Above-Guideline Rent Increase for Site Remediation Denied at Landlord and Tenant Board
A recent Ontario Landlord and Tenant Board (LTB) case may have just set a precedent for denying above-guideline rent increases when they are requested for site remediation purposes. While the news isn’t all bad, since the LTB approved increases in this case for capital expenses, it did not approve it for site remediation.
What is an Above-Guideline Rent Increase?
An above-guideline rent increase (commonly shortened to AGI) is an increase that a landlord can apply for above the usual annual guidelines under the Residential Tenancies Act. They are only necessary for units constructed prior to 2018; if your property was built after that, your property isn’t subject to rent guideline limitations. We have a full guide about AGIs and how to apply for them here.
What are Considered to be Capital Expenses?
In the case in question, roof and boiler replacements were considered to be capital expenses that qualified the landlord for an AGI. Tribunals Ontario, the body which administers the Landlord and Tenant Board, considers the following to be the definition of a capital expense:
“A capital expenditure is an amount that was spent for an extraordinary or significant renovation, repair, replacement or new addition. It must have an expected benefit of at least five years.”
-LTB Brochure, Information about Applications for a Rent Increase Above the Guideline.
What is Site Remediation?
In the above brochure, capital expenses required to protect or restore the physical integrity of the complex, or which promote energy or water conservation are considered to be valid capital expenses. In the potentially precedent-setting case, the applicant had conducted environmental cleanup and soil testing, which can both be considered site remediation. These were the denied items.
Why Are AGIs Under Scrutiny?
The ruling in this case is likely due to increased scrutiny of AGIs because of a few “bad actor” large corporate landlords. In 2022, just 20 companies filed over half of the applications for AGIs in that year. Tenant advocates say that they are a method to get “underpaying” tenants to leave.
Will my AGI be Successful as a Small Landlord?
If you’re a smaller landlord and have had to make extensive, provable upgrades to your property, there’s a good chance that your AGI will go through. However, it may be scrutinized more closely, so make sure you literally bring the receipts and back up all expenses with the necessary paperwork. Additionally, if you’re in the city of Toronto or another jurisdiction faced with a large property tax increase, the added expense is provable. As a small landlord, you’re not likely to be engaging in site remediation unless something is very wrong with your property.
This case was also challenged by a group of tenants in three separate apartment buildings. While your sole tenant can certainly challenge an AGI, the large scale of the tenant advocacy probably had a bit to do with the site remediation AGI being denied. In addition, other capital expense AGIs were implemented, so in this case the site remediation was simply a line item.
Takeaway for Smaller Landlords: Don’t Worry About It!
So is this case actually precedent-setting, as Canadian Apartment magazine suggests? Don’t sound the alarm just yet. This was a larger, corporate landlord submitting an AGI for multiple capital expenses, and the site remediation one was the only one rejected. They still got an AGI, just not in the amount they wanted.
This is more of an issue for larger landlords who own older buildings which may require environmental cleanup. Even then, there may have been so many expenses that the LTB saw fit to remove this one to keep the tenants happy.
If you need to buy a new furnace and roof in one year – because isn’t that always what happens? – this case is no cause for concern. But when you file an AGI, you should always be ready for your tenant to fight it at the LTB, so make sure your recordkeeping is meticulous.
Do you want a professional to step in and manage complex tasks like LTB hearings and rent increases? Give us a call today to see how our property management services can make you money by saving time and taking care of the difficult issues.
