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Record low rent increase for 2011: Options to recover costs, protect landlords' assets
September 2010
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| Heather Waese, President of SPAR Property Consultants Ltd. |
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By Clare Tattersall
In June, Ontario’s provincial government announced that the maximum rent increase allowed for 2011 is 0.7 per cent – the lowest increase in the 35-year history of rent control in the province.
As a result, Heather Waese, President of SPAR Property Consultants Ltd., says it will be more difficult for apartment landlords to maintain their investment next year.
The increase is one-third of the current 2010 guideline, which is 2.1 per cent, she says.
The rent increase guideline is the maximum amount by which a landlord can increase the rent of most existing tenants. This annual increase is intended to cover the costs incurred by the landlord related to building maintenance and operating costs in the previous 12 months (from June 2009 to May 2010 for the 2011 rent increase). It is based on the Ontario Consumer Price Index (CPI), which is regarded as a reliable and objective measure of inflation. However, Waese notes that the CPI is not limited to the typical costs incurred by rental housing providers.
“CPI includes food, clothing, transportation (and) education, and these costs are generally restrained by current economic situations,” she says. “Therefore, in the case of 2011, the CPI will be significantly lagging behind those of the costs incurred by landlords.”
In order for apartment landlords to preserve their bottom line in 2011, Waese says they should consider filing an application with the Landlord and Tenant Board for an above-guideline rent increase. Applications may be based on an extraordinary increase in their operating costs or for capital expenditures, or both.
If the application is made to cover unusually high increases in utility costs, it may only be based on heat, hydro and water costs and/or property taxes. The threshold for determining whether the increase is extraordinary is based on the annual guideline. The calculation is the guideline plus 50 per cent of the guideline. Therefore, for 2011, this will be 1.05 per cent.
“This threshold is very low, specifically given the cost increases that have been announced for utilities,” says Waese.
Landlords must also remember that the regulations preclude them from recovering the HST now charged on gas and hydro, she continues.
“Therefore, you would be comparing the costs without the GST in one 12-month period to the costs without HST in the subsequent 12-month period.”
Waese says landlords can also apply to the Board to recover the costs incurred to undertake major work. These are called capital expenditures. To be eligible, necessary repairs, renovations, replacements or additions must be completed within the previous 18 months of filing the application. It is the total cost to carry out this major work (including the HST) that can be claimed and is recoverable over a period of time.
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