An investment in real property comes with ongoing costs to maintain property value, extend its useful life and meet property standards.
Investing in residential rental property comes with the additional obligation to maintain the residential complex under the Residential Tenancies Act.
In Ontario, any building used for residential purposes prior to November 18, 2018 is subject to rent control which limits yearly increases to a guideline amount set by regulation using the Ontario Consumer Price Index. The guideline is capped at 2.5% regardless of inflation.
Under s. 126, a Landlord who incurs a significant cost for capital expenditures, municipal taxes or charges and/or operating costs may apply to the Landlord and Tenant Board to approve an increase above the guideline. This allows landlords to recover out of pocket costs by allocating a portion of the costs to each eligible unit to a maximum of 9% overall.
Eligible capital expenditures include any major repair or renovation that:
is necessary to protect or restore the physical integrity of the residential complex or part of it
is necessary to comply with the landlords maintenance obligations
is necessary to continue to provide vital service such as heat, water and electricity
provides access for persons with disabilities
promotes energy or water conservation; or
maintains or improves the security of the residential complex or part of it
These applications can benefit both large and small landlords and require calculations to determine the justifiable increase to be applied prior to filing the application.
Examples of eligible expenses and justifiable increases:
A small landlord with only one property for rent incurs the cost of $16,000 to complete major repairs to the well and septic system. This landlord is eligible to apply for an increase of 6.15% spread over three years.
A landlord with one 60 unit building completes balcony and exterior repairs to the building. The total cost is $1,200,000.00. This landlord is eligible to apply for an increase of 9% spread over 3 years.