What Is Cash for Keys? How the Strategy Works for Ontario Landlords

Intro & Guest Introduction

Hi, everybody. Welcome to our podcast for landlords based in Ontario. Today we’re going to dive into the topic of cash for keys — something that’s widely talked about right now in different situations.

Joining today is a friend and colleague, Robert Di Lisi from Stonegate Legal Services. He’s going to chat with us from the professional side about what exactly cash for keys is, break it all down, cover the benefits of using it, and why and when a landlord would use it. So without further ado — Robert Di Lisi from Stonegate Legal Services, how are you doing?

What is Stonegate Legal Services?

Good, good. Hi, everyone — Rob Di Lisi, Stonegate Legal Services. We are licensed paralegals, and we only do landlord and tenant matters.

That’s exactly the point — this is a podcast on professionals dealing with Ontario-based landlords, and there are paralegals who only deal with landlord and tenant issues. Let’s start very simply: what is cash for keys?

Understanding Cash for Keys: Basic Definition

The best way to start is with the comments we hear from landlords: “Cash for keys is extortion.” “Landlords have no rights.” “I have no control of my own property.” “I don’t want to reward the tenant by giving them money.” “Is cash for keys even legal?” I hear that all the time, and the sense that the law is all for the tenant and it’s simply not fair.

The thing is, cash for keys is a settlement, and settlements happen everywhere. If you get a traffic ticket and go to court, there’s a settlement reached with a judge or adjudicator. Cash for keys is the same thing — a process where a landlord offers a financial incentive to the tenant or occupants in exchange for vacating the property voluntarily and returning the keys.

Common Misconceptions About Cash for Keys

The arrangement is often used in situations where landlords want to avoid the time, expense, and potential legal implications of evicting a tenant through the legal court system. The amount offered varies depending on factors like the local rental market, the condition of the property, and the negotiations between the parties. The ultimate goal is to get an N11 signed — a mutual agreement to end the tenancy.

So keep in mind: the purpose is to make the process of getting the tenant out quicker. Why would a landlord want to pay somebody to leave their property? It can be a lot of money — the word “extortion” gets used, and some clients have asked for numbers upwards of $50,000, with landlords paying large sums to get their property back.

Why Would Landlords Pay Tenants to Leave?

Cash for keys, most of the time, isn’t a necessity — but sometimes it is. Here’s an example of when it is a necessity: say you have a listing for a tenanted property, and the tenant living there doesn’t want to move out. Under the law, the landlord has the right to sell the property.

Example #1: Selling a Tenanted Property

However, the tenant controls the showings — the tenant must consent to pictures and video. On top of that, clause two of the agreement of purchase and sale specifically says the landlord shall guarantee vacant possession. How do you guarantee vacant possession on a tenanted property? This is where it gets tricky.

Once the property is sold firm, the landlord can give legal notice — an N12. It’s a minimum 60 days’ notice and comes with one month’s rent compensation. But on the N12’s second page, fourth paragraph, it actually tells the tenant: if you don’t agree with this notice, you don’t have to move out, and you can wait for an adjudication. Things are improving at the LTB, but it still takes approximately six to eight months just to get to the board.

If you get a positive result, you’re looking at an additional 30 to 60 days to get the order, then another three to six weeks to have the sheriff evict. So the timeline can run 10 to even 12 months — not many buyers are going to stick around for that. More importantly, if you’ve guaranteed vacant possession and are closing in 60, 90, or 120 days but can’t close because the tenant won’t move out, you’ll be in breach of contract, and the buyer’s lawyer can sue for damages. Landlords sometimes say they’ll sue the tenant for not moving out — but it’s the tenant’s right not to move out while awaiting adjudication, so that’s not a viable path.

The Vacant Property Advantage

Look at it another way: say you have a property you want to sell. You approach the tenant before listing and say, “I’m willing to give you a cash incentive to move out, because I want to sell the property and having you here will make it harder, and I don’t want to inconvenience you. If we can agree on a fair, reasonable amount, we can do cash for keys and have you out in the next 30 to 60 days.”

Once that person is out, you don’t have to worry about showings, pictures, or video, and — most importantly — you can guarantee vacant possession. Keep in mind that when a tenant is in the property, since it isn’t theirs, they don’t always care about cleanliness or how it smells. If the property is vacant, more than likely (not guaranteed) you’ll command a higher price when selling.

Tax Implications & Capital Gains Considerations

Selling a tenanted property versus a vacant one — being able to touch up the property, do photos and video without a tenant interrupting showings — is worth its own episode. The key is making the property show its best, with vacant possession already in place, so a buyer can come in whenever they want. If the tenant decides to wait for a hearing after you’ve already guaranteed vacant possession on the agreement of purchase and sale, you’re stuck, since you can’t control what the tenant does.

Remember: when selling a property, it’s a business. There are advantages — you’ll collect a higher price, and you may be able to fix the property up first. And any cost a landlord incurs is generally an expense that can be tax deductible (not tax advice — speak to an accountant). With capital gains taxes having gone up, getting the tenant out and fixing up the property to command a higher price helps maximize the investment.

Example #2: Non-Paying Tenants

The second scenario for cash for keys is a tenant who isn’t paying rent. Say rent is $2,000 a month. If you give an N4 notice for non-payment of rent, then file an L1 application with the board, you’re still looking at about six to eight months to get to the board. Worst case, $2,000 times eight months is $16,000 in unpaid rent. When you get to the board you’re guaranteed a date, but not guaranteed a hearing that day, because of the backlog — the matter may get adjourned or postponed another three to six months.

Even with a positive result, it takes about 30 to 60 days to get the order — another two months of rent not paid — plus three to six weeks for the sheriff. That’s roughly four more months of unpaid rent on top. With cash for keys, the landlord can instead forgive what’s owed and offer an additional amount for the tenant to leave and go elsewhere. Those are the two main scenarios where cash for keys becomes a choice for a landlord.

Success Story & Quick Resolution

One of our landlords used this strategy, and it happened very quickly — they got their tenant out and could turn the property around, back on the market for rent, instead of months and months of process. That’s one of the real benefits: being able to turn the property around and get it back on the market quickly, whether for rent or for sale.

Benefits for Landlords

There are several benefits for landlords: you avoid unnecessary costs and expenses, you avoid the Landlord and Tenant Board entirely since it’s done outside the board and on consent, you avoid the possibility of an adjournment (not being heard), you reduce the risk of damage or a decline in the property’s condition because the quicker the tenant is out, the better you mitigate losses, the landlord has more freedom to do whatever they want with the property, and — last but not least — the tax deduction discussed earlier.

Benefits for Tenants

There are also benefits for tenants. They get financial compensation they can use however they want, and they avoid an eviction record — these orders have always been public record, but there are now websites where landlords post them so other landlords can see, such as tenant-screening sites. Tenants also save time and stress, can move to a better property with money in hand, and avoid a board order becoming public information.

Closing Thoughts & Contact Information

Interesting — normally the conversation is only from the landlord’s side, so that’s a great perspective. Thanks so much for joining us today. If you have more questions about cash for keys, or want to reach Rob Di Lisi with Stonegate Legal Services, we can connect you, or you can find him online — he has a strong presence on social media. Thanks so much, Rob, for joining us today; your knowledge and experience is something we’re excited to share with everybody.

If you know a landlord in Ontario, get them to like and subscribe as well — we’ll keep bringing these short episodes to get you the information you need about what’s happening for landlords in Ontario. Thanks so much, and we’ll talk to you soon. Bye for now.