LEASE ASSIGNMENT Reasons of income-based refusal - Updated with recent jurisprudence

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LEASE ASSIGNMENT Reasons of income-based refusal - Updated with recent jurisprudence
When a landlord receives a notice of lease assignment from their tenant, their basic right is to conduct a financial and behavioral investigation of the applicant in order to make an informed decision to accept or refuse the applicant.

Over the years, the Administrative Housing Tribunal has clarified and established the valid reasons for accepting or refusing candidates.

The grounds for refusal must be serious.

More recently, the Court explains to us that, without requiring a specific document, the owner has the right to ask the candidate for recent proof of his income and that he has the financial capacity to assume the various obligations (rent and electricity, internet, insurance for instance) related to the lease.

What is more, the landlord has a not simple and very subjective assessment task of determining whether the declared income is sufficient to meet all the obligations related to the lease. Sometimes this task is relegated to an administrative judge after a landlord’s refusal based on insufficient income.

Me Karine Morin had this task in February 2021and determined that the owner was right to refuse.

18 To constitute a “serious ground” for refusing the assignment of lease, authors Lamontagne and Larochelle explain:1 “The solvency and reliability of the transferee therefore take on great importance here for the landlord. The landlord is therefore justified in refusing consent if the change of tenant has the effect of making his position likely less advantageous or likely to cause him harm; this will be the case, in particular, if the tenant is insolvent or does not have the financial capacity to meet the obligations of the lease, if the change of tenant implies a change of destination of the premises, if the activities of the new tenant are incompatible
with those of the other tenants or are in contravention of an exclusivity clause.” The jurisprudence has also considered the objective fear of loss of financial security for the landlord as one of the factors to be assessed.

In that decision, the landlord turned the applicant away on the grounds that the applicant “poses a significant financial risk. And he continues... “The prospective tenant does not seem to have sufficient financial solvency to rent a condo for $1,450 per month and pay for other expenses such as internet, Hydro-Quebec... his current hourly rate suggesting that the lease would not be respected.”

The landlord further states that his answer is based on the applicant’s ability to pay and not on the outcome of the credit check.

In rendering her decision, Me Karine Morin, cites a 2020 decision on the assessment of a candidate’s financial capacity: in Szemes v. Northside Inc.:

"It is true that nowhere does the law provide for a ratio, an objective standard or a percentage of income beyond which a landlord can legitimately presume the inability to pay the rent. People are free to allocate their income to the various budget items as they see fit.
Therefore, when it comes to the financial capacity of a prospective transferee,
the assessment must be carried out in the overall context of the financial obligations arising from the lease (heating, electricity, hot water, etc.) but without strict and restrictive limits depending on the income earned.
Beyond the ability to pay rent, the jurisprudence has also considered the objective fear
of loss of financial security for the landlord (5).
The Tribunal must determine whether the reasons submitted by the landlord are, in light of all the circumstances, serious.7 Based on this refusal, the Tribunal considered that, given the jurisprudence, doctrine and facts put into context, the landlord was justified in refusing the assignment since the change of tenant has the effect of making his position less advantageous than it was with the tenants and likely to cause him financial harm.

This decision tells us several things. First, beyond the credit check, you can ask for proof of income and since the court confirms that income is a criterion to consider, refusing to provide proof of income would also be a reason for refusal.

In the evaluation criteria of a candidate for assignment of lease, proof of income remains here as important as good payment habits.
 
 




Rossi c. Bachar 546823
Szemes c. Nothsine inc 2019 QCRDL 40949

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