How Does Rent Freeze in Ontario Affect Landlords?

Are you familiar with how rent works in Ontario? Is there a rent increase freeze in Ontario? Let’s find out!

Ontario has a controlled rental system aimed at safeguarding the interests of both the tenants and landlords. It protects tenants from exponential annual rent increases while at the same time ensuring that landlords can generate sufficient revenue to sustain the rising costs of maintenance, repairs, and operations.

 The rent control measures are likely not to affect vacant rental units, which means a landlord can raise the rent on a vacant unit by whatever margin they feel the market can bear. Many advocacy groups have expressed their concerns that landlords will use this benefit to their advantage to loop around the rent freezes. 

There are also concerns over landlords finding reasons to evict tenants for the sole purpose of raising rents. In this article, the experts from Surex will discuss how does rent freeze Ontario affect landlords and what options do they have if the government restricts their ability to increase rent for the existing tenants. 

The most obvious and direct course of action that a landlord can undertake when a tenant fails to pay rent is to evict them from the property. But the recent paradigm of changes has put both tenants and landlords in a financial state of distress. So make sure you scroll down to the end to know how you can break down the implications of a rent freeze.

What is a rent freeze?

A rent freeze is a situation where a tenant’s owed rent amount is stabilized or remains frozen at fixed rates for a certain period. The rent can only be increased after that period by an amount specified by the government. The amount is set at 1.2% for 2022. 

Tenants must remember that negotiating a rent freeze would mean paying it back later after the time ends. So, they must consider their finances first and estimate their future expenses to reconsider whether they will be able to pay it back in due time or even afford a higher rent in the future or not. However, the landlord may provide a 90 day notice before the freeze period ends. 

Exceptions of a rent freeze Ontario

The rent freeze Ontario does not apply to all, and there are special exceptions allowed such as:

• The Landlord and Tenant Board may approve an increase in rent if the costs are related to eligible capital repairs and security services. But they will decline a request for an increase in rent due to similar increases in municipal taxes and charges.
• Both tenants and landlords can also agree on rent increases in exchange for an extra service or utility such as parking space, storage space, air conditioning, etc.
• For institutions like care homes or retirement homes, the rent increase guideline only applies to the rent portion but will not affect the costs of other services like nursing, food, care, etc.
• Any new buildings, additional built buildings, etc. that have been made available for residential living for less than four years are exempt from any kind of rent control or commercial rent freeze Ontario.

How it affects landlords

Here is how does rent freeze in Ontario affect landlords:

Above Guideline Increases (AGI)

The change in the law allows landlords to apply for and collect Above Guideline Increases (AGI).

AGI is a rent increase granted by the Landlord and Tenant Board. It is usually more than the permitted annual guideline and permitted increases based on the landlord’s expenses on major repairs, additions, renovations, and other add-ons that are not part of the ongoing maintenance. 

Another reason for the approval of AGIs may include the cost of services like security. While this can be a disproportionate benefit for landlords, low-income tenants living in apartment towers will be the ones bearing the brunt of the economic pressure. 

Rent freeze leaves landlords without a loophole

A rent freeze puts the responsibility on the landlord to bear any incoming shortfalls in their rental income, which can possibly affect their ability to pay taxes (which more or less are not decreasing) and pay for maintenance fees and operational costs (which continues to rise).

 Vacant dwellings allow landlords to demand and collect higher rents, irrespective of any rent freeze or not, but only if the market can bear the increase. So, finding a tenant adds to the pressure of having to collect sustainable rent. 

What and how much rental increase can the market bear?

The only visible alternative to rent freeze, that is, increasing rents of vacant units, is subject to the financial hardships being faced by many people. It can end up limiting the amount that the market can bear. 

It is pertinent to mention here that provinces like Ottawa and Vancouver have reported zero increase in rent between August 2019 and August 2020, whereas Toronto recorded a decline of 12%. 

It implies that many landlords in the different provinces and municipalities are now struggling to find prospective tenants while also offering various discounts and incentives to attract them. 

It counters the concern of mass evictions by landlords for the sole purpose of increasing the rent since now they’re faced with the issue of having to find tenants to fill up all those vacancies.

 Endnote

The government is trying to strike a balance between the rights of the tenants and the interests of the landlords. They are trying to protect tenants from exploitation and eviction while providing landlords with enough rent revenues to sustain themselves in the market. However, there also is a need for efforts from the side of tenants and landlords. 

Now that you know how does rent freeze in Ontario affect landlords, you can plan your lease accordingly. Landlords can certainly consider eviction of tenants for more rent revenue but only on legal grounds and valid reasons. For this, they can proceed to seek the correct legal advice. But considering the current environment, opting for mass eviction as a means to circumvent the implications of a rent freeze is unlikely to be in the best interests of the landlord. 

To cope with this situation, tenants and landlords can find common ground and seek a compromise that both parties can agree to for a lasting tenant-landlord relationship.