rent for the sublease. If the subtenant fails to pay rent, the sublessor may proceed to block a tenancy termination application with the Landlord and Tenant Board until the subtenant pays the rent owed to the landlord by the subtenant to the extent of the amount of rent that the subtenant owes to the sublessor (aka the tenant).

Drafting a Sublease Agreement

When it comes to subleasing property in Ontario, it’s important to follow the proper step-by-step process to ensure that your sublease agreement is legally binding and protects both you and your tenant. Before you can even start drafting a sublease agreement, you’ll need to review your lease to determine whether your current lease allows you to sublet the premises. If your current lease has a specific subletting clause, or contains a general clause that mandates seeking the landlord’s consent to sublet, you’ll have to obtain the landlord’s permission to proceed before you start drafting your sublease agreement.
Once you receive the appropriate consent from your landlord to sublet a unit, you can start moving on your sublease agreement. The process begins with filling out a Statement of the Terms of Sublease document, which is typically the same as the original lease agreement for your unit. This document acts as an attachment to your sublease agreement and must contain the relevant details about the original lease, including: the names of the landlord and tenant, the name of the subtenant, the date of the original lease, the date on which the original lease ends, and the term of the sublease. You can fill out a template version of this form and keep it on file to use for future reference.
Next, you’ll need to write a sublease addendum to the original lease. This is another attachment to the sublease agreement and should contain basic information pertaining to the sublease, including the term of the sublease, rent amount, who is responsible for paying utilities, and what happens at the end of the term. Once again, this document has a standard template that you can use to fill in as needed in the future.
It’s in your best interest to get your subtenant to sign the sublease agreement to make sure they understand the responsibilities they’re taking on, and that they’re aware of everything outlined in the original lease agreement. Keep in mind that when you draft the sublease agreement, you don’t want to impose additional requirements on the tenant or subtenant that aren’t included in the original lease, and that doing so may render the agreement null and void.
Once the subtenant has completed the form and signed the sublease agreement, provide a copy to both the landlord and your subtenant, and be sure to retain the original for your files. You can charge a fee for the sublease agreement, up to the cost it took to create the sublease agreement.

Responsibilities and Obligations of Tenant and Subtenant

When entering into a sublease agreement, both the original tenant and subtenant have certain rights and responsibilities which they should be aware of.
The tenant should ensure that the sublease agreement is for a limited time. In the absence of a set term, the subtenant may think that he/she can remain in the property indefinitely.
Tenants should also be careful that when they are setting the rent in the sublease, they are not charging a greater amount than they themselves are paying to the landlord, as this could result in an increase in rent against the original tenant. Of course, tenants can still charge a higher rental amount if it is due to the amenities provided. But the stricture is in place to prevent tenants from making a profit from the sublease arrangement.
Tenants in Ontario also need to know what their responsibilities are to the subtenant. Unless the tenant has prior written consent from the landlord, the tenant will remain responsible to the landlord for the payment of rent and other obligations of the tenant under the tenancy agreement. In the event that the subtenant fails to comply with its responsibilities in the original tenancy agreement, the tenant is responsible as if no sublease agreement were in existence.
The tenant is also required to provide the subtenant with written notice of the tenancy termination date provided by the landlord, unless the tenant has been given permission by the landlord to provide a shorter notice period.
The subtenant, in turn, has the responsibility that his or her tenancy ends when the original tenancy ends, or at the expiry of the tenancy created by the sublease, whichever is earlier. If a subtenant is in possession of the rental unit after the expiry of the term of the sublease agreement, the eviction of the subtenant may only occur if there is a right of re-entry clause in the tenancy agreement.
In addition to the items above, the subtenant has the responsibility not to interfere with the reasonable enjoyment of the premises by the tenant or by any individuals that are on the property with permission of the tenant.
Subtenants in Ontario cannot charge any amount as rent that is more than the amount the tenant is paying under the tenancy agreement, plus the prescribed percentage under the Residential Tenancies Act, 2006.
If the subtenant fails to comply with the tenancy agreement, the tenant has the right to give notice to the subtenant to vacate the premises. If, however, the subtenant is in compliance with the terms of the tenancy agreement, then the tenant must give the subtenant one of the following: If the tenant and subtenant do not agree, then the tenant must serve a Notice of Rent Deposit – Tenant Sublease or Assignment of a Tenancy (Form T6). Again, the Notice is subject to the prescribed period of time.
The subtenant is responsible for making its own application for mediation or an order to permit the assignment, transfer or subletting of the residential unit to another person to the landlord.
Generally, the tenant has the right to consider only those interested parties as guests, while the tenant has the duty to inform the landlord of the identity of all persons who reside on the premises as guests.
Further to the security deposit provisions of the tenancy agreement, where the tenant has given the landlord a separate cheque for the purpose of applying the security deposit, the tenant receives the entire cheque back or the balance of the cheque to the extent of the overpayment of the sublease rent.
When the original tenancy ends, the subtenant must move out and remove their belongings.

Common Issues with Subletting Arrangements

Like any other rental arrangement, subletting can lead to legal troubles. Disputes over payment arrears, damages, and other damage claims are common in Ontario. For example, a sublessor may claim that the sublessee failed to pay rent and demand that the original tenant step in and make the payment. On the other side of the coin, a sublessee may argue that the property was in a state of disrepair during their term and attempt to hold the sublessor responsible for a decrease in value.
Fortunately, the Residential Tenancies Act provides legal protections against all sorts of sublet-related problems . If a sublessor has failed to collect rent, they can file an application with the Landlord & Tenant Board to claim any money owed, and they will be assigned a hearing date. Meanwhile, a sublessee who bears the brunt of disrepair can also file an application with the Board. In both instances, mediators will meet with both sides before the hearing and will use that information to help them come to an agreement.
In cases where no clear agreement can be reached, a Member of the Board will hear the case and make a ruling. Sometimes, they will agree with the sublessee and reduce their payment or void it entirely. In other situations, they may interpret the damage and assign a fine or fee to help compensate the sublessor.

How to Prevent Problems When Subletting

To say that issues surrounding subleases can be confusing is an understatement, and to say that people do not realise the risks associated with subleasing would be accurate.
It would be expected that the landlord of the leasehold premises would be aware of all such risks and/or potential pitfalls resulting from any short-term subleasing arrangement, but the same cannot necessarily be said of a tenant. Because of this, and because of the language used in most leases, a tenant must consider whether a sublease is for a short enough term that it is effectively temporary in nature, i.e. will the tenant be able to return to the premises without any issue upon the expiration of the sublease term? Since the tenant will not have ‘news of the state of the premises’ for the duration of the sublease term, or may have limited or no ability to inspect and repair the premises during the duration of the sublease term, it is critical that the tenant know with certainty that it will have unfettered access to inspect the premises, to make repairs, and to be able to terminate the sublease upon notice to the subtenant of a breach of the sublease. It is not uncommon for landlords to insist on such rights in commercial leases, and tenants must be diligent and cautious in assessing this risk before attempting to sublet their premises.
A careful examination of the subtenant will help ensure that the sublease and any related tenant risks are kept to a minimum. This means firstly that the tenant should carry out credit checks on the subtenant and on any individuals who may be personal guarantees of the subtenant’s payment, if any. This also means conducting thorough inspections of the premises and preparing themselves for any issues that may arise from the subtenant’s use and occupancy of the premises.
An effective way to lessen the risk of falling into a sublease dispute is to have suitable credit and lease terms in place. This means including strict provisions in the sublease giving the landlord and the tenant the right to inspect and enter the premises on reasonable notice to investigate any breaches of the lease, and to remedy any such breaches at the cost of the tenant. It also means having effective credit, monetary and personal guarantees in place such that the tenant (or other credit-worthy individual) bears the cost of any future breach of the sublease terms.
A tenant should also try to ensure that the sublease allows them broad rights to terminate when faced with any breach of the lease terms by the subtenant, and that the tenant can seek the assistance of the court to enforce these rights. It is therefore recommended that the tenant also include a provision in the sublease which gives the tenant the right to bring motion for a possession order to evict the subtenant for failure to comply with the terms and conditions of the lease. The tenant cannot draft this into the underlying lease, but as the ‘landlord’ under the sublease, the subtenant would be bound to the provision which gives the tenant contractual rights as sublandlord to evict the subtenant, so long as the sublease does allow for that.
Another good practice is to arrange regular inspections of the premises for the duration of the sublease. Not only does regular inspection of the premises by the tenant assist in identifying any liability that may arise from the subtenant’s use of the premises, but it also makes the tenant aware of any changes that may need to be made to quickly remedy any problems that may arise from the subtenant’s use and/or occupancy of the premises.
A tenant using the proper precautionary measures to protect its interests while subletting will certainly lessen the chances of finding itself in the midst of any costly sublease dispute.

Resources for Additional Information

Government of Ontario – Residential Tenancies Act
This comprehensive guide from the Government of Ontario breaks down all of the rules you need to follow for tenancy in a residential property including subleases.
Findlaw Canada – Subleases – What you Need to Know
A great primer on everything from what a sublease entails to when a subtenant can take possession on the property without consent from the landlord.
Sublease Templates
Consider perusing your options for sublease templates online . Remember to read carefully as there is a plethora of variations depending on your jurisdiction.
HowStuffWorks – Subleasing: How to Get the Landlord’s Approval
An overview of the process of getting your landlord’s approval to sublet, with links to many other helpful articles.
SmartAsset – Renters Tax Deductions
If you’re used to owning and are unsure about the consequences of renting and subletting on your taxes, this short guide by financial services website SmartAsset will get you up to speed.