Rental Increase Guideline Confuses Landlords and Tenants

The GTA rental market is rattling. The combination of high levels of immigration, steep borrowing costs, and low inventory are sending rental prices higher from pre-pandemic to now; the cost of renting jumped by 41% in the GTA. An average two-bedroom condo is renting for around $3200.00 plus monthly hydro. When a tenant adds hydro and insurance, the total is around $40,000 after-tax dollars in a year-ouch!

A challenging market situation will drive rental prices even higher. With interest rate hikes, some would-be homebuyers choose to rent instead of buy because they can no longer qualify for a decent mortgage. With escalating rent costs, some tenants are revisiting the option to buy. There is a significant shortage of properties for sale as well. With a dribbling supply and an insatiable demand, prices for residential properties are ascending.

With escalating rent, the new rental increase guideline is confusing to landlords and tenants alike. The rent increase guideline is set every year based on inflation. For 2023, the rent increase guideline is 2.5 percent for rental properties built before November 15th, 2018. This guideline is the maximum a landlord can increase most tenants' rent for a given year without approval from the Landlord and Tenant Board.

New buildings, addition to an existing building and most new basement apartments occupied for the first time as a residence after November 15th, 2018, are exempted from rent control. Landlords should keep records such as building permits, occupancy permits, and other documents as proof. In section 15 of the standard Ontario lease, landlords should include that the unit is not subject to rent control.

Here is an example of how to calculate the rental increase. Suppose you signed a lease on July 1st, 2022, for $2,000.00. Since the guideline for 2023 is 2.5 percent, the monthly rent can be increased by $50.00. A landlord can increase the rent on July 1st, 2023. Landlords must give a tenant written notice 90 days before July 1st, 2023, using the N1 form from Tribunals Ontario's website at www.tribunalsontario.ca/ltb/forms. 

If a landlord gives an improper notice or rent increase above the guideline, a tenant has 12 months to file a complaint to the Landlord and Tenant Board. Landlords and tenants can negotiate a rental increase above the policy for additional facilities or services such as air conditioning, parking, and internet access.

The recent spike in rental rates leaves many landlords with underperforming properties. Some landlords seek reasons to evict tenants so that they can rent the property at a much higher rent. One reason for eviction is constant late payment of rent. A landlord can also evict a tenant in good standing if they want to use the unit for themselves or a family member, or if they are selling the property, and the buyer wants it for their own personal use. If a landlord is evicting a tenant for personal use, the landlord must give the tenant a minimum incentive of one month's rent.

Supposing that a landlord chooses to renovate a unit and require vacant possession, then after renovation, the landlord must offer the tenant to rent back the property at the same rent they were paying before. If a landlord fails to give a tenant the first right of refusal to rent the renovated space, the tenant has a two years window to file a claim with the Landlord and Tenant Board.

The Landlord and Tenant Board can fine landlords or purchasers who evict tenants for personal use and then rent the property to someone else. The fine for acting in bad faith for an individual is now $50,000, and for a corporation, $250,000.00. The same penalty applies to renovations. Along with the fine, the Board can order a landlord to pay the difference between the last rent charged to the former tenant and the former tenant's current rent for up to 12 months, plus reasonable out-of-pocket expenses such as moving and storage.

The rental guidelines are constantly evolving, and it's difficult for landlords and tenants to keep up with the pace. My advice is to respect each other. A tenant should endeavour to take care of the landlord's property, and a landlord should take care of the tenant.