Lawful Rent
Transcript
Introduction
Welcome to Landlord’s Self-Help Centre’s module about lawful rent. The information offered in this presentation is intended as general information, it is not legal advice. If you need more information, please contact a legal service provider. For detailed information about the forms, please refer to the other landlord learning modules.
Residential Tenancies Act, 2006
In Ontario, the Residential Tenancies Act is the provincial law that governs most residential rental agreements. It defines the rights and responsibilities of both landlords and tenants and outlines appropriate reasons for giving a notice of termination. It also establishes rules and framework for lawful rent, vacancy de-control and rent increases.
What is Rent?
The RTA defines rent as an amount of money given to a landlord in exchange for the right to occupy a rental unit, and lawful rent is the amount of rent a landlord is legally able to charge.
Vacancy De-Control
Vacancy de-control means that a landlord is able to charge higher rent when there is turnover for a rental unit. This new rent then becomes the lawful rent for the unit.
For example, your current tenants are renting a unit at $1,000/month. When they leave and their tenancy ends, the landlord is able to charge the new tenant $1500/month for the same rental unit, without having to apply for an rent increase with the Landlord and Tenant Board.
Setting the Rent
When setting the rent, the landlord and tenant may decide to have other amenities/services included in the rent, or listed as separate charges, such as:
- a parking spot,
- storage space (such as a garage or shed),
- utilities, or
- air conditioning.
Any additional amenities or services provided should be clearly defined in the written tenancy agreement.
Setting the Rent Continued
When setting the rent for a rental unit, make sure to base it on the unit and amenities or services included. It’s not necessarily good to base it on the number of people. If a tenant decides to have another person move into the rental unit with them, the landlord cannot increase the rent because of the extra person.
Regardless of the wording of the lease agreement, tenants are allowed to have guests and/or rent out a portion of their unit without the landlord’s permission. In cases where the extra person is causing damage, interfering with the enjoyment of others, or causing overcrowding in the unit, the landlord must comply with the Landlord and Tenant Board process, described in the Residential Tenancies Act, to terminate the tenancy.
Landlords also need to make sure the advertisements do not discriminate. Review the Human Rights Code requirements or reach out to a legal service provider for clarification.
What Affects the Lawful Rent?
The lawful rent for a rental unit can be affected by things such as:
- Allowable rent increases
- Rent reductions due to tax decreases
- Agreements to increase the rent, and
- Agreements to decrease the rent
Notice of Rent Increase
A notice of rent increase can be given to tenants once every 12 months with proper, written 90 days’ notice. The percentage allowed is based on the Ontario Consumer Price Index and is announced by the Ministry of Municipal Affairs and Housing by August 31st of the previous year. If a rent increase is not provided for a certain year it is forfeited. Lost increases cannot be taken.
In some cases, an exemption may apply and the rental unit may not be required to follow the regular rent increase rules. For clarification about your specific rental unit, contact a legal service provider.
Automatic Rent Reductions due to Tax Decreases
The Regulations of the RTA sets the amount of rent reduction tenants can receive at 20% of the percent of the tax decrease (15% for buildings containing 6 or fewer rental units). This rule is based on the assumption that approximately 20% of a landlord’s rental revenue is used to pay property taxes.
With Properties containing 7 units or more, the Act requires the municipality to notify both landlords and tenants if the property taxes have been reduced by more than 2.49%.
With Properties containing 6 or fewer units, the automatic rent reduction still applies to these complexes and the burden is on the landlord to notify the tenant if the tax decreases by more than 2.49%.
Agreements to Increase the Rent
In certain cases, landlords and tenants are allowed to agree to an increase in the rent when something new is being added to the unit such as a parking space, or an additional service. The maximum increase in rent allowed is the actual cost to the landlord of the service provided. Where the actual cost cannot be established, the rent increase can reflect a reasonable amount based on the value of the service.
An agreement is void if it has been entered into as a result of coercion or as a result of a false, incomplete or misleading representation by the landlord or a landlord’s agent.
Conditions under Section 121
Section 121 of the RTA allows landlords and tenants to agree to increase the rent above the guideline, if:
- The landlord has carried out or plans to carry out capital expenditures; or
- The landlord has provided or promises to provide a new or additional service.
The form N10-Agreement to Increase the Rent Above the Guideline must be used when entering an agreement to increase the rent. The agreement made between the parties comes into effect 6 days after the agreement has been signed. The tenant has the right to change their mind and cancel the agreement within 5 days of signing it. The maximum increase allowed is the guideline plus 3 per cent.
Any Notice of Rent Increase given to the tenant before the Agreement to Increase Rent was signed becomes void if it takes effect on or after the day the agreed increase is to take effect.
Conditions under Section 123
Section 123 of the RTA allows a landlord to increase the rent charged at any time if the landlord and the tenant agree that the landlord will add any of the following with respect to the tenant’s occupancy of the rental unit:
- A parking space
- A prescribed service, facility, privilege, accommodation or thing.
There is no specific form required for this type of increase, but it’s recommended that the agreement is put in writing.
Agreements to Decrease the Rent
Landlords and tenants can also come to agreements to decrease the rent. This happens when something will no longer be provided to the tenant, such as a parking space.
If the landlord removes a tenant’s privilege, service or facility and does not reduce the rent, as agreed between the parties, the tenant can file a T3 application for a rent reduction with the Landlord and Tenant Board. The tenant has up to 1 year to file this application from when a service or facility was discontinued.
Rent Discounts
Rent discounts are extremely tricky and need to be done perfectly. If rent discounts are not carried out properly, the lawful rent amount will be negatively impacted. Before offering rent discounts, landlords are encouraged to speak with a legal service provider.
Unlawful Rent
Landlords can be fined up to $35,000 by the Landlord and Tenant Board if they have unlawfully increased the rent without proper notice, before 12 months have passed since the last increase, or by an amount that is more than the allowable amount.
Tenants can file the T1 application for a rent rebate if they feel they have been charged an illegal rent, and they have up to 1 year since the illegal rent was charged to file the application.
Unlawful Rent (continued)
Section 135.1 of the RTA deems an illegal rent increase lawful if the tenant has paid the increased rent in respect of each rental period for at least 12 consecutive months and has not filed an application with the LTB with respect to this issue within a year from when the rent was first increased.
Things to Keep in Mind…
To recap:
- Landlords can only increase the rent once every 12 months in the form approved by the Landlord and Tenant Board
- Rent can only be increased by the guideline amount, unless the unit is exempt or the landlord obtained permission from the LTB
Keep in mind:
- Tenants can apply to the LTB to have their rent reduced if the landlord is not taking care of a maintenance problem, there has been a reduction in services or taxes, or if money was collected by the landlord illegally.
Gather Information & Educate Yourself
It is very important that you do your research to make sure this process is appropriate for your situation. If you serve your tenants with an incorrect notice, it can cause other problems for you down the road.
Use resources found on the Landlord and Tenant Board, and Landlord’s Self-Help Centre’s websites to help guide you through the proper process.
Conclusion
Thank you for watching this module about lawful rent. The information offered in this presentation is intended as general information, it is not legal advice. If you have a specific issue or situation, please contact a legal service provider.