by Heather Waese
Landlords have waited for over a year for the provincial Liberals to drop the hammer. On at least two previous occasions the Liberal cabinet tried to propose new rent legislation in order to deliver on one of their election platforms. Finally, the much dreaded Bill 109, The Residential Tenancies Act, 2007 (RTA) was introduced for first reading. On the brighter side of a very dim situation, this legislation addresses a few issues that were upper most in the minds of landlords for more than a decade, namely; vacancy decontrol, the annual guideline and interest on last month's rent. The ability to operate freely in the market place has now had a chance to prove itself for the past eight years. After an initial rise in average rents, market forces have served to moderate, if not reduce, rents from their earlier high point. This government had to acknowledge that the ability for landlords to charge market rents has provided more choice for tenants. The annual guideline increase calculation has been a mystery for many years. It was based on an intricate formula including a select group of costs for a twelve month period that varied from time to time depending on the results. The RTA proposes that the guideline be based on the Ontario Consumer Price Index averaged over the previous year. This will make it difficult for the government to manipulate the formula. While on the surface it appears to be the perfect solution, there will be tremendous political pressure to step in and reduce the government guideline if utility costs increase as expected. Finally, this government intends to address the outrageous practice of requiring landlords to pay 6% interest on last month's rent on deposit (LMR) when banks are barely offering half that amount. The RTA proposes to align the percentage interest paid on LMR with the Ontario Consumer Price Index.
Landlords have attempted to individually meter the consumption of hydro for each unit in order to transfer the obligation to pay for the supply of electricity to the tenant. Efforts were thwarted by both tenant and utility company alike. This legislation purports to permit landlords, without consent, to install smart meters and transfer the responsibility for payment of the costs incurred without the consent of the tenant. There are, however, very onerous rules with which landlords must comply. A landlord must document the consumption of the smart meter for a period of not less than twelve months before the conversion could take place. The calculation for the reduction of rent pursuant to the reduction of the service is yet to be disclosed. He must also adopt practices which support the potential for energy conservation.
Unfortunately that is the extent of the “better”. The impact of the balance of the new law will be much worse with respect to both obtaining increases above guideline as well as applications for arrears and to terminate tenancies.
Certain aspects of the RTA will apply to all increase above guideline applications filed after May 3, 2006. The most notable change will be the implementation of cost no longer borne. The law requires the landlord to reduce rents by an amount (more or less) equal to the amount of the increase awarded for the capital expenditure after the useful life has expired. This terminology was first introduced by the NDP's Rent Control Act. Fortunately, it never really saw implementation as the legislation was repealed before the first allowances were required to be reduced from the rents. It is likely that history may again repeat itself as this law would have to survive for the 15 year period that is currently suggested by the transitional section of the legislation before the reductions would have to be made. In fact, no rent legislation has ever lasted more than eight years so it is a fairly safe bet. The government also intends to tinker with the formula for calculating the capital allowance thereby reducing the rate of return. This part of the legislation will apply only to those applications that are filed after proclamation, so there is still a window of opportunity to recover capital expenditures at this current more beneficial rate.
The cost no longer borne provision will also apply to increases awarded to recover extraordinary increases in utilities. Landlords will be required to document the subsequent years' operating expenses and report the costs in a prescribed form to the tenants who were affected by the Order. A tenant will then have to apply to the Board for a reduction if the landlords' costs have reduced by a prescribed percentage, yet to be determined.
On the landlord and tenant side of the equation, this legislation also adopts new rules that will likely mean the end to prompt hearings. The RTA eliminates the default process for evictions. A hearing must take place in all circumstances. During these hearings a tenant may raise any matter and seek a remedy regardless of whether it was related to the original issue in the application. This will result in delays and adjournments to allow the landlord to investigate the allegations in order to prepare a response. The Board will also require adjudicators to review the tenant's “circumstances” prior to granting an eviction.
This is only round one, things can still change for better or worse.