As the year draws to a close in just a few weeks, I’m reminded of the old saying, “A New Year’s resolution is something that goes in one year and out the other.”
I’m sure though this is simply not the case for the readers of my humble blog! This week’s post highlights something landlords, investors and tenants alike ask about often, usually around this time of year.
Is there an annual percentage rent-increase guideline in Ontario and if so, what are the details?
The short answer is yes, you bet, there is most definitely an annual percentage increase guideline.
What follows are the particulars summed up in quick and easy tid-bits for your reading pleasure.
Most owners and tenants are unaware that the province’s annual Rent Increase Guideline is actually based on the Ontario Consumer Price Index (CPI)–a rough measure of inflation calculated monthly by Statistics Canada.
The rate of allowable rent increases for 2015 will be 1.6%
“What does this mean?”
The guideline is the maximum amount that most landlords can increase a tenant’s rent during the year without making an application to the Landlord and Tenant Board.
It is based on the CPI, which is regarded as an objective, reliable measure of inflation, charting the change in the price of all goods and services in the provincial economy.
In most cases, the rent for a unit can be increased if at least 12 months have passed since the tenant first moved in, or since his or her last rent increase.
Be aware though, the tenant must be given proper written notice of the rent increase at least 90 days before the increase takes effect.
The 2013 guideline only applies to rent increases between January 1 and December 31, 2013.
“How is the Rent Increase Guideline determined?”
The Rent Increase Guideline is calculated by averaging the percentage change in the Ontario Consumer Price Index during the previous 12 months, from June 2011 to May 2012 as required under the Residential Tenancies Act.
On June 13, 2012 an amendment was made to the Act to ensure that Ontario’s annual Rent Increase Guideline does not exceed 2.5 per cent beginning in 2013.
Without this amendment, the Rent Increase Guideline would have been 2.6 per cent in 2013.
“Here’s an example:”
If the monthly rent of an apartment is $800 beginning August 1, 2012, with proper written 90 days notice to the tenant, the landlord could lawfully increase the rent 12 months later on August 1, 2013.
- Using the 2013 guideline of 2.5 per cent:
- The rent increase is 2.5 per cent of $800 = $20.00.
- Therefore, the new rent on August 1, 2013 could be up to $820.00 ($800 + $20.00).
“Can landlords increase rents above the 2.5% guideline?”
Landlords can apply to the Landlord and Tenant Board for an increase above the guideline, if their costs for municipal taxes and charges or utilities have increased by more than the guideline plus 50 per cent.
Landlords can also apply for an increase above the guideline for operating costs related to security services and for eligible capital expenditures.
“Here’s an example of the above:”
The 2013 Rent Increase Guideline is 2.5%. Fifty per cent of this guideline is 1.25%. To claim an above guideline increase related to municipal taxes and charges, costs should increase by more than 3.75% (2.5 percent + 1.25 percent = 3.75 per cent.)
- In 2012, a landlord’s municipal taxes were $10,000.
- In 2013, the landlord’s municipal taxes increased to $10,500 – an increase of five per cent.
- Therefore, the landlord is eligible to apply for an above guideline increase because the landlord’s municipal taxes increased by more than 3.75 per cent.
“Other Notable Facts”
- A landlord can collect a rent deposit from a new tenant on or before the start of a new tenancy. The rent deposit can only be used as the rent payment for the last month or week before the tenant moves out.
- The landlord must pay the tenant interest on the rent deposit every year. Under the Residential Tenancies Act, the interest rate is the same as the Rent Increase Guideline.
Past Rent Increase Guidelines
YEAR GUIDELINE % 2015 1.6 2014 0.8 2013 2.5 2012
0.7 2010 2.1 2009
1.8 2008 1.4 2007 2.6 2006 2.1 2005 1.5 2004 2.9 2003 2.9
In reality however, other practical factors such as demand and supply, rental market location and tenant quality often play a role in determining the direction a property-owner will take.
A landlord owning a centrally located property steps from the subway for example, has far more bargaining power to increase rents than the owner of a similar unit located 40 minutes away from transit!
The Landlord and Tenant Board provides information to the public and can be reached toll-free at: 1-888-332-3234, or at: 416-645-8080.
Information is also available on the Board website: www.ltb.gov.on.ca