Cash for Keys Agreement in Ontario, Canada: What You Need to Know

If you’re a landlord in Ontario, Canada, you may have heard of a “cash for keys” agreement. This is a contract between a landlord and tenant where the tenant agrees to vacate the rental property in exchange for a cash payment from the landlord. This agreement can be helpful for landlords who need to regain possession of their property, but it’s important to understand the legal requirements and implications of such an agreement.

Legal Requirements

A cash for keys agreement must be voluntary and mutually agreed upon by both parties. The tenant cannot be forced into signing such an agreement, nor can the landlord offer an inadequate amount of cash to force the tenant to leave. Any coercion or misrepresentation of the agreement can invalidate it.

Additionally, the agreement must be in writing, signed by both parties, and clearly state the terms and conditions, including the amount of cash to be paid, the date the payment will be made, and the date by which the tenant must vacate the property. The agreement should also include a release of any claims against each other, to ensure that the tenant cannot later claim that they were forced to sign the agreement.

Tax Implications

Both the landlord and tenant must consider the tax implications of a cash for keys agreement. For the landlord, the cash payment is considered a rental expense and must be reported as such on their income tax return. The tenant must report the cash payment as income on their tax return.

Practical Considerations

Cash for keys agreements can be helpful in situations where the tenant may have difficulty finding alternative housing or may have difficulty paying for moving expenses. Additionally, the landlord can avoid the time and expense of going through the eviction process and can regain possession of their property more quickly.

However, it’s important to consider the cost of the cash payment and the potential negative impact on the tenant’s credit score. If the tenant is unable to secure alternative housing, they may become homeless or have to move in with family or friends. This can put a strain on their personal relationships and negatively impact their mental health and well-being.

Conclusion

A cash for keys agreement can be a helpful tool for landlords in Ontario, Canada, to regain possession of their rental property in a timely and cost-effective manner. However, it’s important to ensure that the agreement is voluntary, mutually agreed upon, and meets all legal requirements. Both parties must also consider the tax implications and potential negative impact on the tenant before entering into such an agreement.