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Residential Landlord and Tenant (Ontario) Legal Guide
Chapter 11 - Above-Guideline (s.126) Rent Increases
(01 September 2020)CAUTION
- Overview
(a) Comment
(b) Grounds
(c) Basic Procedures
(d) Elevator Order Reporting with AGI Application
- Important "Timing" Issues
(a) Overview
(b) Example
(c) "Take It or Lose It" Increases
. Overview
. Extension Where "Serious Breach" Suspension Effective
. Extended "Take It or Lose It" Where Combined ECE/SSOC Orders
- Rent Pending Order
(a) Overview
(b) Tenant's Choice
(c) Rebate or Catch-Up on Order
(d) Hearing Procedure Notes
- Orders
(a) Overview
(b) Variations
- Instalment Payments Where Retroactive Increase Orders
- Dismissal or Suspension of Order Where Serious Repair Breach by Landlord
(a) Overview
(b) Serious Breach
(c) Board Orders Where Serious Breach
- Extraordinary Increase in Municipal Expenses (EIME)
(a) Overview
(b) Definitions
. Extraordinary Increase
. Utilities
. Municipal Taxes and Charges
(c) Comparison Years Used to Assess EI
(d) Material to be Filed
(e) Written Hearings May be Mandatory
(f) Determination of EIME Rent Increase
- Eligible Capital Expenditures (ECE)
(a) Overview
(b) ECE Defined
(c) Material to be Filed (ECE)
(d) Determination of ECE Rent Increase
(e) Capping, Spreading and Expiration of ECE Rent Increases
(f) Capping and Spreading Where Previous Orders Still Active
(g) Utility-Inefficient Capital Expenditures Ineligible After Suite Meter and/or Utility Cost Apportionment in Place
- Security Service Operating Costs (SSOC)
(a) Overview
(b) Material to be Filed (SSOC)
(c) Determination of SSOC Rent Increase
(d) Capping and Spreading of SSOC Rent Increase
(e) Capping and Spreading Where Previous Orders Still Active
- Total Rent Increase Calculation
- Orders Void Where New Tenant
Caution
Readers reviewing this section regarding a specific application procedure should also be sure to review Ch.13, s.4 "General Board Procedures: General Application Procedures". That section contains key information that relates to all types of applications that can be brought before the Board.
Note Re: Special and Exempt Premises:
Some residential rental premises - such as care homes, mobile home parks, land lease communities, student accomodation, superintendent's premises, social housing, premises under mortgage proceedings - and others - may be exempt from all or part of the Residential Tenancies Act (RTA), or may be subject to special RTA provisions. Readers may want to review Ch.2: "Special and Exempt Premises" to check if this is the case for their specific premises.
As well, some premises are exempt from all or most rent control provisions of the RTA so readers should be sure to review Ch.10, s.6: "Rent Fundamentals: Exemptions from Rent Control". Especially note that even "rent control"-exempt premises may require Notice of Rent Increase to be issued to take a rent increase.
Note Re: Offences
Many breaches of the Residential Tenancies Act are also prosecutable offences. Readers may want to review Ch.17: "Offences" regarding specific breaches.
1. Overview
(a) Comment
Despite vacancy decontrol, "above-guideline" rent increase applications are still available under the Residential Tenancies Act though their value to landlords is lessened relative to the advantage of vacancy decontrol - which enables landlords unrestricted rent increases upon the occurence of a vacancy in the rental unit [see Ch.10, s.1: "Rent Fundamentals: Overview"]. Indeed, s.126 Orders are voided (and pointless) upon vacation of the subject premises by the "present" tenant [s.126(14); see s.12 below].
That said, the "above-guideline rent increase" [s.126] application procedure is (and always was) very (and IMHO, often absurdly) complex. Detailed contesting of above-guideline increase applications by individual tenants will almost always not be worth the expense of hiring a paralegal, lawyer or accountant, given the marginal amount of money at stake for them. The process will also strain the resources of tenant's associations and small landlords.
Only larger building landlords will find such proceedings financially worthwhile to pursue, having a large "stable" of continuing tenants over whom increases can be taken. Given the complexity involved, smaller landlords are financially motivated to simply wait for (or create) a vacancy to take advantage of the unrestricted rent increases available under vacancy decontrol. Tenant's advocates - rightly in my view - decried vacancy decontrol as creating an ongoing incentive for unscrupulous landlords to fabricate grounds of termination or otherwise intimidate tenants out of their premises.
(b) Grounds
"Above-guideline" rent increase applications may be made by landlords respecting "any or all of the rental units in a residential complex" and may be based on any or all of the following grounds [Act s.126(1)]:- Extraordinary Increase in Municipal Expenses (EIME)
"extraordinary increase in the cost for municipal taxes and charges for the residential complex or any building in which the rental units are located";
- Eligible Capital Expenditures (ECE)
"eligible capital expenditures incurred respecting the residential complex or one or more of the rental units in it";
- Security System Operating Costs (SSOC)
"operating costs related to security services provided in respect of the residential complex or any building in which the rental units are located by persons not employed by the landlord".
(c) Basic Procedures
"Above-guideline" rent increase applications must be filed at least 90 days before the requested date of any rent increase sought in the Application [Act s.126(3)].
Form L5: Application for an Above-Guideline Rent Increase
As well, Notices of Rent Increase are still required for a landlord to take the increase even if a landlord-favourable s.126 Order is made [Act s.116(2); see Ch.10, s.2]. Further, above-guideline increases are subject to the "12 month rule" - ie. they may not be taken until at least 12 months have passed since the last increase (or the commencement of the tenancy - as the case may be) [Act s.119].
Note that while any of the above three grounds for an "above-guideline" rent increase application may be made in a single s.126 application, such applications may not be combined with other landlord applications [Act s.186(3)], which apparently includes any other rent increase applications such as are set out in Ch.12: "Other Rent Proceedings".
Further note that s.126 above-guideline rent increase Applications may each have unique legal or procedural application requirements varying with the grounds upon which they are based (ie. EIME, ECE and/or SSOC). It is important for parties involved in such Applications to review both the general s.126 procedures discussed in this chapter, and the specific legislative provisions relating to the EIME, ECE and SSOC grounds (as applicable to their application, and as discussed below) so that these unique procedural features are appreciated.
These already-complex "above-guideline rent increase" application provisions are sorely complicated by additional "rent reduction" rules that can apply in the event that some landlord expenses - previously relied as the basis of s.126 Ordered rent increases - subsequently decline. The RTA places a five-year annual burden on landlords to "account" to continuing tenants regarding on-going EIME expenses. The enforcement regime complementing this "rent reduction" right itself spawns several equally complex additional Application and Notice regimes.
(d) Elevator Order Reporting with AGI Application
With amendments in 2017, s.126 above-guideline increase applications have had 'tagged on' a duty to report regarding any uncompleted work orders of various kinds regarding elevators in the residential complex. Non-compliance with the elevator work is a serious breach that affects AGI increases [see s.6 "Dismissal or Suspension of Order Where Serious Repair Breach by Landlord", below]. Forms for this 'elevator reporting' are included in the Form L5 "Application for an AGI Increase".
Now, with any s.126 application, the landlord must include a summary of each of the following uncompleted work orders (of various types) that relates to elevators intended for use by tenants in the residential complex, regardless of whether the ordered compliance period has expired [Act 126(3.1,17)]:- any item in a RTA work order [see Ch.3, s.5];
- any item in an order under s.21 of the Technical Standards and Safety Act, 2000, regardless of whether made against the landlord or another person or entity;
- any specified repairs or replacements or other work ordered by the LTB [under Act 30(1)4; Ch.3, s.5(b) Regular" Orders for Repair and Maintenance-Related Breaches"].
The summary shall include [Act 126(3.2)]:- a description of the work that was ordered to be carried out;
- the person or entity who was ordered to carry out the work and the time for compliance specified in the order;
- the person or entity who made the order and the date the order was made; and
- such additional information as may be prescribed.
2. Important "Timing" Issues
(a) Overview
The important issue of when and how an above-guideline rent increase may be effective can be confusing, as it requires attention to several separate time restrictions, namely:- the 12-month rule (where rent increases may not be effective earlier than 12 months after the last increase, or the commencement of the tenancy - as the case may be) [Act s.119; see Ch.10, s.3(b): "Rent Fundamentals: Guideline Rent Increases: 12-Month Rule"];
- the Notice of Rent Increase 90 day notice period [Act s.116(1); see Ch.10, s.2: "Rent Fundamentals: Notice of Rent Increase"];
- the rule that above-guideline (s.126) Applications must be filed "at least 90 days before the effective date of the first intended rent increase referred to in the application." [Act s.126(3)]; and
- that Board Orders will not state a specific date that the rent increase shall be effective, but rather will "subject to the prescribed rules, specify[] a 12-month period during which an increase permitted by clause (a) may take effect." [Act 126(10)(b)].
This '12-month window' (distinct from the 12-month rule, above) approach accomodates the fact that most above-guideline increase Applications relate to large residential complexes, with numerous different rent increase dates for all the rental units.
This discussion seeks to unpack and explain these interconnected issues, by way of example.
(b) Example
Let us start with the most fixed of these rules, the 12-month rule. From past (probably "guideline") rent increases a 'tradition' will have been established between landlord and tenant in each separate tenancy [remember, vacancy decontrol attaches to "tenancies" - not to "rental units": see Ch.10, s.1] as to the annual rent increase date.Note:
Of course where no increase is taken at the anniversary the landlord is free to increase it at any time, subject to the Notice of Rent Increase 90-day notice period - although under the 12-month rule this delay would similarly change (ie. knock-back) the rent increase anniversary. In our example, let's say the rent increase anniversary for a particular tenancy (in a large building with many tenants) is "01 July" of each year. From this we can further infer that any landlord wishing to take an "above-guideline" rent increase (or even a "guideline" rent increase) must serve a Notice of Rent Increase (NRI) before 01 April (90 days before 01 July (ie. April, May and June). Similarly, we know from the above that any Application for an above-guideline increase must also be made "at least 90 days before the effective date of the first intended rent increase referred to in the application." [Act s.126(3)] - which is also before 01 April.
So the landlord knows that in order to 'catch' the next available rent increase date (01 July), they must both serve the NRI and file the s.126 Application with the Board no later than the end of March. If they do this the Board (assuming that it grants an above-guideline increase) - will then, in its Order, "specify[] a 12-month period during which an increase permitted by clause (a) may take effect." [Act 126(10)(b)]. As long as that '12-month window' includes the 01 July anniversary date (which it normally will) the landlord will achieve their goal of realizing the increase at the earliest available date for our sample rental unit. Of course, the ordered "12-month window" also enables the landlord to take the above-guideline increase for all the other units in the building within that same year-long period, subject of course to proper service of a Notice of Rent Increase for each unit.
Now let's change the facts slightly for the sake of analysis. Assume that the landlord does not serve an NRI until the above-guideline Order is actually issued on 15 August. In that situation, while they have 'missed' the first available effective date for the rent increase (01 July) - they do not have to wait until 01 July of the next year, because the 12-month rule allows rent increases "if at least 12 months have elapsed" [Act s.119] since the last rent increase (ie. they're just a little late). If a proper NRI is served on the tenant when the Board Order is issued (15 August) then the above-guideline rent increase can be effective 01 December [counting September, October and November as the 90-day notice period] [as well, now a new increase "anniversary" has been created for our sample tenancy (01 December)]. Of course, under this changed fact situation 01 December needs to be within the 12-month 'window' - which it normally would. Generally this 12-month period or "window") will start at the date of the first increase claimed in the Notice of Application which started the s.126 proceeding.
(c) "Take It or Lose It" Increases
. Overview
As mentioned above, s.126 above-guideline rent increase Orders shall "subject to the prescribed rules, specify[] a 12-month window during which an increase permitted" may be taken by the landlord [Act 126(10)(b)]. This is done to accomodate the fact that most such above-guideline rent increase applications are made with respect to a large building with numerous tenancies and (therefore) numerous rent increase anniversaries - ie. the 12-month window should catch them all.
Similarly, sometimes - as in the case of "spread" rent increases based on "eligible capital expenditures" (ECEs) or "security service operating costs" (SSOCs) (explained below) - the Board may "spread" or stagger increases over a period of up to three years, and provide for up to three "12-month windows" during which the successive "spread" increases may be taken.
The "taking" of an above-guideline rent increase requires that the landlord 'claim' the rent increase by proper service of an NRI on the tenant with adequate notice period, the increase being effective on or later than the rent increase anniversary of the tenancy - and being effective within the 12-month window specified by the Board. This can get confusing because it involves both the "12-month rule" (no increases more frequently than every 12 months) and the "12-month window" ordered by the Board during which the increase can be effective.
Now the 'lose it' part. With the below-noted exceptions, if the authorized increase is not taken within the Board-Ordered 12-month window, they may not be taken later [Reg s.32(1)(2)]: thus "take it or lose it". Similarly, where several successive 12-month windows are created to facilitate "spread and capped" ECE/SSOC-based above-guideline rent increase orders [see s.9(e-f) and s.10(d-e) below], the landlord's failure to take increases in any of the appropriate "12-month windows" extinguishes the right to take those 'missed' increases later (ie. to "catch-up") - although increases authorized in later windows may still be taken [Reg s.33(2)(3)].
. Extension Where "Serious Breach" Suspension Effective
One exception to this rule is where the landlord's "right" to increase rent has been suspended by the Board exercising its authority to do so by reason of a "serious breach" by the landlord respecting work order compliance, repair and similar duties [Act s.126(13); see s.6: "Dismissal or Suspension of Order Where Serious Repair Breach by Landlord", below]. Such "suspension" continues "until the Board is satisfied, on a motion made by the landlord within the time period specified by the Board" that the serious breaches are remedied.
In these cases the "12-month window" ordered by the Board in which the increase may be taken is extended (knocked-back) so that it only starts to count at the date that the Board declares the "serious breach" to be remedied [Reg s.32(3)]. Similarly, where rent increases are "spread" and thus there are more than one "12-month windows", those periods are similarly extended so that they start to count at the anniversary of the date that the Board declares the "serious breach" to be remedied [Reg s.32(4)].
3. Rent Pending Order
(a) Overview
The tenant receiving a Notice of Rent Increase in an "above-guideline" amount, either with or after the landlord has served them with an (as-yet-undecided) Notice of Application for a s.126 "above-guideline" rent increase, will be forgiven for thinking the landlord a bit presumptuous in their expectation that they will be successful in their Application. They will also probably be confused as to their duties pending the Board's Order on the matter.
(b) Tenant's Choice
Assuming proper Notice of Rent Increase has been given in conjunction with the Application (ie. 90 days notice period, and the increase complying with 12-month rule), the RTA allows the tenant - pending the outcome of the Application - to choose between paying the rent as though the application has not been made (ie. at the highest level that normal "guideline" rules would allow) or as per the increase 'claimed' in the Application [Act s.126(5)].
(c) Rebate or Catch-Up on Order
In the event that any eventual s.126 Order justifies an amount less than what was paid by the tenant, then the balance is owing to the tenant [Act s.126(6)] (who can most easily recoup it by set-off against future rent owing).
On the other hand, where any eventual s.126 Order leaves the tenant retroactively owing 'back-rent' to the landlord, some time indulgence for 'catch-up' may be allowed in the Order [see s.5 "Instalment Payments Where Retroactive Increase Orders", below].
(d) Hearing Procedure Notes
Section 126 Applications, if heard by way of written hearings, are subject to some variations from normal Statutory Powers Procedures Act (SPPA) procedures regarding written hearings. These can include elimination of the "right to object" to written hearings (that is, to object to the procedure being done by writing instead of having an oral hearing), and minor variations on the right to the same disclosure as that given to the Board (primarily to allow the landlord to give the Board full details of all the involved tenancies without having to copy it to all the individual tenants) [see Ch.14, s.4(f): "Hearings, Orders and Enforcement: Hearings: Written Hearings: Variations re Written Hearing Procedures on Certain Rent Applications"].
4. Orders
(a) Overview
Where an above-guideline rent increase Application is successful (ie. in an amount higher than the guideline increase), a basic Order (variations regarding ECE and SSOC-based Orders are discussed below in those sections) must specify [Act s.126(10)]:- "the percentage by which the rent charged may be increased in addition to the guideline"; and
- a 12-month window during which the increase may take effect (ie. the period during which the landlord may "take" the increase by proper 90 days service of Notice of Rent Increase; in most cases the date of the intended increase will already have been specified in a NRI served with the original s.126 Application).
As noted above, the '12-month window' approach is due to the fact that most above-guideline increase Applications relate to large residential complexes with many tenancies. As such the 'rent increase dates' vary with each of what may be hundreds of rental units. Setting a '12-month window' allows the increases to be taken for each unit, assuming proper service of a Notice of Rent Increase for each tenancy.
(b) Variations
One variation from the above is where all or part of the above-guideline rent increase Order is grounded in ECE and/or SSOC expenses. In that case the Board must order that such increases are to be 'capped and spread' if they exceed three percent. That is, the above-guideline increase attributable to the ECE/SSOC combination cannot be more than three percent per year, and any excess is phased in ("spread") by up to three years of such 'capped' orders (as is required) [see s.9 and 10 below re these issues].
Another variation is discussed immediately below. The Board has authority to suspend an otherwise authorized above-guideline rent increase Order where a landlord is in "serious breach" of work order compliance, and repair and other duties [see s.6 below]. If and when the Board - on motion - is satisfied that the landlord has remedied the "serious breach", then the rent increase rights are resumed (from the date of the declared remediation, not retroactively).
5. Instalment Payments Where Retroactive Increase Orders
While the Board has general authority to make any monetary compensation be paid in instalments [Act s.204(1)], where an order of monetary compensation is made in favour of a landlord after an "above-guideline rent increase order", the Board has specific authority to order the tenant be allowed to 'catch-up' the (now) back-rent by instalments [Act s.205(2)]. This authority applies where the order is made "three months or more after the first effective date of a rent increase" (ie. three months or more retroactively), and authorizes the ordering of up to 12 monthly instalments [Act s.205(4)] - regardless of whether the tenancy is terminated or not [Act s.205(3)].
6. Dismissal or Suspension of Order Where Serious Repair Breach by Landlord
(a) Overview
Similar to provisions barring or delaying any rent increases where the landlord is in serious breach of their duty to repair [under Act s.30(1) paras.6,7,8; see Ch.3, s.5(c): "Tenant Rights, Responsibilities and Remedies: Tenant Rights Applications: Serious Breach Orders for Repair and Maintenance-Related Breaches"], proceedings seeking "above-guideline" rent increases shall (not "may") be either dismissed or issued Orders suspended if the landlord is in serious breach of their duties under the RTA and if such non-compliance effects the relevant tenant/s. This provision is unusual in that it does not give the Board full discretion as to whether to impose these sanctions or not, only the choice between dismissal or suspension - one of which must be applied if the criteria are otherwise met.
(b) Serious Breach
"Serious breach" for these purposes includes situations where the rental unit is "affected by" any one of the following landlord breaches [Act s.126(12,12.1,13)] [see Ch.3 generally on these issues]:- non-completion of "items in work orders for which the compliance period has expired and which are found by the Board to be related to a serious breach of a health, safety, housing or maintenance standard",
- non-completion of "specified repairs or replacements or other work ordered by the Board" to remedy non-repair "for which the compliance period has expired and which are found by the Board to be related to a serious breach of the landlord’s obligations under subsection 20 (1) or section 161",
- "serious breach of the landlord's obligations under subsection 20 (1) [repair obligations] or section 161 [mobile home park duties]", or
- non-completion of elevator ['intended for use by tenants': s.126(17)] work in the residential complex after a compliance period has expired under the following work orders [these are the elevator work orders that information is sought about in an AGI application under s.1(d) above]:
. any item in a RTA work order [see Ch.3, s.5];
. any item in an order under s.21 of the Technical Standards and Safety Act, 2000, regardless of whether made against the landlord or another person or entity;
. any specified repairs or replacements or other work ordered by the LTB [under Act 30(1)4; Ch.3, s.5(b) Regular" Orders for Repair and Maintenance-Related Breaches"].
(c) Board Orders Where Serious Breach
Upon the Board finding such a "serious breach" it may either [Act s.126(13)]:- dismiss the application; or
- order an above-guideline increase (if otherwise merited on usual rules) but suspend it's effective date "until the Board is satisfied, on a motion made by the landlord within the time period specified by the Board, on notice to the tenant of the rental unit, that" all of the above-listed "serious breaches" found by the Board are remedied. [see Ch.13, s.13: "General Board Procedures: Motions"].
This is an improvement from the similar situation for 'regular' serious breach rent increase restriction Orders (where there is no formal 'lifting' of the Order by the Board, leaving it to the landlord to decide when they have complied).
As is discussed above [s.2(c): "Important Timing Issues: Take It or Lose It Rent Increases"], the effect of a Board declaration that the serious breach has been remedied is not to re-assert the landlords' rent increase rights retroactively. Rather they recommence on the effective date of the Board ordering the serious breach Order to be satisfied. Any prior issued NRIs then simply take effect at that time without having to be re-issued: RTA s.117(2).
7. Extraordinary Increase in Municipal Expenses (EIME)
(a) Overview
One of the grounds upon which a landlord's "above-guideline" rent increase Application may be based is an "extraordinary increase" in "municipal taxes and charges" (herafter "EIME"). Here I refer to "municipal taxes and charges" collectively as "municipal expenses".
(b) Definitions
. Extraordinary Increase
An "extraordinary increase" is one where municipal expenses is greater than 1.5 times the rent increase "guideline" percentage [Act s.126(2); Reg s.28(1)]. The annual guideline amount applicable is that for the date of the first intended rent increase in the Application [Reg s.28(2)].
In the (unlikely) event that the applicable guideline amount is ever less than zero, any increase in municipal taxes and charges constitutes an "extraordinary increase" [Reg s.28(3)].
. Utilities
Prior to 2017, this category of expenses was combined for AGI purposes with that of 'utilities'. For residual applications "(u)tilities" means heat, electricity and water [Act s.2(1)].
. Municipal Taxes and Charges
The RTA provides that [Act s.2(1)]:"municipal taxes and charges" means taxes charged to a landlord by a municipality and charges levied on a landlord by a municipality and includes taxes levied on a landlord's property under Division B of Part IX of the Education Act and taxes levied on a landlord's property in unorganized territory, but "municipal taxes and charges" does not include,
(a) charges for inspections done by a municipality on a residential complex related to an alleged breach of a health, safety, housing or maintenance standard,
(b) charges for emergency repairs carried out by a municipality on a residential complex,
(c) charges for work in the nature of a capital expenditure carried out by a municipality,
(d) charges for work, services or non-emergency repairs performed by a municipality in relation to a landlord's non-compliance with a by-law,
(e) penalties, interest, late payment fees or fines,
(f) any amount spent by a municipality under subsection 219 (1) or any administrative fee applied to that amount under subsection 219 (2), or
(g) any other prescribed charges (ie. as set out in the Regulations, but none are made yet for this purpose) (c) Comparison Years Used to Assess EI
Generally, the determination of "extraordinary increase" involves a comparison of expenses incurred over a recent past year period (the "base year"), and the year immediately before that (the "reference year") [Reg s.19].
For 'municipal expenses', the base year used is "the last completed calendar year immediately preceding the day that is 90 days before the effective date of the first intended rent increase referred to in the application" [Reg s.19(1)(a)]. So if the first claimed rent increase is 01 July 2009, the "base year" is 2008, but if it is 01 Feb 2009, the "base year" is 2007.
(d) Material to be Filed
An above-guideline rent increase Application based in whole or part on EIME must provide with it evidence of expenses (and payment of expenses), and of expense reductions (ie. "grants, other forms of financial assistance, rebates and refunds") for the base year and the reference year [Reg s.22(1)1]. If unavailable at the date of Application, evidence respecting expense reductions may be filed anytime "before or during the hearing" [Reg s.22(2)].
(e) Written Hearings May be Mandatory
Note that s.126 "above-guideline" rent increase Applications that are based solely on EIME grounds may be heard by way of written hearings despite the (normal) "right to object" to that procedure (usually to seek an in-person oral hearing) set out in the Statutory Powers Procedures Act [SPPA s.5.1(2), Act s.184] [see s.4(b) "Above-Guideline Rent Increase Applications: Procedures"].
(f) Determination of EIME Rent Increase
On this topic I leave off attempting detailed analysis of the law and simply leave the reader to the tender mercies of the legislative draftsperson (if you're still reading by this point you're probably an accountant anyway).
The following Regulation provisions set out the rules for determining any EIME-based rent increase "allowance":
RTA General Regulation s.29: EIME Calculation Rules
RTA General Regulation s.21: "Factor" for Use re s.29
How the result of the EIME calculations integrates with those resulting from any other grounds of increase is discussed below in s.11.
9. Eligible Capital Expenditures (ECE)
(a) Overview
Above-guideline rent increases grounded on "eligible capital expenditures" (ECEs) are unlike those grounded on EIME as they are more in the nature of "one-time" expenses than the on-going municipal taxes, charges and utility expenses covered under EIME increases. As such (and like SSOC-grounded rent increases, below) the increases are not permanent and they expire after a certain time. The (reasonable) idea behind this is that - unlike past similar Ontario above-guideline rent increase schemes - the landlord should not continue to be compensated (and the tenant continue to pay) for a one-time expense well past the point of actual reimbursement.
Further, because they can sometimes be quite significant in amount, the introduction of ECEs into rent is capped at a three-percent per year rate, and "spread" over a number of years if necessary, so that the impact on tenants is softened.
Note that Ch.12, s.5 ["Other Rent Proceedings: Agreements to Increase Rent on Capital Expenditures and Other Service Increases"] discusses provisions - which are independent from s.126 Applications - whereby landlords and tenants may agree to above-guideline rent increases if "the landlord has carried out or undertakes to carry out a specified capital expenditure in exchange for the rent increase".
(b) ECE Defined
The landlord's incurring of "eligible capital expenditures" (ECEs) are one of three grounds upon which an above-guideline s.126 rent increase Application may be based. ECEs include capital expenditures set out in the following General Regulation provision which are [Act s.126(7)]:- "necessary to protect or restore the physical integrity of the residential complex or part of it";
- necessary to comply with a landlord's general duty to keep the premises in good repair [under Act s.20(1)] and with mobile home park maintenance duties [under Act s.161(a-e)];
- "necessary to maintain the provision of a plumbing, heating, mechanical, electrical, ventilation or air conditioning system";
- providing "access for persons with disabilities";
- promoting "energy or water conservation"; or
- which "maintain[] or improve[] the security of the residential complex or part of it".
RTA General Regulation s.18: Capital Expenditures
However - except where it "promotes" access for persons with disabilities, energy or water conservation, or security within the residential complex - a capital expenditure to replace a system or thing is not an ECE if "major repair or replacement" was not required [Act s.126(8)].
Further, a capital expenditure is not an ECE if it was completed before a new tenancy commenced [Act s.126(9)]. This is consistent with the "vacancy decontrol" provision [Act s.126(14)] that voids previous s.126 Orders against a new tenant, as rent controls do not apply to the initial rent charged a new tenant.
(c) Material to be Filed (ECE)
An above-guideline rent increase Application based in whole or part on ECE must include the following [Reg s.22(1)2]:- "evidence of all costs and payments for the amounts claimed for capital work ("capital expenditure evidence"), and "any information regarding grants and assistance from any level of government and insurance, resale, salvage and trade-in proceeds" ("capital expenditure reductions").
Note that information regarding "capital expenditure reductions" may be filed anytime "before or during the hearing" [Reg s.22(2)] ("supplementary capital expenditure reductions").
- "details about each invoice and payment for each capital expenditure item, in the form approved by the Board, ("invoice details"), and
- "details about the rents for all rental units in the residential complex that are affected by any of the capital expenditures, in the form approved by the Board" ("rent details").
Unless waived (as below), any "above-guideline" rent increase Applications based in whole or part on capital expenditures must be filed with one additional copies of the Application and supporting materials, and a electronic copy containing the supporting materials "in portable document format" [Reg s.22(3-4,6)].
Such supporting documentation and information must also be made available to tenants [Act s.126(4)] in accordance with the following provision:
RTA General Regulation s.23: Information for Tenants
(d) Determination of ECE Rent Increase
The following Regulation provisions set out the rules for determining any ECE-based rent increase "allowance":
RTA General Regulation s.24: Determination of Amount of Capital Expenditures
RTA General Regulation s.25: Calculating Expenses Where Non-arm's length transaction
RTA General Regulation s.26: Capital Expenditure Rent Increase Rules
RTA General Regulation s.20: Interest rate re Reg 26
RTA General Regulation s.27: Useful life of work or thing
Useful Life SCHEDULE
RTA General Regulation s.34: Sequence - Components of the Increase
RTA General Regulation s.38: Rules for prescribing a date for the purpose of s. 129 of the Act
(e) Capping, Spreading and Expiration of ECE Rent Increases
If the rent increase justified by the combination of ECE and security service operating costs ["SSOC", see s.10, below] is three percent or more above the guideline amount then it shall be capped at three percent maxiumum per year and then similarly capped increases (at three percent above guideline) may be allowed (or "spread") over the next two years as well [Act s.126(11)] (of course, this does not limit the additional percentage increase that the Board may order based on EIME grounds.)
Further, as they only compensate for 'one-time' expenses "above-guideline rent increase Orders based in whole or part on ECE are time-limited, and "expire" at a fixed point in the future.
Therefore, s.126 above-guideline rent increase Orders based in whole or part on ECE shall specify [Act s.129]:- the percentage of the rent increase grounded in ECE;
- an 'expiration date' of the (ECE-based) rent increase, determined in accordance with Reg s.38(1);
- that, if the authorized rent increase is taken in full, it shall terminate in full at the 'expiration date'; and
- that, if the authorized rent increase is not taken in full, it shall terminate at the 'expiration date' in an amount determined in accordance with Reg s.38(2) and Reg 34.
(f) Capping and Spreading Where Previous Orders Still Active
Note that this "three percent above-guideline cap" still operates even if there is a previous rent increase order which still has available increases to "take". In that case additional "12-month periods" during which increases may be taken are added until the combined full ECE/SSOC authorized increases are taken [Reg s.33(1)]. Of course, this rule does not prevent Board-ordered rent increases above the "three percent above-guideline" amount if they are grounded in EIME expenses [Reg s.33(4)].
Note however that such available increases, if not taken - or if not taken to the full extent available - may not be "banked". If they are not taken in full within the appropriate "12-month windows", then the landlord loses the right to take them [Reg s.33(2)(3); see s.4(c): "Above-Guideline Rent Increases: Timing Issues: Take It or Lose It Increases"].
(g) Utility-Inefficient Capital Expenditures Ineligible After Suite Meter and/or Utility Cost Apportionment in Place
Amendments to the RTA in force 01 January 2011 facilitate the installation of "suite meters" (where rental units are metered for their own electrical consumption and tenants directly billed for it) and "utility cost apportionment" (where small buildings are given rules to apply to share a building's utility expenses between the tenants). As part of these amendments, and to facilitate conservation and utility efficiency implementation, capital expenditures which are inefficient in those respects can be held to be ineligible for AGI purposes.
These rules are discussed in greater detail in Ch.12: "Other Rent Proceedings", s.8(j) "Suite Meters" and s.9(j) "Apportionment of Utility Costs".
10. Security Service Operating Costs (SSOC)
(a) Overview
The landlord's incurring of "security service operating costs" (SSOCs) are one of three grounds upon which an above-guideline s.126 rent increase application may be based. More specifically, SSOCs are "[o]perating costs related to security services provided in respect of the residential complex or any building in which the rental units are located by persons not employed by the landlord" [Act s.126(1)3].
Unlike above-guideline rent increases based on ECEs [see s.9 above], SSOC-based increases are permanent. However - and like ECE-based increases - they are "capped" and "spread" where required in the same manner as (and in combination with) ECE-based increases.
(b) Material to be Filed (SSOC)
An above-guideline rent increase application based in whole or part on SSOC must provide with it evidence of expenses (and payment of expenses) for the base year and the reference year [Reg s.22(1)3].
For SSOC, the "base year" used is "the annual accounting period of one year in length chosen by the landlord which is most recently completed on or before the day that is 90 days before the effective date of the first intended rent increase referred to in the application" [Reg s.19(1)(b)]. Where the base year falls here then depends on the internal accounting periods used by the landlord, but it will always be the latest full accounting year falling 90 days before the date of the first claimed rent increase. However, in the event that there has been a previous "above-guideline" rent increase Order based on "security service operating costs" ("SSOC", see below), then the base year starts on the same date as that used for that previous Order [Reg s.19(2)].
Disclosure of legal rent details is expected in applications for above-guideline rent increases based in whole or part on SSOC [see R19.2].
(c) Determination of SSOC Rent Increase
The following Regulation provisions set out the rules for determining any SSOC-based rent increase "allowance":
RTA General Regulation s.24: Determination of Amount of Capital Expenditures
RTA General Regulation s.25: Calculating Expenses Where Non-arm's length transaction
RTA General Regulation s.30: SSOC Calculation
RTA General Regulation s.21: "Factor" for use re s.30
(d) Capping and Spreading of SSOC Rent Increase
If the rent increase justified by the combination of SSOC and eligible capital expenditures ["ECE", see above] is three percent or more above the guideline amount then it shall be capped at three percent - however similarly capped increases (at three percent) may be allowed (or "spread") over the next two years as well [Act s.126(11)] (of course, this does not limit the additional percentage increase that the Board may order based on EIME grounds.)
(e) Capping and Spreading Where Previous Orders Still Active
Note that this "three percent above-guideline cap" still operates even if there is a previous rent increase order which still has available increases to "take". In that case additional "12-month periods" during which increases may be taken are added until the combined full ECE/SSOC authorized increases are taken [Reg s.33(1)]. Of course, this rule does not prevent Board-ordered rent increases above the "three percent above-guideline" amount if they are grounded in EIME expenses [Reg s.33(4)].
Note however that such available increases, if not taken - or if not taken to the full extent available - may not be "banked". If they are not taken in full within the appropriate "12-month windows", then the landlord loses the right to take them [Reg s.33(2)(3); see s.2(c): "Above-Guideline Rent Increases: Timing Issues: Take It or Lose It Increases"].
11. Total Rent Increase Calculation
The "totalling" calculation for combining rent increase "allowances" justified by any and all of the three grounds (EIME, ECE, and SSOC) [and generated as per s.7,9 and 10 above] is as set out in the following General Regulation:
RTA General Regulation s.31: Total Rent Increase Calculation
12. Orders Void Where New Tenant
As noted above, under "vacancy decontrol" above-guideline Orders become redundant when a vacancy occurs in any unit, as the landlord is then free to ask whatever new rent they see fit.
Therefore authorized above-guideline rent increases that are effective (by Order, proper NRI and compliance with the 12-month rule) may be taken against an "old" tenant still in possession of the premises at the date of increase. However where a new tenancy commences anytime "after the day that is 90 days before the first effective date of a rent increase in the order" (ie. during the NRI notice period), the Order is void with respect to the new tenancy [Act s.126(14)].
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