Let’s talk about the new Ontario rent control measures and what they will mean for condo owners, landlords, and tenants. It must be said that the impact on landlords is going to be big, but it won’t be as bad as people think.
We sat down with a lawyer from Korman and Company to discuss the legal details of the new rent control measures. Here’s what we learned.
First, is the new Ontario rent control legal yet?
Currently, rent control is not actually legal, but it is very likely to be passed soon. Once it is passed, the new law is going to be retroactive as of April 20, 2017.
Although it’s not technically legal right now, it’s a smart move to act as though it is legal. As a landlord, if you choose to increase a tenant’s rent beyond the allowable limit from now until the bill is passed, you will have to refund the tenant the difference in the rental fee. After that, the rental rate will be set equal to the guideline increase.
For 2017, the allowable rent increase is capped at 1.5%.
What’s up with the Ontario standard lease agreement?
Along with rent control, Ontario is introducing a new standard lease agreement to protect tenants from abuse.
It’s difficult to say what the standard lease agreement will look like, and how it will be enforced is even more uncertain. It’s our expectation that the standard lease will have little impact on the landlord/tenant relationship, but we’ll have to wait and see.
In our first post about Ontario’s Fair Housing Plan, we mentioned a possible solution to rent control for condo landlords that involved structuring a lease agreement to separate the overall rental payment into chunks, some of which could then be increased beyond the actual rental control limit.
But with this new standard lease agreement, the Ontario government is most likely squashing that possible solution, so that maintenance fees, property taxes, and any additional costs cannot be separated from the rental fee. Therefore, as condo maintenance fees increase around or above 1.5% per year, landlords will have a harder time recouping those costs from rental revenue.
What are the new responsibilities of Ontario landlords?
The new relationship structure between tenants and landlords is designed to favour the tenant, protecting them from landlord abuse both during the time of occupancy and afterwards. Under the new rules, if a condo owner decides to sell or alter the property for a personal reason that requires the tenant to vacate, the landlord must compensate the tenant for the transition.
There are two main situations in which this would apply: a condo owner decides to sell a unit that they are currently renting out; a condo owner decides to move into, or let a family member move into, a unit that they are currently renting out. But the law applies to any reason of “personal use” on the part of the landlord that forces the tenant to leave.
As compensation, the landlord must either offer the tenant a comparable unit or pay the tenant one month’s rent to cover the cost and inconvenience of moving out, finding a new place, potentially disrupting work and personal life, etc.
Finally, will rent control hurt the Toronto condo market?
All in all, rent control will have a significant impact on the condo market, and some landlords will feel the bite. The main problem will be covering the costs of rising condo maintenance fees beyond the rental increase, a balance that will fall more heavily on the landlord over time and potentially turn some units into negative investments.
For the rental market, we expect the initial impact of rent control will hurt supply and potentially make it harder to find affordable condos for rent in Toronto. Faced with losing money, some landlords are likely to become more scrupulous during the tenant vetting period, and they will likely set initial rental rates higher than market average to offset the diminished yearly rental increase.
In the long run, however, we don’t think rent control will be as harmful as it seems. The provincial government may have acted hastily in putting together this legislation and as questions and concerns roll in from the actual landlords and tenants, there should be some shifting in the government’s stance.
Historically, government interventions in real estate tend to level out over time. The market normalizes, people acclimatize to the new structures and environment. Real estate is a fluid industry in which supply and demand are constantly evolving together; landlords will cater to potential tenants, and tenants will rent what is affordable and available. The initial impact of the new rent control will seem negative, but landlords should not divest or close their doors because the demand for housing is still remarkably high.
In the worst-case scenario, landlords who are faced with extreme situations of increased maintenance fees or property tax can apply to the Landlord and Tenant Board for a ‘special-circumstances’ rental increase to help cover some of the fees. But those should be rare cases.
Here’s a full breakdown of the Rental Fairness Act from the Legislative Assembly of Ontario.