ABOVE GUIDELINE RENT INCREASE BULLETIN

ABOVE GUIDELINE APPLICATIONS (The following item has been reproduced from the website of Cohen Highley LLP Rent Control Bulletin December 2016 Mr. Joe Hoffer lawyer and author of "A Practical Guide to the Tenant Protection Act)

Link to Article-  Above Guideline Rent Increase Applications Bulletin

COSTS NO LONGER BORNE: THE “TICKING TIME BOMB”

When the Residential Tenancies Act (“RTA”) was enacted in 2007 it introduced a “cost no longer borne” provision for capital expenditure AGI increases. When a Landlord receives an AGI Order based on capital expenditures, the Landlord is entitled to collect the increase for the duration of the “useful life” determined by the LTB in the Order. Once the useful life period expires (ie: 10 years for lighting, carpet) then the Landlord must reduce the rent charged to the tenant by the amount of the AGI increase, if that tenant was in the unit and subject to the AGI when the Order issued.

The minimum useful life for capital expenditure AGIs is 10 years; therefore, beginning in 2017 and each year thereafter, AGI Orders will be maturing and a legal risk will arise with respect to long term tenants who were subject to capital expenditure AGI Orders many years ago. There are a number of AGI applications where Landlords received a 9.0% rent increase and they may now face a 9.0% rent decrease with respect to some long term tenants, even if the current Landlord is not the Landlord who applied for and obtained the AGI years ago.

This is a legal minefield for Landlords who have not budgeted for a reduction in cash flow, or where returns have been guaranteed to investors that now may not be fulfilled if a rent reduction is imposed. This liability will be especially troubling for Landlords who bought buildings after 2007 that were subject of a capital expenditure AGIs made under the RTA but where the Landlord was provided with little or no records of past AGI orders. There is no formal record or process that we are aware of at the LTB for notifying tenants when an AGI Order matures and the rent reduction must take effect. Regardless, in our experience, sooner or later these long-buried issues can come to the surface. Landlords should review their potential exposure and develop a strategy for maintaining revenue and avoiding the risks of a cost no longer borne rent reduction.

NOTE - The above information applies to tenants who have been residing in the same apartment unit since 2007. Tenants who have been subjected to these Above Guideline Rent Increases should start reviewing their landlord's applications annually.