Landlords weigh options as potential rent freeze looms

Attempting to work with tenants is the best approach
Perley-Robertson, Hill & McDougall
Editor's Note

This article is sponsored by Perley-Robertson Hill & McDougall LLP.

The Government of Ontario is expected to announce this fall a residential “rent freeze” for 2021. What does this mean for landlords and is it likely to spur a wave of evictions as some tenant advocacy groups fear?

Ontario has a system of rent control intended to strike a balance between protecting tenants from excessive annual increases while ensuring landlords can continue to generate sufficient revenue to cover the rising costs of maintenance and operation.

These rent control measures will likely not apply to vacant rental units – a landlord can currently raise the rent on a vacant unit by whatever degree they believe the market can bear. Tenant advocacy groups have expressed their concerns through the media in recent weeks that landlords will take advantage of this to circumvent a rent freeze. They warn landlords will seek grounds on which to evict tenants, for the express purpose of raising rents.

But how likely is this really? And what recourse do landlords have if the government does restrict their ability to increase rents for existing tenants?

The most obvious grounds on which a residential landlord can evict a tenant is for non-payment of rent. Given the current situation with the pandemic, this is the most pressing concern for tenant groups, as job loss – either temporary or permanent – has left many people under financial duress.

Finding legitimate grounds for eviction isn’t easy

Even in situations of non-payment or late payment, the landlord must still abide by the process provided for in the Residential Tenancies Act, 2006.

To commence an eviction process, the landlord must first provide the tenant with a written notice outlining the reason for eviction, the termination date and the tenant’s remedial period. A standard form issued by Ontario’s Landlord and Tenant Board must be used when serving an eviction notice to a tenant. The tenant is given a certain amount of time to remedy their behaviour or to comply with the request made by the landlord.

If the tenant doesn’t remedy the situation or move out, the landlord can file an application to the Board to end the tenancy. Most applications must be made within 30 days of the termination date set out in the notice. However, there is no deadline to apply to end a tenancy for non-payment of rent.

From there, the matter can proceed to a hearing, which the Board will schedule to decide the landlord’s application. The outcome of a hearing will be an order, which presents a board decision on whether the tenant can or cannot be evicted.

System backlogs

When Ontario’s State of Emergency was declared in March, many regular government services were interrupted, including hearings for eviction. A backlog of eviction applications with the Board built up over the summer thanks in part to the temporary closure of the Board’s counter services and an eviction moratorium by the province that ended in July.

It’s fair to say that an eviction application is unlikely to move quickly through the system at present.

The court of public opinion

The other consideration is one of public perception – is it really in a landlord’s best interests to be seen as attempting mass evictions?

Anecdotal media stories over the summer alleged how some landlords had resorted to underhanded means to justify a decision to evict – such as alleging that tenants had committed property damage or some other offence that is grounds for eviction. However, landlords must have sufficient evidence to prove such claims, making it impractical to rely on these grounds to pursue mass evictions.

The efforts of tenant advocacy groups and the power of social media can quickly turn the court of public opinion against a landlord who is portrayed as acting in such an unjust or opportunistic manner. It’s also reasonable to say that the Government of Ontario doesn’t want to see this kind of activity become commonplace.

What rental increases can the market bear, anyway?

On the flipside, the financial hardship being faced by many people can also limit what the market can bear.

The latest rent report from Rentals.ca shows that the monthly cost of renting an apartment or condo has stagnated or declined in 12 of the 18 municipalities that it tracks across the country. Ottawa and Vancouver, for example, both logged a zero increase between August 2019 and August 2020, while Toronto saw a decline of 12 per cent.

This suggests that in many municipalities, landlords are now struggling to find tenants and offering various incentives and discounts. This means the issue for 2021 may be less about raising rents and more about the bottom-line impact of unfilled vacancies. The concern to fill vacancies is another reason landlords may avoid using mass evictions to circumvent the rent freeze.

Unwanted vacancies the larger issue

This raises another issue – tenants under financial duress who decide to walk without fulfilling the terms of their rental agreements and giving proper notice.

In most instances, a tenant is required to give 60 days notice of their intent to vacate. If a landlord already has last month’s rent on deposit (which most do), they must decide if it will be worth their time to attempt to recoup that other outstanding month of rent. Meanwhile, they have the immediate priority of finding a new tenant as quickly as possible.

A rent freeze leaves landlords without a loophole

A rent freeze puts the onus on landlords to absorb any shortfalls in their rental income that may impact their ability to pay taxes (which by and large are not decreasing) and maintenance/operating costs (which continue to rise).

Vacancies do provide the opportunity for a landlord to command a higher rent, regardless of any government-imposed freeze, but only if the market can bear the increase.  Fewer travellers and tourists seeking short-term accommodation, fewer post-secondary students moving into the city for the school year – these and other factors related to the pandemic are having an impact on rental demand in many cities.

Find common ground

Landlords should certainly consider eviction of a tenant when it has valid grounds on which to proceed and seek the right legal advice to do so. But in the current environment, seeking mass eviction as a means of circumventing a rent freeze is unlikely to be in a landlord’s best interests.

The best advice for any tenant-landlord relationship, as it was well before the pandemic, is to seek common ground and find a compromise which both parties to the rental agreement will find tolerable.

Timothy J. Thomas is a real estate lawyer and partner at Perley-Robertson, Hill & McDougall. Tim’s practice centres on negotiation and preparation of financing documentation – for financial institutions and borrowers, leasing matters, and commercial real estate development, including the sale, purchase and financing of commercial, industrial and residential properties. For over 20 years, Tim has served the personal legal needs of his clients through the preparation of wills, powers of attorney, estate planning and administration. He also advises clients on business transactions, including sales acquisitions and financing. Contact Tim at tthomas@perlaw.ca