I don't live in Canada, but based on the what I have found online, it is unlikely they can do this and is trying to do an end-run arround the law. Why not contact a Residential Tenancy Branch for authorative information?
IMHO, the statute is a bit unclear on this fee. It says in section 15 -
15 A landlord must not charge a person anything for
(a) accepting an application for a tenancy,
(b) processing the application,
(c) investigating the applicant's suitability as a tenant, or
(d) accepting the person as a tenant.
This could imply the fee is illegal. The law does not seem to allow for the possibility of terminating (or not) a tenancy this way.
It would seem that either you give him notice (which needs to be more then 30 days), or he gives you notice, or it becomes a periodic tenancy - ie, if you don't do anything, and he does not do anything, he can't charge you a fee, and he can't end the tenancy. It sounds a bit like he is trying to "have his cake and eat it" by forcing you to sign a new tenancy without him having to risk loosing you as a tenant.
Section 44(3) of the Residential Tenancy Act enter link description here states that
If, on the date specified as the end of a fixed term tenancy agreement
that does not require the tenant to vacate the rental unit on that date,
the landlord and tenant have not entered into a new tenancy agreement,
the landlord and tenant are deemed to have renewed the tenancy agreement
as a month to month tenancy on the same terms.
That said, if I read section 45(2) correctly, if you want to end the fixed term tenancy you have to give him notice at least 1 months notice.
(2) A tenant may end a fixed term tenancy by giving the landlord
notice to end the tenancy effective on a date that
(a) is not earlier than one month after the date the landlord receives
(b) is not earlier than the date specified in the tenancy agreement as
the end of the tenancy, and
(c) is the day before the day in the month, or in the other period on
which the tenancy is based, that rent is payable under the tenancy