Saturday, December 20, 2014

What if Ontario's Banks were Treated Like Ontario's Residential Landlords?

Business owners should have to assume risk.  After all, they are in the business of making a return on their investment better than they might have if they had taken no risk.

But what if government creates a statutory regime that is so unfair and unbalanced, that the risk becomes excessive?  That's what's happened with landlord and tenant regulation in Ontario. 

The argument against my hypothesis is that nobody twists a landlord's arm to go into the business.  While that is true (and I often remind clients of that fact), it's also true that there is too little education for prospective landlords about their rights and obligations, and a lot of pressure from the Real Estate industry suggesting to them that the risk in manageable.  Another factor is that if you build an apartment building, it's a 60 year investment, and if the rules change mid-way through the game, you can't easily get out with your capital intact.

Let's look at the banking business by analogy.  Both highly regulated.  Let's pretend landlords (business owners, some with shareholders) were banks (business owners, all of them with shareholders).  Now ask yourself these questions.

1. Would any bank in Canada still exist today if the rules about granting credit were the same as the rules about granting a tenancy; I'm speaking specifically about the Human Right's Commission's Policy Guideline on Rental Housing. 

Their policy guideline basically says that landlords should chose blindly without regard to risk.  It states that you can't equate no credit history with a bad credit history, no rental history with bad rental history, you can't look at income on its own as a factor, and you can't look at employment stability. Doing any of those things might be construed by a court or tribunal as being discriminatory.

2. Would any bank in Canada still exist today if they had to continue to advance further funds (analogous to a new month's of rent) to a client who was in default of their current obligation?

3. Would any bank in Canada still exist today if they were required to give speculative loans without collateral (or a high enough interest rate to compensate for the loss, like credit cards). Landlord's can't get any sort of meaningful deposit or security.  They are allowed one month's rent as security against a future breach, while it takes a minimum of 3 months to evict through the Landlord and Tenant Board.  No damage deposits allowed.

Would any bank in Canada still exist today if reasonable conditions or restrictions could not be attached to a loan.  In the landlord and tenant world, you can't freely contract with a tenant.  The Residential Tenancies Act applies notwithstanding any waiver or agreement to the contrary.  Beautiful hardwood floors?  You can't have a no-pet policy.  Landlord paying all the utilities?  You can't specify who may live there, or that rent varies depending on the number of people in the unit.

Landlords in Ontario should be questioning the oppressive conditions under which they operate, particularly when the government suggests that they are interested in creating more low-income housing. If the government wants a strong rental housing industry, they have to think of ways to support and encourage it, not smother it in unfair regulation.


Anonymous said...

I have seen way too many landlords leave the business because of reasons like this, mostly because of a few bad and expensive tenants.

Alec Yu (OPA member) said...

The RTA now is on the tenant's side, which I believe that is unfair to the landlords. Being a legal worker, what should we do to reform the Act?

Anonymous said...

My family sold a 4plex because of the unfair policies against landlords. The new owner changed the top floor to a large condo where he lives, so that's one less apartment. We left the business because of "untouchables". These are the people who can destroy your property, not pay rent, and you can't go after them in small claims because of ODSP or OW. More and more landlords are finding their investment is losing money. It's not worth it.