End of rent control

Legislation from 22 years ago, used to entice the building of rental units, could end up killing rent control in Ontario.

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To all renters in Ontario: Beware of a lack in rent control.

Last week the Toronto Star published an article that highlighted a “loophole” in the Residential Tenancies Act.
The problem is this isn’t a loophole.

The lack of rent control, highlighted in the article, in new, downtown Toronto condos doesn’t just apply to condos. Nor does it only apply to rental units in the City of Toronto.

“The use of the term loophole is unfortunate, because it’s not a loophole,” says Bob Aaron, a Toronto real estate lawyer, columnist and consumer advocate. “It was a deliberate policy decision, at that time, to encourage rental units to be entered into the market for the first time. It was an exemption in the legislation to increase the supply of available rental accommodation in the province of Ontario.”

The rent control exemption applies to any rental unit in the province of Ontario that was built, or came onto the rental market, after Nov. 1, 1991.

To understand this better let’s assume a landlord bought a row house in Toronto’s east-end neighbourhood of Leslieville in 1995. While the home was built in 1900, the landlord is the first owner to split the home into two units and began renting these units out. Because the two rental units came onto the market after 1991, the landlord does not have to follow the rent increase guidelines or the rent control legislation as set out by the Residential Tenancies Act.
Some Toronto landlords are using this exemption to dramatically raise rents in their downtown condos. As the Toronto Star article aptly pointed out some tenants are getting slapped with rental increases that are three times greater than the 2.5% annual rent increase that’s provincially mandated.

The only legal recourse a tenant has in this situation is to give notice and move prior to the end of the lease. A tenant can give notice of termination of lease (regardless of the lease end date) within 10 days after receiving a rent increase.

The problem is most tenants facing a rental increase in downtown Toronto are having a hard time finding cheaper rental units. Part of the problem is that there are not enough rental units in the downtown core to accommodate the number of renters who want to stay close to city’s financial, shopping and nightlife hubs.

It’s the classic dilemma of supply and demand. There is more demand for downtown rental units, so rental prices are starting to rise—sometimes dramatically.

It was a similar situation that prompted the 1991 legislative exemption. “It was a deliberate policy decision to encourage developers to build rental units,” says Aaron. In a city that’s grown by 200,000 people, on average, per year, “just imagine if that provision didn’t exist.”

Aaron explains that developers were not enticed to spend $10 million on building a rental building if they faced rental rate restrictions. “Why would they?”

On top of that tenants were often faced with the prospect of having to pay “key money”—a financial incentive given by prospective or existing tenants to landlords in an effort to secure a lease. “Tenants would pay $1,000 or more just to get a year-long lease. It was a way to jump the cue and get a lease,” explains Aaron. “Back then it was a widespread practice because there was such a shortage of rental units. These days key money is prohibited.”

These days tenants attempt to negotiate with their landlords in an effort to minimize rent increases and highlight their track record as a good tenant.

“Very few landlords are taking advantage of this exemption,” says Aaron, who, as a landlord himself, has never used the exemption to introduce higher rental rates. He explains that most long-term property investors understand that good tenants are hard to find and the way to keep a good tenant is to leave a little money on the table. By charging a little less than market rent a landlord can keep a good tenant longer, which is worth a lot more than a few hundred dollars more.

While tenants in downtown Toronto—or other areas of the province—may not like the idea of arbitrary rent increases the reality is these landlords are well within their legal rights. (For a great take on the situation read Garth Turner’s blog post.) And with more and more rental units coming on to the market well after the Oct. 31, 1991 cut off, it’s only going to get worse. More buildings and rental units will be exempt from legislated rent control.

8 comments on “End of rent control

  1. we own our condo/townhouse in simcoe county and rent the land (parkbridge). at the time of purchase our salesperson said they always abide by the residential tenancies act. of course uninformed me assumed the increases would be govern — not so. buyers beware!

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  2. Everything I can think of that you can rent toady is more expensive than buying it.You rent televisions,stereos,computers,cars,trucks,tools,equipment,business unit like a store,warehouse etc.The only thing I can think of that is presently cheaper to rent than own is residential real estate like a house,condo,townhouse etc..This means that renters are already getting a fair deal.If now rents go up faster than Ontario's rent controlled inflation than it's just getting back to normal.Interest rates need to go back up to normal as well.You say why did I mention interest rates?

    When you borrow money you are paying an interest rate that is basically the cost of renting money.The renting of money is low today which are mortgage rates and are being manipulated or controlled like rent control does in Ontario with renting residential real estate.When you rent a house,condo etc. you are paying every month to have a place to live but you do not own the property.It should cost you more to rent than own.

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  3. While the lack of rent control is definitely a disadvantage for the renters, we at viproperties look at in another way from the point of view of property owners and real estate investors. This could be a motivation for investors to buy better properties which they could rent out at a higher rate. The influx of new workers in the area has unarguably increased the demand for rental homes. However, investors will only pour their hard-earned money if they know they can get a regular cash flow from their investments. While the home owners are not prohibited from increasing their rents, we think that the balance will come in terms of maintaining a reasonable rent provided one has a responsible renter.

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  4. Hi Romana. I would love it if you can re-confirm that the property build pre-1991, but turned into a legal 2-unit dwelling a year ago is in fact exempt from rent control in Ontario. I have spoken to Mark Weisleder (Toronto Star) and he believes that a property built pre-1991, that is converted recently is STILL subject to rent control. I am a Real Estate Investment Network (REIN) and I have spoken to the REIN lawyers and asked them what they think. They are researching the answer now.

    So, I guess I’m wondering if you or Bob have any case studies where it is confirmed that those pre-1991 built homes CAN be tax-exempt. Obviously we all know the homes built after 1991 are tax exempt, so there is no debate there.

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  5. Our tenants
    left from a house I rented three and I/2 years ago. They only give me 1 month notice. They did not one to pay the last month rent, they are telling me because they did not sign a new contract for the last year they only, have to give me one month notice.

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  6. This article is ironic in that it identifies a problem (rising rental rates) and then deflects from the source of the problem (rent control). If the supply of housing was outstripping the demand then rental rates would naturally lower – this happens come hell or high water. If the issue is a lack of affordable housing then the problem is with supply (we don’t point the finger at demand because more demand drives the local economy) and the best way to increase supply is to create incentives for developers and land owners to increase supply. Presently it is extremely hard to find an investment property that would have a cap rate greater than 5% – the cap is gross, not net. Net returns run from 2-3% that is very low even given today’s market returns. This issue is simply caught between an economic truth and a political pariah. The more credence lent to the rent control advocates the worse housing affordability will get.

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  7. It is disgusting how we have zero protection as the tenants. My solution is quite simple – leave Ontario. It is by far the worst province for cost of living for regular individuals. It is now just all about the greedy landlords and corporations. Makes me sick

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  8. Excellent piece – I learned a lot from the details , Does anyone know if my business would be able to get ahold of a template Ontario Form N1 form to work with ?

    Reply

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