Before you panic, it’s not me who is out of control. Sure, I may have had fourteen Easter eggs on the weekend and I may have just told you I had fourteen Easter eggs when I really had twenty-two. Despite this regrettable lapse in Easter egg judgement, I think I am pretty much in control.
The out of control that I am referring to is rent in Ontario, specifically rent control.
A few years ago I discovered something about rent control in Ontario that surprised me. Since then, I’ve shared the discovery with landlords, tenants, Realtors and even lawyers – and I’ve always got the same reaction.
“That can’t be right.”
It wasn’t until I had been a Realtor for a few years that I discovered that for all intents and purposes, there is basically no such thing as rent control in Ontario.
For landlords, this news is hard to believe. After all, every year, the Ontario government releases a provincial rent increase guideline. In their own announcement, they describe the guideline as “the maximum amount that most landlords can increase a tenant’s rent during the year without making an application to the Landlord and Tenant Board.”
The increase is based on the CPI, which is regarded as an objective, reliable measure of inflation, charting the change in the price all goods and services in the provincial economy.
For 2015, the guideline is set at 1.6%. If you think that doesn’t sound like much, it’s actually double what it was for 2014. Click here if you want to read the full details.
The key word in the announcement about the guideline is “most”, as in “the maximum amount that most landlords can increase” rent by in the year. In this particular case, by most, the Ontario government means hardly anyone.
This is because there is an exemption in the Residential Tenancies Act that applies to any rental unit in the province of Ontario that was built, or came onto the rental market, after November 1, 1991.
If you look around most cities in Ontario, I think you will find that there are a lot of buildings that were built in the last 25 years. For those buildings that are older than that, you will also find lots of individual units in them that have not been rented out for more than 25 years.
In my experience, the vast majority of landlords in Ontario own units for which the provincial rent control guidelines simply don’t apply.
If you are looking at this news from the perspective of a landlord, you’re likely pretty pleased. If you are looking at from the perspective of a tenant, you might be a little alarmed.
When I share this fact with investor clients, I always stress that this doesn’t mean your cap rate just went through the roof.
In the absence of rent controls, it is true that landlords can raise the rent to whatever price they want. It is also true that tenants who feel the rent increase is unreasonable can choose to move out. Losing a great tenant can be expensive both in terms of vacancy while you search for a replacement tenant as well as in fees from a Realtor or other services to find the new tenant.
Where this information becomes very valuable is in situations where landlords have faced increased costs, such as property taxes, maintenance fees or utilities that have risen substantially. While there is some provision in the act to allow landlords to apply to the LTB for an increase above the guideline, it isn’t a simple process and many landlords don’t know how to do so.
By knowing that a rental unit is exempt from the rent control guidelines, landlords can instead simply choose an increased rent amount that is reflective of their current costs and the current market rates. In my experience as a landlord, tenants understand a reasonable rent increase if the landlord’s costs have gone up. They may not be happy about it, but if it is in keeping with what the current rental rates are in the local market, it is rare to lose a good tenant due to the increase.
If you or someone you know is looking to either buy or rent out an investment property, please don’t hesitate to get in touch. I’m also happy to help good tenants looking for a great place to live. In either case, I would love to be responsible for what comes next.