September 15, 2022
Real Estate News
There are a lot of perks to living in a newer building, but as some renters facing exorbitant, double-digit rent increases are now finding out, rent control isn’t necessarily one of them.
In Ontario, rental apartments, condos, and basement units first occupied after November 15, 2018 aren’t subject to rent controls and there is no limit to how much those rental providers can raise rents.
That isn’t an arbitrary date. In 2017, rent control was extended to all private residential units in Ontario under the Rental Fairness Act. At that time, rental providers were barred from increasing rental rates past a provincially mandated rent cap.
While this was a positive development for renters in the province, it led profit-minded developers to switch their focus, converting more than 1,000 proposed purpose-built rental units into condominiums. So, in November 2018 — in an effort to re-incentivize developers and motivate them to invest in Ontario’s rental segment — the province removed rent controls for newly occupied units.
The distinction between what is and isn’t rent-controlled in Ontario is pretty straightforward, but for renters, it’s not always so.
“Rental providers are not required to provide information as to when a building was first occupied,” says Tony Irwin, President and CEO of the Federation of Rental-housing Providers of Ontario (FRPO). There is no mention of rent controls or lack thereof in standard lease agreements and a landlord is not legally obligated to disclose whether a unit is rent controlled or not when signing up a new tenant.
In some cases, it’s safe to make an assumption — buildings constructed in the past few years won’t be subject to rent controls — but in other cases, it’s not so obvious.
“Rental providers and residents must work together to make the apartment ecosystem work,” says Irwin. “Residents should know both their rights and their responsibilities when living in rental housing.”
When a (Significant) Rent Increase is Legal and When It’s Not
If a rental unit was occupied before that November 15, 2018 cutoff, rent control rules apply. Genrys Goodchild, a spokesperson for Advocacy Centre for Tenants Ontario (ACTO), says that rent controls apply to most rental units in the province.
“This means landlords can only charge a certain percentage increase every 12 months, as set out by the province. The amount is based on the Consumer Price Index of the previous year,” he says. That annual increase tends to be between 0.5% and 3%. In 2020, for instance, the limit was 2.2%. This year, it will be 1.2%. “Above-guideline increases for a building not in that category will be illegal — unless approved by the Landlord and Tenant Board.”
For tenants who are unsure about the legal grounds for a rent increase, ACTO recommends seeking legal advice.
“In some cases, a landlord may mistakenly believe the exemption applies or deliberately try to mislead the tenant on that point,” says Goodchild. “Tenants can apply to the LTB to challenge an illegal increase.”
More specifically, tenants can file a Tenant Application for a Rebate of Money the Landlord Owes, also known as a T1 Application. If the rent increase is indeed illegal, any rent charged unlawfully can potentially be refunded to the tenant. But Goodchild advises tenants to act quickly.
“The window is very limited, so tenants who suspect they have been charged an illegal increase should get legal advice as soon as possible,” he says. “If tenants wait too long, even an illegal increase can become permanent.”
For units that are legally exempt from rent control, certain guidelines still apply. Landlords are required to give tenants at least 90 days’ notice in advance for a rent increase. And in most cases, rent can only be increased once every 12 months.
Know Your Rights and Your Options
Matt Cohen is the Director of Litigation Projects at Pro Bono Ontario. When the organization is contacted by tenants concerned about rent increases in non-rent-controlled buildings — Cohen says he’s aware of around 25 such cases — they tend to make two recommendations.
The first is to assess whether the appropriate 90-day notice has been given. If not, the rent increase becomes void. If the proper notice has been given and the rent increase is legally permissible, then it’s time to discuss the tenant’s options for moving forward.
“It becomes a question of strategy. Is there something that the client is able to do to make a difficult situation a bit better? Can they find new housing?” he says. “Clients who are not on a fixed-term lease are permitted to give 60 days’ notice, generally speaking. That means the client, theoretically, is allowed by law to give their notice and move out of the property before they have to pay the hike.”
Another option: level with your landlord. Explain that you either need more time or that you simply can’t afford the increase.
“People should try to understand where their leverage is in the tenant-landlord relationship,” says Cohen. “If you’re a good clean tenant, you respect the unit, you take care of the unit, you pay your rent on time, then you’re someone who is worth having around. And your landlord is taking risks by not having you there and having to go to market for a new tenant. Or the unit might be vacant for a while.”
Budget Preemptively for Future Rent Increases
“In terms of protecting yourself from unknown increases, I mean frankly, you can only go so far when landlords are not required to tell you their plans,” says Cohen. “But from a financial management point of view, try to make sure that you’ve got X percent of your income available for rent. That’s something people should be talking about with financial advisors.”
But when it comes to allotting a portion of your income for rent, Cindy Marques, a Certified Financial Planner, says there is no blanket answer.
“There are a lot of factors at play informing an individual’s capacity to pay for things. Are you paying down other debts? Do you have other very high monthly expenses and bills? Do you already have a foundation of savings set up?” she says. “However, if we consider what CMHC considers as their threshold for mortgage eligibility, 32% is considered the standard maximum debt-to-income ratio for all monthly housing costs. The same thinking can be applied to rent.”
She adds that in a city as pricy as Toronto, it’s not uncommon for individuals to spend as much as 50% of their income on rent.
Although working future rent increases into your overall budget can be tricky — particularly when the amount of increase is unknown — it’s probably the best way to safeguard yourself as a renter living in a non-rent-controlled building.
“Set up an emergency fund of at least three months’ worth of total basic living expenses in the event there is an interruption to your income. In addition to this, I would advise adding in an extra month’s worth of rent to that total balance,” says Marques. “Look at it this way, if you can set aside just one month of extra rent then this can cover the difference of a 5% increase for 20 months, a 2.5% increase for 40 months, or an absurdly high 10% increase for ten months.”
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