Wednesday, December 12, 2018

The Current Rent Control System is Most Unfair to Condo Landlords

Most Toronto condos being rented out today are running cash flow negative.  This means that with a 20% down payment (which is typical), after the landlord has covered costs of the mortgage, taxes, common area fees, insurance and unit maintenance, they are losing money each month.

Now those are the regular, recurring charges that apply to all landlords.  But there are many more costs that may be incurred.  For instance, what happens if the unit sits empty?  That vacancy period has to be factored into the equation.  What about damage and depreciation?  And if a condominium has a special assessment, that puts the owner further under water.  Add to that unpaid rent that is generally unrecoverable post-eviction, and you can start to see where this is going.

Rent control in Ontario covers all units except those not first occupied prior to November 16th, 2018, so basically every condo is covered by the Residential Tenancies Act and its system of rent control.  In 2018 and 2019, the only rent increase a landlord can take is 1.8%.  And even if the tenant AGREES to pay more than the provincial allowance, that agreement is void.  Remember also that the 1.8% increase that landlords can charge annually is only legal if the landlord gave the tenant the proper N1 form with the proper timing, and served properly.

It's easy to imagine a landlord in a condo having maintenance fees (common area fees) that go up 5% annually, with a tenant who stays in the unit for 3 years.  That's a 15% increase in common area costs over three years.  Perhaps the mortgage was renewed during that period, now at a higher rate.  Rent during that period will have gone up a maximum of 5.4% (assuming a guideline amount of 1.8% annually).  Using this common example, there is no way that the landlord, who might have been covering costs plus $300 per month at the commencement of the tenancy, is covering costs by year three.  They are actually taking money out of their pocket each month.

What if the tenant stays longer?  What if they stay for 20 years?  The worst bet is a large, 3 bedroom condo for families.  The tenants may stay forever!  The only unit I would dare to rent as an investor is a 450 square foot unit where the tenants will move onward and upward after a couple of years as their income increases.

Under Ontario's system of rent control, when the unit is empty you and the new tenant can negotiate any rent that makes sense.  But once the tenancy ends (thank God it ends because you can finally raise the rent to market), there is often a month's vacancy, plus cost of pest control, painting etc.

So what's a landlord to do when they want to get out of the business?  I had a client this morning with that same problem.  They rented the unit out in 2013 to a nice woman at a very low rent.  Prior to April of 2017, they were able to raise the rent by ANY percentage annually because the law permitted this for condos built after November of 1991.  But thanks to Kathleen Wynne, this exemption ended in April of last year.  But the landlord and tenant had agreed to bring it up to market rent gradually, perhaps $100 per year for a few years.  And then the law changed, and the landlord was stuck with a maximum of 1.8% in each of 2017 and 2018.  And stuck with a VERY low rent.

So the landlord is now losing money each month on the investment.  What are their options?

Selling the unit is almost impossible, because they can't stage the unit, can't make sure it shows well, can't do renovations on the unit etc.  The landlord has to sell it tenanted.  That will probably cost them $50,000 off the optimal price.

They can't evict the tenant, because there are no grounds to evict.  The tenant is paying rent, not doing damage, not committing illegal acts etc.  So unless the landlord is moving in, which is unlikely, the tenant gets to stay.  For how long?  Forever!  In Ontario, tenancies continue forever until lawfully terminated in accordance with the Residential Tenancies Act.  And absent the landlord or purchaser moving in (or demolition), a landlord needs evidence of serious conduct issues in order to evict.

In this example, the landlord might have this tenant in the unit until the tenant, a young woman, dies of old age.  The landlord would be negative thousands of dollars each month.  This creates a forced fire-sale by the landlord to stop the bleeding.

And for those who think that you can just say your mother or child is moving in and serve the tenant an N12 notice, think again.  While it's too complicated to go into here, you will likely not succeed, and could be subject to an order for abatement of rent and fines of up to $25,000 if you try it.

Landlords in condos cannot use the RTA's above guideline application rules for capital expenditures to ask the Board to allow an increase over the provincial guideline.  Pooled expenses in a condo, or special assessments, do not fit into the statutory system where a landlord in a home could apply to raise the rent if they put on a new roof, installed a new furnace etc.

And if the landlord is paying for utilities, unlikely in modern condos that have suite metering, the landlord can't raise the rent to account for soaring hydro costs.  Prior to 2017, landlords, including those in condos could use the Above Guideline Application, the L5, asking for permission to raise the rent by more than the guideline due to extraordinary increases in utility costs.  However, Kathleen Wynne took away that option in 2007, saying simply that landlords should be careful to purchase energy-efficient appliances.

So when you are are considering a condo as an investment, think twice.  Under the RTA as it stands today, frankly I don't recommend that anyone purchase ANY investment property.  Without legislative changes, the risks are too great.  But in condos, with the inability to control costs, and the inability to recover extraordinary costs by the L5 application, it is a recipe for certain income loss.  No wonder people are going with short-term rentals such as Airbnb and VRBO.  That's the only way to go in Toronto.  It's more work, but it's the only way to make money and get a return on your investment.

Doug Ford...where are you ?  Why isn't your common sense government amending the RTA in order to encourage investment in the secondary rental market, opening up tens of thousands of units.


Thursday, November 29, 2018

Adding Social Condition as Prohibit Ground in the Code - Another Step Towards Socialism

Landlords, do you know that there is currently a private member’s bill (Bill 35) in the Ontario legislature that proposes to amend the Human Rights Code to have "social condition" plus three additional grounds become prohibited grounds of discrimination?  If the bill becomes law, poverty and economic status could be used to seek accommodation from those who provide housing, goods, services, employment etc.  Existing prohibited grounds include things like gender, receipt of public assistance, disability, age, creed, gender expression, gender identity, sexual orientation, family status etc.

Friday, November 16, 2018

Not the Change Landlords Were Looking For, Premier Ford

While it was exciting to read the news about the introduction of Bill 57 by the PC government, the euphoria wore off after reading the bill and digesting the information.

Saturday, October 27, 2018

Terrible Delays at LTB Pervert & Distort Behaviour, Impede Justice

It used to be that when there was a problematic tenancy, where the parties couldn't stand each other due to the ongoing dysfunction and the relationship was completely irreparable, there were solutions that involved ending the tenancy by making a deal.

The risk in the system was shared by both parties, and that provided an incentive to deal.  The tenant feared a quick eviction with no money in their pockets, and a damaged credit score.  Better to leave with first and last in your pocket for the next tenancy.  The landlord was concerned about mounting debt or additional damage, plus stress and time away from work.  Everyone had an interest in getting out of each other's lives for fear of the consequences.  And they were willing to compromise a bit to make the problem disappear.

Wednesday, October 17, 2018

Cannabis Smoking and Growing in Rentals is now Legal

For better or worse, the federal government's implementation date for legal cannabis has arrived. Provincial legislatures have tweaked to the extent that the federal law allows tweaking. In Ontario, the Ford government did nothing for landlords who are already under siege with the Rental Fairness Act proclaimed last year, made even worse with the intolerable wait times at the Landlord Tenant Board.  Ready to have the smells, turnover costs & grow-op risks in your rental?  Read on!

If you are a landlord, you need to familiarize yourself with this new reality now.  What are the real risks?  I'm not a believer that the sky is falling.  There will be  period of adjustment, but landlords need to educate themselves on the realities of cannabis, and disregard the myths, stereotypes and stigma.

Monday, August 13, 2018

Ford's Cannabis Announcement Hopeful News for Landlords in Ontario

It looks like a big win for Ontario landlords with Premier Ford's announcement this afternoon re: Cannabis sales and use in Ontario. The announcement revealed a complete reversal of the former government's proposed government monopoly on sales, and will open up Cannabis sales to the private sector, starting first with online sales. The Ontario Cannabis Store will be launching an online retail store and begin to establish a wholesale distribution network to supply cannabis to legal private stores in Ontario once legislative requirements are put in place. It sounds to me like there will be no dedicated Ontario Cannabis brick and mortar stores.

Wednesday, July 11, 2018

Landlord's personal use N12 Notices need some scrutiny


The Landlord Tenant Board’s (the ‘LTB’) N12 notice of termination has been around since June of 1998.  The N12 notice is served to a tenant to advise them (among other things) that the landlord or a family member intends to move in 60 days later.  The tenant does not have to move out when they receive the notice, but the landlord may file an application to the LTB for a hearing and prove their genuine intentions.

Thursday, July 5, 2018

Sample Letter to new Minister of Housing Steve Clark

July 5th, 2018

The Honourable Steve Clark
Minister of Municipal Affairs and Housing
777 Bay St., 17th Floor
Toronto, ON
M5G 2C8


Dear Minister:

I am writing you as a small landlord in Ontario, looking to you for assistance in navigating Ontario’s difficult and complicated residential tenancy laws.  The playing field became even more unbalanced following the previous government's passing of the inaptly named Rental Fairness Act in 2017.  Small landlords are hurting, and many are leaving the industry.  The need for inexpensive low-rent basement apartments has never been more pressing, yet small landlords are being forced out of the business.

Thursday, June 28, 2018

New Smoking Rules in Condos can put Investors in Jeopardy with their Condo Corp.

Are you a condo investors? If so, you need to be aware of the consequence of the new Federal and Provincial cannabis legislation and how it may affect your rights as a landlord and investor.

Saturday, June 23, 2018

Ontario Landlords must now use the Standard Government Lease

Written tenancy agreements for Ontario's residential landlords have been inconsistent and confusing.  Existing leases are jam-packed with illegal clauses and in some cases, there is no written lease at all.  Some small landlord investors are of the mistaken belief that it was easier to terminate tenancies if there is no written lease.  Too many people buy off-the-shelf leases that don't conform with Ontario law, and that gets them into trouble because they think the terms can be enforced.