|Landlord & Tenant Information
On January 31, 2007, the Residential Tenancies Act, 2006 (the "RTA") replaced the Tenant Protection Act, 1997 (the "TPA"), the legislation that has governed landlord and tenant relations in the Province of Ontario for almost a decade.
Although landlords have always been subject to substantial financial exposure under residential tenancies laws in Ontario, the new RTA creates an even more complicated environment in which to operate. The provisions of the RTA will create additional hurdles for landlords in recovering capital expenditures through rent increases and will also require landlords to adopt rigorous property management procedures to avoid substantial liabilities associated with the RTA.
Elimination of Default Orders
Since the RTA came into force, landlords have had increased difficulty obtaining an order authorizing an above guideline rent increase for capital expenditures. Under the TPA, a capital expenditure was defined as an expenditure on a "major" repair, replacement or new addition, the expected benefit of which extends for at least one year. Under the new RTA regulations, the renovation, repair, replacement or addition will have to be "extraordinary or significant" in order for an above guideline increase to be permitted, and the minimum required expected benefit will be extended to at least five years.
As well, certain types of work will be specifically excluded, including ordinary maintenance, cosmetic work and generally all work done to enhance the level of luxury of the residential complex. What has been interesting to see is how the new Landlord and Tenant Board (the "Board") and the Courts determine what capital expenditures will be considered to be "extraordinary or significant".
Another noteworthy difference between the TPA and the RTA is how an above guideline rent increase which has been granted is treated. The RTA provisions will cap the total maximum increase that can be achieved by a landlord. Under the TPA, no such cap existed. The RTA imposes a cap on the total maximum increase owing to a capital expenditure at 9%, with annual increases capped at 3% over no more than three years. Unfortunately for tenants, the likely consequence of introducing this new cap is that landlords will become less willing to invest in certain capital repairs.
Under the RTA, the Board will also have the power to grant an order restricting or prohibiting a landlord from increasing a tenant's rent in circumstances where the Board finds that the landlord has failed to comply with a work order relating to a serious breach of a health, safety, housing or maintenance standard. Section 30 of the RTA provides that, where a landlord is in breach of Section 20 of the RTA, being the obligation to keep the residential complex and units in a good state of repair, the Board may prohibit the landlord from increasing the rent, giving a notice of rent increase and prohibiting the landlord from taking any rent increase for which notice has already been given until such time as the landlord has completed the items in work orders for which the compliant period has expired.
This legislation marks a return to the "Orders Preventing Rent Increases" ("OPRI") regime previously seen under the Rent Control Act, 1992. Once an OPRI is issued, it will only be cancelled once the landlord has completed the work ordered.
As a result of the reintroduction of the OPRI regime, landlords may face new issues when seeking to raise rents. First, despite a lack of expertise in such matters, the Board has the unilateral power to determine the scope of any work to be completed. Second, an OPRI may result simply from allegations raised by a tenant at the hearing of a landlord's application for a rent increase. Third, upon the issuance of an OPRI, the landlord is required to provide notice to any of its new tenants and, in such cases, the new tenant may apply to the Board to determine proper rent for a unit affected.
Landlords should, therefore, inspect and consider the condition of their building and be prepared with evidence of such condition before contemplating an above guideline rent increase. As well, it would be wise to include a provision in future leases requiring written notice by a tenant of any maintenance deficiencies and ensure proper "maintenance request forms" are distributed to tenants at the start of a tenancy. Proper documentation of maintenance issues could be used to answer allegations by a tenant that the landlord has breached its maintenance obligations under the RTA.
Under the TPA, the Ontario Rental Housing Tribunal was permitted to issue Default Orders if an application to terminate a tenancy was not disputed by the tenant prior to the deadline set out in the notice of hearing. However, the RTA has eliminated the Default Order provision such that all applications for eviction now proceed to hearing regardless of whether a tenant disputes the application.
As a result, the Board will likely become much busier, which may result in longer waiting periods for landlords before proceeding to hearing. Once the hearing date arrives, the landlord must be ready to prove the merit of its application to the Board. Ultimately, this change may well result in a more costly and time consuming process for evicting a tenant in default.
Section 82 Defenses by Tenants
From a landlord's perspective, one of the most oppressive new provisions of the RTA is the introduction of certain defenses found in Section 82 of the RTA. Section 82 provides a tenant with the right, upon a landlord's application for arrears of rent and eviction, to raise any issue that could be the subject of an application made by a tenant under the RTA. This means exposure for landlords to any number of potential claims by a tenant during an eviction application. There is also no obligation under the RTA for the tenant to give notice of the issues they intend to raise. Therefore, a landlord may be caught off guard by various claims at the time of the hearing.
If the landlord applies for an order for arrears of rent, without eviction, the tenant is not able to take advantage of the Section 82 defenses. However, it is often the threat of eviction that gives the landlord the leverage needed against a tenant in default.
Providing tenants with the ability to raise any issue in response to an eviction application will create risk and uncertainty for landlords that wish to evict tenants who are in default.
Fast Track Evictions
Although most of the provisions in the RTA appear to be more favourable to tenants, the ability of landlords to fast track evictions is a new provision, which is favourable to landlords. The RTA allows a termination date of 10 days after service of notice in a situation where the tenant is accused of impairing the safety of others, being involved with illegal drugs or willfully damaging the rental unit. However, the RTA goes further and allows the Board to set a termination date that is earlier than the date set out in the notice of termination and allows the Board to request the Sheriff to expedite enforcement.
For those landlords who live in a building containing no more than three residential units, the RTA now provides these landlords with assistance in evicting a tenant whose conduct substantially interferes with the reasonable enjoyment of the building. Not only might a landlord provide a termination date 10 days after the service of the notice, but also the landlord is no longer required to provide the tenant with a chance to correct the situation as has always been the case in previous legislation.
From a landlord's perspective, the RTA makes life more difficult. Not only has it become costlier for landlords to assert their rights under the RTA, but they will also become exposed to possible rent freeze orders and other financial risks when complying with the RTA.
Landlords should familiarize themselves with the RTA as soon as possible and ensure they have solid property management procedures in place to navigate