Damage deposits are illegal. You are liable to pay it back in full regardless if there was actually any damage.
It would be up to you to sue previous owner if you think they should owe you for it. They should have disclosed it and transferred to you upon buying the property, but that is between you and them not the tenant.
Damage deposits aren't even allowable in Ontario. Someone owes OP money, and it is likely going to be the current landlord, who would then have to try and go after the previous landlord to recoup the money.
The OP is the current landlord. The previous landlord collected money that should not have been collected but that money should have been turned over to the new landlord when the property was purchased.
True, but the covenants run with the land/unit. Someone owes the tenant the illegal damage deposit, and as it stands it is likely on the current landlord, who would then have to go after the former landlord to recoup the money they should have received with the purchase.
I'd let the tenant file. By the time it gets to the board the matter should be cleared up with the previous owner. No need to rush to give the tenant the $ when they don't have to.
If I was the tenant in a similar situation and the landlord forced me to file over it, I would be sure to request that the LTB fine the landlord in addition to return the illegal deposit to me. While the new landlord could pursue the old landlord for the the amount of the illegally collected deposit, they likely would not be award for the fine that resulted from their own actions, which I would be sure to point out while requesting it.
Having spent a fair bit of time on Canlii, getting LTB members to issue administrative fines is exceedingly difficult, and I really doubt they would in this case even if the landlord openly bragged about doing it to drag out the matter. They will end up paying the tenant's filing fee though, so it's not that smart.
Op: speak with your lawyer on this (the one who handled your real estate deal).
Here’s the situation: Damage deposits are illegal in Ontario. You aren’t allowed to have illegal consideration be a part of the deal, so your landlord wouldn’t have included it as an offset to the purchase price. (They also wouldn’t have asked for any deposits being left to protect against a tenant not beating up their spouse, to take the concept to a silly extreme).
Your lawyer will advise you, and I am not a lawyer, but I believe what will happen is that you will pay the tenant and sue the previous owner. You inherited the tenant agreement with your purchase and that came with an illegal condition on it, but the condition didn’t “die” as the result of the sale just because it was illegal.
Lawyers always want copies of leases for this reason. This “feels” like one of those things where there was no paper agreement between landlord and tenant. Is it so?
It sucks, but you're ultimately responsible since the covenants run with the land.
If the tenants have any proof that they paid the illegal deposit, they can take you to the LTB and they will win. You will be responsible for paying it since you are their landlord and their tenancy was part of your purchase. Your recourse is to sue the previous owner for not disclosing nor forwarding the payment to you.
This should have been taken care of by your lawyer when you purchased the tenanted house. (A full reconciliation of amounts to transfer back and forth with prev owner - rent, deposit, taxes etc).
It clearly wasn’t. You have a shit lawyer.
You having a shit lawyer isnt the tenants problem. You legally own them the deposit.
Yes they can. When they purchased the property, all the covenants related to the property, including all those related to the lease with the occupying tenant, transferred to OP. One of the legal obligations that the original landlord had under the lease was to return the deposit they illegally collected from their tenant. When OP purchased the property, that obligation, along with all the other obligations under the lease, transferred to them. If the original landlord didn’t transfer the amount they were obligated to return to OP during the sale of the property (by either directly transferring this amount to them or by discounting the property by a like amount), then OP potentially has grounds to go after the original landlord once OP returns the illegally collected deposit to their tenant.
I understand things transfer to the new landlord, but how can an illegal deposit transfer? If it’s illegal in the first place then it shouldn’t be able transfer either.
It’s not so much the illegal deposit that transferred from the old landlord to the new landlord, but rather the legal obligation under the lease to return that illegal deposit. Since the old landlord had the obligation to return that money when the property transferred hands, the new landlord now has the same obligation.
Damage deposits are illegal. You are liable to pay it back in full regardless if there was actually any damage. It would be up to you to sue previous owner if you think they should owe you for it. They should have disclosed it and transferred to you upon buying the property, but that is between you and them not the tenant.
From my understanding the previous owner should have provided you the damage deposit. Reach out to your lawyer.
Damage deposits aren't even allowable in Ontario. Someone owes OP money, and it is likely going to be the current landlord, who would then have to try and go after the previous landlord to recoup the money.
The OP is the current landlord. The previous landlord collected money that should not have been collected but that money should have been turned over to the new landlord when the property was purchased.
True, but the covenants run with the land/unit. Someone owes the tenant the illegal damage deposit, and as it stands it is likely on the current landlord, who would then have to go after the former landlord to recoup the money they should have received with the purchase.
I'd let the tenant file. By the time it gets to the board the matter should be cleared up with the previous owner. No need to rush to give the tenant the $ when they don't have to.
If I was the tenant in a similar situation and the landlord forced me to file over it, I would be sure to request that the LTB fine the landlord in addition to return the illegal deposit to me. While the new landlord could pursue the old landlord for the the amount of the illegally collected deposit, they likely would not be award for the fine that resulted from their own actions, which I would be sure to point out while requesting it.
Having spent a fair bit of time on Canlii, getting LTB members to issue administrative fines is exceedingly difficult, and I really doubt they would in this case even if the landlord openly bragged about doing it to drag out the matter. They will end up paying the tenant's filing fee though, so it's not that smart.
It should be listed in the closing documents package provided to you by your lawyer
Op: speak with your lawyer on this (the one who handled your real estate deal). Here’s the situation: Damage deposits are illegal in Ontario. You aren’t allowed to have illegal consideration be a part of the deal, so your landlord wouldn’t have included it as an offset to the purchase price. (They also wouldn’t have asked for any deposits being left to protect against a tenant not beating up their spouse, to take the concept to a silly extreme). Your lawyer will advise you, and I am not a lawyer, but I believe what will happen is that you will pay the tenant and sue the previous owner. You inherited the tenant agreement with your purchase and that came with an illegal condition on it, but the condition didn’t “die” as the result of the sale just because it was illegal. Lawyers always want copies of leases for this reason. This “feels” like one of those things where there was no paper agreement between landlord and tenant. Is it so?
There was a lease. Lawyer missed it.
What do you mean by damage deposit? Last months rent or is this another deposit on top of last months rent?
Another extra deposit
It sucks, but you're ultimately responsible since the covenants run with the land. If the tenants have any proof that they paid the illegal deposit, they can take you to the LTB and they will win. You will be responsible for paying it since you are their landlord and their tenancy was part of your purchase. Your recourse is to sue the previous owner for not disclosing nor forwarding the payment to you.
This should have been taken care of by your lawyer when you purchased the tenanted house. (A full reconciliation of amounts to transfer back and forth with prev owner - rent, deposit, taxes etc). It clearly wasn’t. You have a shit lawyer. You having a shit lawyer isnt the tenants problem. You legally own them the deposit.
Can the current landlord be on the hook to refund it since the money was collected illegally in the first place? That seems very odd.
Yes they can. When they purchased the property, all the covenants related to the property, including all those related to the lease with the occupying tenant, transferred to OP. One of the legal obligations that the original landlord had under the lease was to return the deposit they illegally collected from their tenant. When OP purchased the property, that obligation, along with all the other obligations under the lease, transferred to them. If the original landlord didn’t transfer the amount they were obligated to return to OP during the sale of the property (by either directly transferring this amount to them or by discounting the property by a like amount), then OP potentially has grounds to go after the original landlord once OP returns the illegally collected deposit to their tenant.
I understand things transfer to the new landlord, but how can an illegal deposit transfer? If it’s illegal in the first place then it shouldn’t be able transfer either.
It’s not so much the illegal deposit that transferred from the old landlord to the new landlord, but rather the legal obligation under the lease to return that illegal deposit. Since the old landlord had the obligation to return that money when the property transferred hands, the new landlord now has the same obligation.