Thursday, March 16, 2017

Ontario's Residential Tenancies Act Needs Modernizing

Ontario’s residential landlord and tenant legislation is badly outdated and needs a complete re-write.  The basic framework of the Residential Tenancies Act and its immediate predecessor the Tenant Protection Act is almost 20 years old, despite some minor, political amendments made in 2007.  A lot has changed since then.  Housing prices in Ontario’s major metropolis have skyrocketed.  Airbnb has added a new type of residential occupation not anticipated by the legislation.  Nor was there any clue that condos would become the new rentals when the Tenant Protection Act was being debated back in 1997.

The system is grinding to a halt.  The heavy load at the province’s rental housing tribunal combined with the automatic right of appeal to the courts of a decision a party doesn’t agree with routinely delays justice.  The inconsistency of decisions by the statutory decision makers at the Landlord and Tenant Board is shocking and rampant.  Most of the mistakes come from the lack of common sense, the overly strict interpretation of the wording of the statute without giving regard to the purpose of the statute or the real substance of the disputes.  The appellate body, the Divisional Court, almost always fixes the problem with common sense decisions.  But despite the availability of the Divisional Court when the Landlord and Tenant Board gets it wrong, it’s a slow and VERY expensive process that most landlords can’t afford.  More than once the Divisional Court has suggested that the Tribunal and the government get its act together and fix the problems!

In fact, in 2012 Justice Ted Matlow from the Ontario Superior Court commented in a decision, an appeal from a Landlord and Tenant Board order as follows:

My recent experience sitting as a single judge of this Court to hear motions has convinced me that there is a growing practice by unscrupulous residential tenants to manipulate the law improperly, and often dishonestly, to enable them to remain in their rented premises for long periods of time without having to pay rent to their landlords. It is practice that imposes an unfair hardship on landlords and reflects badly on the civil justice system in Ontario. It calls for the Government, the Landlord and Tenant Board and this Court to respond……   It is my hope that those in a position to amend the Rules of this Court will consider this judgment and see fit to restrict the right of appeal in residential landlord and tenant cases and, perhaps, require that leave to appeal be obtained before appeals can be brought.

Over the last two decades the appellate courts have made a number of decisions that have modified the generally accepted interpretation of the statute as it was when it was introduced.  For instance, jurisprudence since the Act came into force has confirmed that lease-breaking parties are legal, negating the purpose of lease term as a benefit to the landlord.  A decision in 2006 from the Ontario Court of Appeal struck down a section of the statute that deemed unlawful rent to be lawful if a year had passed and the tenant had not made an application about the rent’s lawfulness.  This has thrown rent disputes into disarray.

Serious confusion now exists between the jurisdiction of the Landlord and Tenant Board and the Ontario Small Claims Court.  Landlords often bounce back and forth between the two bodies, finding there is no remedy at either court as each denies jurisdiction.  This is true in case of utilities as well as monies owed to the landlord after the tenant has moved out.  There is also confusion about cases that straddle what are normally seen as residential tenancy issues, versus things that may happen in a rental unit, such as personal injury, but which generally head to the superior courts or small claims court.  The issue of a landlord’s claims for damages that are legal in nature, not physical damage where something could be repaired or replaced, is also a grey area in terms of jurisdiction.  Confusion reigns!

Finally, the government is struggling with the availability of affordable housing.  The Ontario government practically begs landlords to rent out units despite the terrible risk landlords take and the unattractive rental environment the government has created.  The 2011 Strong Communities Through Affordable Housing Act, and the recently passed Promoting Affordable Housing Act, 2016 which promote inclusionary zoning are honest efforts to create more accessory suites and affordable housing. But it won’t work and landlords won’t open up their homes until some of the risk is mitigated, the playing field levelled and the confusion eliminated.

Many poverty activists are satisfied to retain these tenant-centered policies that are creating this crisis.  They imagine that more non-profit housing, built and operated by government will be the result. But the government coffers are empty.  Coincidentally, so are hundreds of thousands of potential basement apartments that could be freed up as affordable housing units.

On the other side of the coin, maybe it’s time to change the section 6(2) exemption in the Residential Tenancies Act that allows buildings built after November 15th, 1991 to be exempt from the provincial rent increase guideline.  We now have 25 year’s worth of new buildings, many in downtown Toronto, that are not rent controlled.  While the policy objective was legitimate, this “forever” exemption from rent increases caps creates uncertainty for tenants, allows evictions at the landlord’s whim disguised as rent increases, and is contributing to the high cost of rentals.  Today Peter Tabuns, an NDP MPP is introducing the 4th Private Member's Bill since 2011 to eliminate this exemption.  Perhaps what the government needs to do is to get rid of the permanent exemption, and have a sliding scale phase-out period, during which the allowable increase that can be charged slides back to the provincial guideline 15 years after a building is first occupied.

We need a re-write to create a modern residential tenancy statute that reflects the realities of 2017.

Wednesday, October 5, 2016

Residential Tenancies Act Needs Changing to Avert Affordable Housing Crisis

While I loved the musical Les Miserables, the song Master of the House always struck me as backward as the cast sings “Everybody loves a landlord. Everybody's bosom friend.”  From my perch, it seems that everyone despises landlords and wants to make them responsible for government’s shortcomings and many of society's problems.

Decades ago residential landlord and tenant law was contractual, that is, people signed lease agreements and lived by them.  But starting in the 1970’s in Ontario, the contractualization of residential tenancies has given way to a strict, complicated and onerous statutory model.

You can’t open the papers without reading about how government laments the lack of social housing, the lack of affordable housing, the high rents being charged in major cities and alternative rental models such as Airbnb. But the government is burying its head in the sand as politicians refuse to consider realistic solutions to a problem they themselves created.

The change has happened incrementally, as most change does.  Governments have practically nationalized private residential rentals, putting landlords in the driver’s seat and having them foot the bills to administer the government’s misguided public policy. Ontario has been the worst jurisdiction in Canada for piling impossible burdens on residential landlords.  Some examples include:
  • The government mandates rent increase guidelines that discourage building of new rental housing.  While it’s true that post-1991 buildings are exempt, the threat of eliminating that exemption is real, evidenced by two private members’ bills being introduced (and thankfully defeated) over the last decade.
  • The government requires landlords to continue housing tenants for long periods of time even when no rent is being paid.  No interest can be charged on late payments and most rent-arrears are noncollectable after eviction.  Yet the statute, the Residential Tenancies Act (the ‘RTA’) permits easy lease-breaking if the tenant wants to move out before the agreed term is over.
  • The government refuses to allow damage deposits, and won’t allow a landlord to enforce “no pet” provisions in a lease. While eviction applications for smoking in non-smoking units are sometimes successful, it should be clarified in statute.
  • The government allows an automatic right of appeal of Landlord and Tenant Board (the 'LTB') evictions to the Superior Court, costing landlords at least 6 months and thousands in legal fees, even when no rent is being paid.
  • The Residential Tenancies Act is overly complex and too strictly enforced with respect to timelines; the law doesn’t permit “fixing” defective termination notices, a requirement that doesn’t extend to tenants filing and then amending their own applications to the LTB.
  • The RTA cannot end a tenancy after a hearing, even if it’s about getting one’s own house back to move in or in the case of serious safety issues, if the landlord is found to be in serious breach of an obligation under the Act.  I’ve seen landlords forever lose the right to move back into their own homes based on a tenant’s inflated, exaggerated or entirely fictional complaints. 
  • The RTA allows the tenant, without notice, without filing an application and without providing any disclosure, to make their own claims at a hearing that was scheduled to deal with rent arrears, delaying the matter another 6 weeks with a needed adjournment so that the landlord can prepare to defend against the often minor or imagined breach.
  • The RTA doesn’t allow sophisticated parties in high-rent situations to freely contract out of the prevailing statute, and won’t allow absolute fixed-term leases for a set period.
  • The government’s own Policy Guideline on Rental Housing produced in 2009 by the Ontario Human Rights Commission doesn’t permit landlords to make sensible choices regarding income or lack of credit and tenancy history while conducting pre-tenancy application screening.
  • Worse, the Human Rights Code and its Policy Guideline upheld by the Courts don’t allow an eviction until the landlord, even the smallest single-unit landlord, has made efforts to accommodate a tenant’s refusal or inability to follow basic rules if that inability is caused by Code related issues.  Landlords have to accommodate the tenant’s conduct, at their risk and expense, to the point of undue hardship…practically the point of insolvency.  We all agree that those disadvantaged by disability or other Code-related factors need assistance, but shouldn't the dollars come from general tax revenues and not from landlords...the easy targets?
  • The Ontario government refuses to protect landlords who risk renting to those on public assistance by not mandating that Ontario Works or ODSP pay the shelter portion of the tenant’s monthly allowance directly to the landlord.  Tenants on government benefits are among the most likely to face eviction, yet this simple change that would benefit both landlords and tenants is seen as too draconian by Queens Park.
  • The City of Toronto makes it almost impossible to get out of the rental housing business.  Try to get a demolition permit to knock down an old building at the end of its life, and the City will insist you replace it with more rental units.  That type of policy makes a joke of personal property rights.  You can check out any time you like, but you can never leave.
The shortage of affordable rental housing is becoming acute.  But the Ontario government has washed its hands of it, and are practically begging landlords to rent out units despite the terrible risks they take and the unattractive environment government has created. 

The 2011 Strong Communities Through Affordable Housing Act, and new efforts at inclusionary zoning are honest efforts to create more accessory suites. But it won’t work and landlords won’t open up their homes until some of the risk is mitigated and the playing field levelled.

Some on the left are satisfied to retain tenant-centered policies that are creating this crisis.  They imagine that more social housing, built and operated by government will be the result. But the government coffers are empty.  Coincidentally, so are hundreds of thousands of potential basement apartments that could be freed up as affordable housing units. 

Friday, September 23, 2016

The Airbnb Problem is Connected to Our Awful Tenancy Laws


I read a story in the Toronto Star yesterday about the problem of Airbnb cutting into traditional rentals.  The problem isn’t simple and cuts across complex issues starting with our low interest rates, booming real estate market, and the emergence of the new sharing economy.  But before we start blaming Airbnb for cannibalizing the traditional rental market, we should look at the elephant in the room that is causing many investors to go the Airbnb route.  The problem is that the traditional rental model, governed in Ontario by the Residential Tenancies Act, is broken.  Renting your unit short-term as an Airbnb is exempt from provincial landlord and tenant legislation, as are rentals in hotels, cottages or bed and breakfasts.



Why would a condo owner choose the more active, complicated and time-consuming world of multiple short-term rentals to traditional rentals?  Having to show up every weekend to turn over keys, do cleaning between rentals, exchange emails and arrange payment on a weekly basis is a lot of work.  How does an Airbnb landlord ever go away for a weekend, and what happens in the winter months when the tourists are not descending on Toronto?  It's true, you “might” make more money using Airbnb, but there are a lot of empty nights on the calendar compared with the traditional rental where you are guaranteed a monthly rental income.



I think the reason many property owners go the Airbnb route is that successive governments, the Conservatives with their Tenant Protection Act in 1998 and Liberals since 2007 with the Residential Tenancies Act have made renting out a basement or a condo a very high-risk venture.  I know the system well, I’m a former adjudicator at the Landlord and Tenant Board, a paralegal dealing with landlord and tenant issues, and I teach landlord and tenant law to aspiring paralegals in the college system.



Evictions, either for rent arrears, tenants committing illegal acts or endangering occupants safety, usually take months, and in many cases are impossible to achieve based on the evidentiary burden placed on landlords.  The 2009 policy guideline for residential tenancies under the Ontario Human Rights Code turns landlords into social workers, requiring them to accommodate behaviour resulting from Code inclusion (usually disability) to the point of undue hardship.  After evictions, the unpaid rent or damage claims are rarely recovered. 



The irony is that at the same time as governments refuse to address the perverse complexity and unfairness of the Residential Tenancies Act, they are looking for ways to open up the basement, second-suite rental market to house low-income tenants.  The Liberals are talking about inclusionary zoning, making noises about changes to the Residential Tenancies Act, and to their credit, passed the Strong Communities Through Affordable Housing Act in 2011, attempting to force municipalities to allow secondary units in their homes.  But it hasn’t worked. 

The government can’t have it both ways.  They either have to turn the business of residential rentals back into a business where parties can freely contract, instead of the current tenant-centred over-regulation, otherwise small landlords will continue to look at alternatives that are exempt from the current regulatory scheme.


Monday, December 28, 2015

Rent Deposits Confuse Most Small Ontario Landlords

Almost every time I am retained by a new small landlord, there is confusion about rent increases and last month rent deposits.  I will leave rent increases for another day, but let me describe how the deposit system is supposed to work, and then how it's being handled by many small landlords.

WHAT THE LAW SAYS ABOUT RENT DEPOSITS

Rent deposits are permitted under the Residential Tenancies Act.  Damage deposits are not.  Last month's rent deposits (LMRD) can be equal to one month's rent, but not more.  They are negotiated prior to entering the tenancy, and paid prior to move-in.

Landlords are required to pay interest on the last month's rent deposit at the same percentage rate as the annual provincial guideline that's in effect at the time the interest is due.  So for instance, if a tenant moved in February 1st of last year, then January 31st of 2016 will be the end of the year, and interest is due immediately after.  If rent was $1,500, then the landlord owes 2% interest as that's the 2016 guideline.  So the landlord would owe $30 to the tenant.  The landlord can pay cash or write a cheque.

But there is another way of paying interest on the deposit rather than  actually paying by cheque.  In s.106(7) the Residential Tenancies Act allows a landlord to "top up" the LMRD with the interest owed.  So here's an example.

The monthly rent is $2,000.  The LMRD is also $2,000.  It's anniversary time (a year since move-in or a year since the last increase).  The landlord served an N1 notice of rent increase effective February 1st, 2016.  It should have been served in October 2015, since there is a 90 day notice requirement.  The rent will go up 2% as that's the 2016 provincial guideline.  So rent goes to $2,040.  Interest on the LMRD is owed on February 1st, also $40, as the percentage interest rate is the same.  But the Act permits the landlord to take the $40 and ADD IT to the LMRD, effectively making the deposit $2,040 instead of the rent.  No money changes hands.  It's a book entry only.  The rent and LMRD stay in sync.

Now remember you can ONLY do this top-up if you raise the rent by the guideline, since you are not permitted to have a LMRD equal to more than one month's rent.  This method of "topping up" the LMRD is the way almost all professional property managers handle rent deposits.  Sometimes a tenant thinks they were ripped off as they never saw a cheque.  I think it's important for good relations to let the tenant know that you've topped up the LMRD with the interest owed.  I have a nice letter in the forms package on my website that I suggest landlords give to tenants when raising the rent annually which explains how the deposit works.

So what happens with the LMRD you collected prior to move-in?  According to the Residential Tenancies Act, the rent deposit stays with the landlord forever until the tenant moves out.  When the tenant leaves with proper notice, the landlord APPLIES the last month's rent deposit to the last month of the tenancy.


HOW IT'S SUPPOSED TO WORK 

Too often, landlords and Realtors who assisted them in getting into a tenancy don't understand rent, rent increases and rent deposits.  I teach Realtors at various real estate boards, and I'm shocked at the misconceptions about rent and rent deposits.  The confusion lies in the difference between lease TERM, and the tenancy.  Term is an artificial construct, usually one year, that may (but doesn't have to be) included in a residential tenancy lease.  Leases can be month-to-month.  Under Ontario law, after the initial lease term is over (if there was term), the tenancy becomes month to month automatically.  The written lease is still in force.  No renewal is necessary.  Nothing changes, except the term is over.

But what too many small landlords do is apply the LMRD to the last month of the TERM, the 12th month if it was a one year lease term.  At that point, they have lost their rent deposit.  They have given away their hedge against the time it takes for eviction if a tenant stops paying rent.  There is no way to force a tenant to give you another rent deposit.  What should have happened is that the tenant should have paid for the 12th month with a cheque just like every other month, post-dated or otherwise, and the LMRD stays with the landlord until some time in the future, perhaps years down the road, when the tenant give notice they are moving out, or the landlord evicts the tenant.  The LMRD is applied to the last month of the TENANCY, not the last month of the lease term.


HOW AND WHY IT GETS MESSED UP

This mistake happens because Realtors and most small landlords are generally confused about the distinction between term and tenancy, and don't understand what happens after term ends.  Usually in a rental where Realtors are involved, the tenant has given the landlord only 12 post-dated cheques.  Post-dated are not required under the Residential Tenancies Act (s.108), you can't force the tenant to give post-dated cheques, but most tenancies initiated by Realtors involve them.  The landlord pays the Realtor the equivalent of one month's rent as a commission.  The landlord deposits the LMRD in their bank and then deposits each cheque as it comes due each month.  On the 12th month, they have no cheques left.  They should have received 13 cheques, not 12, in order to have a year's worth PLUS the LMRD.  But they didn't.  And on that 12th month, they simply APPLY the LMRD in their mind, confused about term, confused about whether the tenant is staying etc.  Then when they finally get around to asking the tenant their intentions (no need for that, the tenancy continues month-to-month by default), they realize the tenant is staying, they ask for a replacement LMRD.  The tenant may agree, but sometimes says NO.  And truthfully, the tenant doesn't have to pay another LMRD.  It's something a landlord and tenant agree to prior to the start of the tenancy.


HOW TO FIX IT

You fix it by not getting it wrong in the first place.  If you take post-dated cheques for a year, you need 13, one is the last month's rent deposit and the rest are for the first 12 months.

But to fix it, if the tenant fails to pay for the 12th month and you have no cheque, you just remind them that since they did not give 60 days notice (an N9 form), then the rent for the 12th month is due.  Assure them that their LMRD is still safe, has not been applied, although you will pay them the interest or top up the rent deposit.  If the tenant balks, it's an easy fix....you serve an N4 notice for the missing month's rent, and file an L1 application for rent and eviction at the LTB if they don't pay.

If the tenant says "haha, it's YOUR mistake landlord, you told me I didn't have to pay January's rent" (the 12th month), then apologize, tell them you made a mistake, and ask again for the missing rent.   Even if it was your mistake, it's fixable, since the Residential Tenancies Act clearly sets out in s.106(10) that you can ONLY use the LMRD as security for payment of the rent for the last month of the tenancy, and the Residential Tenancies Act also sets out in s.3(1) that even by agreement, you can't do otherwise.  In other words, it would be illegal for landlord or tenant to apply the LMRD to any month other than the last month of the tenancy.

So keep it simple.  You take the last month's rent deposit prior to entering the tenancy.  You put it in the bank.  You pay or apply interest on the LMRD annually using the current provincial guideline interest rate.  You apply the LMRD for the very last month they live there, never before.  Follow these rules and you won't get in trouble with rent deposits.

FOR MY ONTARIO LANDLORD FORMS PACKAGE AND A NEW POWERPOINT ON RENT CONTROL AND RENT-BASED EVICTIONS, CHECK OUT MY WEBSITE: 

http://www.hfineparalegal.ca/


Thursday, April 2, 2015

LOTS OF ADMINISTRATIVE CHANGES UNDERWAY AT THE LANDLORD AND TENANT BOARD

Lots of news at the LTB these last few weeks.  Add in the new case management hearings, changes to hearing scheduling and the addition of Cooperatives under the LTB's umbrella, the agency has had a busy year.  Here's a summary of a few of the newest changes.

E-FILING

E-filing is being tested on a limited basis for L1, L2, T2 and T6 applications. It's about time, they were talking about it when I was a Member of the LTB in 2004. I will believe it when I see it.  The Board plans to make e-filing available to all users across the province by this summer.  Together, L1, L2, T2 and T6 account for 80% of all applications received at the LTB.

UPDATED FORMS

As you know, the new forms are now available, but the old ones can be used until May 31st, 2015 without issue. After that, if an old form is used, it may delay the processing of the application.  Good and bad on the new forms. I like the Human Rights and French Language services expanded area. Also great to have a scheduling sheet where you can indicate unavailable dates on the last page of every application.

People shouldn't fret about star
ting to use them right on April 1st. The forms do not reflect any statutory changes, there has been no Rule or notice that they must be used as of that date. So far it's simply an announcement on the website saying they are available.  They are suggesting that by May 31st, you should be using the new forms otherwise delays may occur.

The best thing about the new forms is that finally the N5, N6 and N7 notices of termination warn the landlord that they had better include dates, times and specifics in order to comply with the 2002 decision Ball v. Metro Capital from the Ontario Divisional Court. I hope it results in fewer L2 applications being thrown out. The way the forms are designed forces the person to think point by point and include dates.


But the biggest single oversight was the N8 notice. There are only 3 slots for dates, times and specifics. To succeed with an L2 eviction application based on an N8 notice for persistent late payment, the Board member usually wants to look at the most recent 12 months of payment. Having only three slots is crazy, it will mislead the small landlord. I just sent this to a contact of mine at the LTB:


"Not trying to be an alarmist, but I just started looking at the new notices and applications that became official today, and I’m a bit shocked that the N8 notice has three lines on it, and no room for additional pleadings. I applaud the changes on the N5, N6 and N7 asking for details, dates and times, and having multiple distinct boxes, implying the need for clarity and specificity. Certainly if there are more than 3 instances of conduct, a landlord can attach an appendix to the notice.
But on the N8, most members insist on 12 months, it’s not set out in statute, but it’s generally what’s required. I’ve attached what I usually draft as an N8 under the old form. And if the notice is insufficient, it can’t be amended at a hearing.
I would strongly consider removing this notice from your website until this is re-thought. As you know, forms are not the law, but they are the best approximation of what the law says in a way non-legal people can understand. But this including only 3 lines, it’s completely misleading with respect to what may be required in order to get the order sought. Also by removing any space for commentary, you’ve removed the ability of the landlord to plead (since in LL apps, pleading is done by way of notice) their facts!"

SERVING OF APPLICATIONS AND NOTICES OF HEARING

Also the LTB will start serving the application and notice of hearing by mail starting July 1st, 2015. The LTB will serve the notice of hearing and the application to both the applicant and the respondent. Currently, the applicant serves these documents to the respondent. This new process will be more streamlined and will cut down on claims by respondents who say that they were never served. Some of the new forms talk about the LTB serving the application and notice of hearing. This is not the case until July 1st. 

EMAIL INQUIRIES HAVE ARRIVED

And believe it or not, email for case inquiries will soon be available at the Southwestern and Toronto South offices. Starting April 7, the Southwestern and Toronto South offices will be accepting case inquiries by email as part of a pilot project. LTB users in these areas will be given the email address along with their Notice of Hearing. They are asked to put their file number in the subject line of the email.


SO WHEN WILL EMAILING OF NOTICE OF ENTRY BE ALLOWED?

So...WHEN WILL EMAIL BE AN ACCEPTABLE METHOD OF SERVICE FOR NOTICES OF ENTRY BY A LANDLORD?  Fax is an acceptable method under the Board's Rules of practice, but not email. How many of your tenants have fax numbers? And besides, today email and fax are functionally equivalent. You receive faxes on your computer, you send them on your computer.  There really is no distinction.  This should not be so difficult, and can be changed by a simple amendment to Rule 5 of the LTB's Rules of Practice.  No legislative or regulatory changes are needed.  Perhaps the Rule could specify that emailed service is only permitted if the landlord and tenant have provided each other with their respective email address in the lease, or in writing, and agreed to use email as a method of communication.  Perhaps the Board could draft a form for them to use acknowledging their agreement.

Take the following example of why a change is needed.  Suppose a landlord lives in Burlington and owns a rental property in Pickering.  It's Thursday, and he wants to go and do a fire safety inspection, or change furnace filters over the weekend.  Since the tenant has no fax machine, and since email is not an acceptable method of service, he has to drive to Pickering on the Friday to drop the notice of entry off to the tenant, in the mailbox, in his hand etc.  Then he has to drive home, and on Saturday (making sure it's at least 24 hours later) he has to drive back to Pickering to change the furnace filter.  

Now it's true, he could simply take his chances, knock on the door and ask the tenant if it's OK for him to change the filter.  But if the tenant says "no", then the landlord can't enter. 

For all the details of changes taking place at the Board, check out their website:

http://www.ltb.gov.on.ca/en/About_Us/STEL02_111230.html

Saturday, March 28, 2015

RESIDENTIAL TENANCIES ACT'S DIRTY LITTLE SECRET ABOUT RENT INCREASES...FINALLY REVEALED!

Section 6(2) of the Residential Tenancies Act is the dirty little secret that nobody wants to talk about.  The tenant advocacy side keeps it quiet, as it would hurt their constituency if landlords became aware of it.  Many landlords don't know it exists, and if they did, rents would be jacked way up.

Landlords who know about the Section keep it quiet, as they don't want the newspapers to pick up on a story about an “egregious abuse” of the exemption.  Those in the know are happy to have it for themselves.  They've almost lost it before.
The exemption from the annual rent guideline increase first appeared in the Tenant Protection Act, 1998 (the “TPA”), and survived when the TPA was replaced by the Residential Tenancies Act, 2007 (the “RTA”).  It was added into the TPA in 1998 as a bone to developers since rent control was being put into place, and that was potentially a game-changer not just going forward, but it breached a trust retroactively.  

 Ostensibly it was included in the law to encourage future development; s.6(2) allows certain rental units to be exempt from the annual rent increase guideline which approximates CPI inflation.  The argument was that if the exemption wasn't provided, NOBODY would build new high-rise rentals.
So, the Tenant Protection Act came into force in June of 1998, not only exempting new construction going forward, but in some cases, going back to 1991 and beyond.

That section has seen its challenges.  There have been two failed private members bill in the legislature – one in 2010 and the most recent in 2013 – attempting to eliminate the so called "loophole".  
The section reads as follows, and refers to several sections of the RTA that do not apply in certain circumstances, but most importantly, exempts certain rental units from s.120 which creates the annual rent increase cap:

6(2)  Sections 104, 111, 112, 120, 121, 122, 126 to 133, 165 and 167 do not apply with respect to a rental unit if,
     (a) it was not occupied for any purpose before June 17, 1998;
     (b) it is a rental unit no part of which has been previously rented since July 29, 1975; or
     (c) no part of the building, mobile home park or land lease community was occupied for
     residential purposes before November 1, 1991.

Section 6(2) is badly written, and as a result is subject to a lot of different interpretations.  Divisional Court, a mid-level appellate court where Landlord and Tenant Board (the “Board” or “LTB”) decisions go for appeal, has only dealt with it a couple of times:

1.     Drewlo Holdings Inc. v. Weber, 2011 ONSC 6407 (CanLII).  The Court affirmed that the plain meaning of the word "building" includes a bungalow.  Good thing the Court didn’t say it must be a multi-unit building.  The decision didn’t have much value as the Court simply upheld the Board’s interpretation of the section as being reasonable and therefore not subject to appellate review.  That's called curial deference in appeal parlance.

2.     Coburn v. Tenants of 152 Concession 11 Road West, 2014 ONSC 2421 (CanLII) – Again, not very helpful or instructive.  The original Board decision was found to be reasonable.  However the Court also brought s.134 into the analysis.  More about that later.

Here’s my take on the three subsections:

6(2)(a) is confusing, but it seems to want to capture individual rental units, not the building.  It reads:  “sections ......do not apply with respect to a rental unit if it was not occupied for any purpose before June 17, 1998”.  I think this means that the exemption applies to a unit in a building built since 1998 or a new rental unit in an older building or a rental unit in a building that was simply never occupied residentially or otherwise, before June 17, 1998, the day the TPA was proclaimed.


6(2)(b) seems to apply to a first time rental unit, regardless of when it was built, so long as it was not rented to anyone since 1975.  Remember this first became the law in 1998.   It reads:  “sections ......do not apply with respect to a rental unit if it is a rental unit no part of which has been previously rented since July 29, 1975.”  In other words, only an owner (not just the current owner) lived there since 1975, and at some point decided to turn it into a rental.  In my mind, this is a grandfathering provision. 

Factually, it would be tough for either party to prove usage going back 40 years.  I think that the idea behind this exemption is that imposing a rent guideline over properties which did not have residential rental use since before any rent control laws came into force constitutes a form of expropriation of title. The significance of the year in 6(2)(b) is that it was in July 1975 when the Residential Rent Review Act 1975, (the “RRRA”), was enacted.  Prior to that there was no rent control to speak of in Ontario.

However Section 6(2)(b) is confusing even if you go with my interpretation. If I lived there since 1975 as an owner, and then in 2012 I decided to rent it out, is it s.6 exempt forever, for all future rentals?  I don’t think so.  I think any subsequent rental would take you out from the exemption.  By the way, this is so rare, I've never seen it asserted.


6(2)(c) is the subsection most landlords normally rely on for support.  It deals with the building.  Most think of it as new buildings constructed after 1991, condos primarily but not necessarily.  It reads, “no part of the building, mobile home park or land lease community was occupied for residential purposes before November 1, 1991.”  But if you examine the wording carefully, I think it’s meant to capture an older building used for a commercial or industrial purpose before 1991, but that was converted to residential use post-1991.  After all, if it’s NEW post-1991, then how could any part of it have been residential pre-1991?  Wouldn’t the legislature simply have said “not built prior to 1991” if that was its intention?

My 6(2)(c) interpretation is not the norm, and it challenges how the LTB and many landlords have traditionally used it.  Everyone goes to the LTB and says “exempt... it was built after 1991”, but I really think it might be 1998 that applies to new construction and everyone is relying on the wrong subsecftion.  What did the legislature mean when it wrote in (a) “not occupied for any purpose”?  Does that mean it was built, but in an alternate dimension, protected by a force field, surrounded by a moat?  I just don’t know.

Even though all the units described in s.6(2) are exempt from the annual rent guideline, there are still rules for raising the rent.  Too many landlords who know they are exempt still serve the N1 instead of the N2 notice of rent increase.  The N1 is the normal notice of rent increase for guideline increases (or special applications above the guideline), while the N2 is supposed to be for those units partially exempt, such as social housing, s.6 etc. 

Depending on the adjudicator, the service of the N1 form may or may not be acceptable, possibly saved by the substantial compliance sections of the Residential Tenancies Act, the Statutory Power Procedures Act and Legislation Act.  Forms can be found here: 

http://www.ltb.gov.on.ca/en/Forms/STEL02_111311.html

I’m concerned that one day, an appeal regarding a s.6(2) decision from the LTB is going to go to Divisional Court, and the free ride will be over.  The facts will be that a landlord of an exempt unit increased the rent from $700 per month to $7,000 per month.  A Divisional Court panel will decide that in a building with multiple comparables, where a "normal" value can be established, such a tactic breaches s.134 of the Act (see below).  The judge will call the rent charged a premium, and strike down the increase as an illegal premium. An over-zealous landlord will ruin it for everyone.

Additional charges prohibited
134.  (1)  Unless otherwise prescribed, no landlord shall, directly or indirectly, with respect to any rental unit,

(a) collect or require or attempt to collect or require from a tenant or prospective tenant of the rental unit a fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable;

My advice to a landlord lucky enough to have an exempt unit is to be up-front when signing the lease, including a clause where the parties acknowledge that the annual guideline does not apply, and that any new rent will not constitute a premium.  I believe it's better to act in good faith up-front and avoid fights a year down the road.
I always remind people that this blog does not constitute legal advice.  In this instance, it's even more important for you the reader to know that there are still many unanswered questions about this controversial exemption, and you should consult a lawyer or paralegal for additional advice.