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The only way that you are legally going to be able to take over the unfinished basement as storage area is if the tenant agrees to this in exchange for a reduction in the rent.

A landlord and tenant may agree to add or take away parking, as well as other services, facilities or things that are on a prescribed list, in exchange for a corresponding rent increase or reduction. This list appears in Section 16 (1) of Regulation 516/06 of the Residential Tenancies Act, 2006, and appears here: https://www.ontario.ca/laws/regulation/060516?search=Residential+Tenancies+Act

The basement area would be considered floor space, and subsections (3) and (4) give the following details

(3) If the agreement under subsection 123 (1) or section 125 of the Act is to provide or cease to provide floor space, the maximum increase in rent or minimum decrease in rent shall be proportionate to the change in floor space.  O. Reg. 516/06, s. 16 (3).

(4) If an amount determined in accordance with subsection (3) would be unreasonable given the nature and quality of the floor space added or taken away, the maximum increase in rent or minimum decrease in rent shall be a reasonable amount based on the nature and quality of the floor space and the amount of the change in the floor space.  O. Reg. 516/06, s. 16 (4).

So, for the change to take place, you and the tenant must agree on a reasonable amount to be used as the dollar amount per square foot rate to be used for the rent reduction once you take over the space.

Tenants can usually claim an abatement of rent if there has been interference with their reasonable enjoyment of the premises. In the situation that you describe you should definitely try to reach an agreement with the tenant on what would be a reasonable amount of a rent reduction. If you come to an agreement with the tenant there isn’t a formal document to use in this case, you can just draft something up yourself and have the tenant sign it. If you cannot come to an agreement then the tenant has the option of filing an application with the Landlord and Tenant Board for them to make the decision.

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