In essence, Form N5 is there to terminate a lease based on the tenant interfering with others, causing damage, or overcrowding the rental unit. Serving the form to your tenant gives them seven days to correct the issue. If they don't comply, you can proceed with an L2 eviction application.
Professionals will tell you to act right away if you see any of the 3 issues with your tenants. If you don't do anything it might be construed as implied consent to said behaviour. Once you have served an N5 your tenant generally has three options. They can correct the issue within seven days, they can move out by the termination date as per the form, or they can wait until you file an L2 for eviction. Correcting the issue in this respect means repairing the damage or paying for the repair, stopping an interference with another tenant, or ending the overcrowding.
In the case of a damage, it is advisable to get at least two written quotes for repair, in order to be able to prove the cost involved. In the case of overcrowding, check municipal by-laws for the definition of overcrowding. Keep in mind that roommates and guests are not generally considered overcrowding. Include as much detail on the infractions as you can in the designated area of the form. Detailed documentation betters your chances of a positive outcome.
If the tenant corrects the issue but then within six months causes another infraction, you can serve another N5 and then go straight to the eviction process without having to wait to seven days. Remember the L2 process can take several months. Make sure to follow proper servicing rules for the form.