Is a Tenant Required to Disclose Income Details to a Landlord?

Although a Tenant Is Without a Duty to Provide Income Details or Social Benefit Details to a Landlord, Where a Tenant Chooses to Provide Details Regarding Financial Status to a Landlord the Details Must Be True.

Understanding the Good Faith Required Between a Landlord and Tenant When Negotiating a Temporary Rent Deferral

Lease Document The affects of shutting down the economy are sadly felt most by those who could least afford an unexpected lay-off or loss of employment.  Many who struggle and live on a week-to-week basis were caught off guard and are now unable to meet the needs of life without income.  Thankfully employment insurance and the Canadian Emergency Relief Benefit are providing some subsidy; however, for many people these benefits are insufficient.

For those landlords and tenants who are suddenly thrust into the position of needing to discuss shortfalls in rent payments, such presents as an obviously awkward situation.  Generally, aside from receiving timely rent payment, a landlord is without a 'need-to-know' of details regarding the financial situation of the tenant.  However, during Covid19, while a tenant is needing rent relief, there appears certain duties of honesty within such discussions.

The Law

In 2014, the Supreme Court issued a decision in the case of Bhasin v. Hrynew, [2014] 3 S.C.R. 494 which addressed the of good faith, including truthfulness, during the performance of a contract.  Within the decision of the Supreme Court it was said:

[73]  In my view, we should. I would hold that there is a general duty of honesty in contractual performance. This means simply that parties must not lie or otherwise knowingly mislead each other about matters directly linked to the performance of the contract. This does not impose a duty of loyalty or of disclosure or require a party to forego advantages flowing from the contract; it is a simple requirement not to lie or mislead the other party about one’s contractual performance. Recognizing a duty of honest performance flowing directly from the common law organizing principle of good faith is a modest, incremental step. The requirement to act honestly is one of the most widely recognized aspects of the organizing principle of good faith: see Swan and Adamski, at § 8.135; O’Byrne, “Good Faith in Contractual Performance: Recent Developments”, at p. 78; Belobaba; Greenberg v. Meffert (1985), 1985 CanLII 1975 (ON CA), 50 O.R. (2d) 755 (C.A.), at p. 764; Gateway Realty, at para. 38, per Kelly J.; Shelanu Inc. v. Print Three Franchising Corp. (2003), 2003 CanLII 52151 (ON CA), 64 O.R. (3d) 533 (C.A.), at para. 69. For example, the duty of honesty was a key component of the good faith requirements which have been recognized in relation to termination of employment contracts: Wallace, at para. 98; Honda Canada, at para. 58.

[74]  There is a longstanding debate about whether the duty of good faith arises as a term implied as a matter of fact or a term implied by law: see Mesa Operating, at paras. 15-19. I do not have to resolve this debate fully, which, as I reviewed earlier, casts a shadow of uncertainty over a good deal of the jurisprudence.  I am at this point concerned only with a new duty of honest performance and, as I see it, this should not be thought of as an implied term, but a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance. It operates irrespective of the intentions of the parties, and is to this extent analogous to equitable doctrines which impose limits on the freedom of contract, such as the doctrine of unconscionability.

Per the Supreme Court in Bhasin, it appears clear that the law now imposes, "... a general doctrine of contract law that imposes as a contractual duty a minimum standard of honest contractual performance."  So what does this mean in the context of a landlord and tenant negotiating a rent deferral arrangement during the Covid19 Crisis?  It would seem the answer is quite simple and is provided in paragraph 73 of Bhasin as, "... a simple requirement not to lie or mislead the other party about one’s contractual performance."  Also stated in paragraph 73 was the explanation that, "This does not impose a duty of loyalty or of disclosure ... ".  Accordingly, it appears that a tenant must be honest when stating details of a difficult financial situation without the requirement of full disclosure.  This duty in law may seem somewhat paradoxical as how does someone refrain from being misleading while also refraining from being fully forthcoming?  As per the Yiddish proverb, "A half truth is a whole lie".

Interestingly, and appearing to address the Yiddish proverb is of half-truth concerns, the Bhasin duty of truthfulness was recently expanded or clarified by the Supreme Court within the case of C.M. Callow Inc. v. Zollinger, 2020 SCC 45 wherein it was decided that honesty requires more than just refraining from untruth and that such includes the duty to avoid partly true statements that are misleading including a duty to avoid silence, meaning a failure to correct or clarify, the misunderstanding of a party to a contract.  Specifically, it was said:

[89]  I recognize that in cases where there is no outright lie present, like the case before us, it is not always obvious whether a party “knowingly misled” its counterparty. Yet, Baycrest is wrong to suggest that nothing stands between the outright lie and silence. Elsewhere, as in the law of misrepresentation, for instance, one encounters examples of courts determining whether a misrepresentation was present, regardless of whether there was some direct lie (see A. Swan, “The Obligation to Perform in Good Faith: Comment on Bhasin v. Hrynew” (2015), 56 Can. Bus. L.J. 395, at p. 402). As Professor Waddams has written, “[a]n incomplete statement may be as misleading as a false one, and such half-truths have frequently been treated as legally significant misrepresentations.” Ultimately, he wrote, “it is open to the court to hold that the concealment of the material facts can, when taken with general statements, true in themselves but incomplete, turn those statements into misrepresentations” (The Law of Contracts (7th ed. 2017), at No. 441). Similarly, where a party makes a statement it believes to be true, but later circumstances affect the truth of that earlier statement, courts have found, in various contexts, that the party has an obligation to correct the misrepresentation (see Xerex Exploration Ltd. v. Petro-Canada, 2005 ABCA 224, 47 Alta. L.R. (4th) 6, at para. 58; see also C. Mummé, “Bhasin v. Hrynew: A New Era for Good Faith in Canadian Employment Law, or Just Tinkering at the Margins?” (2016), 32 Intl J. Comp. Lab. L. & Ind. Rel. 117, at p. 123).

[90]  These examples encourage the view that the requirements of honesty in performance can, and often do, go further than prohibiting outright lies. Indeed, the concept of “misleading” one’s counterparty — the term invoked separately by Cromwell J. — will in some circumstances capture forms of silence or omissions. One can mislead through action, for example, by saying something directly to its counterparty, or through inaction, by failing to correct a misapprehension caused by one’s own misleading conduct. To me these are close cousins in the catalogue of deceptive contractual practices (see, e.g., Yam Seng Pte Ltd. v. International Trade Corp. Ltd., [2013] E.W.H.C. 111, [2013] 1 All E.R. (Comm.) 1321 (Q.B.), at para. 141).

What does seem clear from the Bhasin decision is that any information that the tenant does put forward must be truthful.  If the tenant states that the tenant suffered a lay-off and is unable to pay rent, the tenant must be speaking truthfully about the lay-off.  If the tenant states that the tenant fails to qualify for income subsidy and needs extra-special rent deferral from the landlord, the tenant must be speaking truthfully about the lack of an income subsidy.  Again, per Bhasin, this duty of truthfulness comes without a duty of loyalty or a duty of disclosure.  The tenant is without a requirement to share certain details with the landlord; however, where the tenant does provide details, such details must be true.

As for consequences for the failure to act in accordance to the duty of good faith with financial disclosures during the Covid19 Crisis, it is unknown how the Landlord Tenant Board, or any appeal courts, will address such a failure.  Perhaps there will be less leniency in decisions that would otherwise provide a tenant with a greater 'break' in consideration for the Covid19 circumstances will occur.  Of course, only time will tell.

Summary Comment

Parties to a contract, such as a landlord and tenant who are parties to a residential lease, owe a duty of honesty in the performance of the contract.  The duty of honesty comes without a duty of loyalty or a duty of disclosure; however, what parties to a contract do disclose to one another must be stated truthfully.

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