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Residential Landlord and Tenant Law (Ontario)
(01 March 2011)

Chapter 10 - Rent Fundamentals


  1. Rent and Rent Controls
    (a) Overview
    (b) Rent Defined
    . Overview
    . "Rent" Defined
    . Included Services and Facilities
    (c) Rent Increases
    (d) Other Rent Changes
    (e) Payment Issues
    . Overview
    . Prohibitions on Requiring Certain Forms of Payment
    . Receipts
  2. Notice of Rent Increase
    (a) Overview
    (b) Where No Notice of Rent Increase Required
    . Overview
    . Where "Serious Breach" Order Prohibiting Rent Increases for Non-Repair Remedied
    . Where Agreed Increase in Services Results in Rent Increase
    . Where Agreed Increase Based on Capital Expenditures or Services Increase
  3. "Guideline" Rent Increases
    (a) Overview
    (b) 12-month Rule
    (c) Vacancy De-Control
    (d) The "Guideline"
  4. Lawful Rent
    (a) Overview
    (b) Some Key Principles
    (c) Transition from Previous Legislation
    (d) Authorized Rent "Discounts"
    . Overview
    . Three-Months per Year Rent-Free Discounts
    . Prompt Payment and Pre-Payment Discounts
    . Other Rent Discounts
    (e) "Regulated" Rent Discounts
    (f) Rent Premium Situations
  5. Non-Rent Charges and Security Deposits
    (a) Overview
    (b) Prohibited Non-Rent Charges
    (c) Allowed Non-Rent Charges
    (d) Security Deposits
    . Overview
    . Requiring a Rent Deposit
    . Where Possession Not Taken or Tenancy Transferred
    . Rent Deposit Amount and Annual Top-Up
    . Rent Deposits and Changing Landlords
    . Rent Deposits and Mortgage Proceedings
    . Interest Accrual on Rent Deposits
    (e) Suite Meter-Related Electricity Charges
  6. Exemptions from Some Rent Control Provisions
    (a) Exempt Categories
    (b) Exempted rules
________________________________________

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. Readers should be sure to review s.6: "Exemptions from Rent Control", in this chapter. 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. Rent and Rent Controls

(a) Overview

The Residential Tenancies Act embodies a limited form of rent control which is often called "vacancy decontrol". It uses the procedural framework familiar to those with experience of previous Ontario rent regulation schemes (Notice of Rent Increase, annual Guideline percentages, "above-guideline" rent increase applications) but abolishes the previous rent registry and - on the occurence of a vacancy in the rental unit - completely disregards the rent level history for future rent determination purposes. Thus, upon the rental unit become vacant - even if only for the few hours at the end of a month before the new tenant moves in - the landlord is free to charge whatever rent the market will bear. Another way of distinguishing vacancy decontrol from full rent control is to point out that the full rent control attaches to rental units, while the vacancy decontrol attaches to individual tenancies.

Thus rent controls are now only pertinent with respect to individual units during the period of any continual occupation by a tenant. Within these periods, landlords may take regular guideline increases with minimal procedural process (Notice of Rent Increase) - and may pursue further "above-guideline" [s.126] rent increases through quite complex applications to the Landlord and Tenant Board. Larger landlords, seeking above-guideline Orders for hundreds of units at a time - and thus being relatively insensitive to periodic vacancies - will be the most persistent users of the s.126 scheme.

Accompanying these standard mechanisms of rent control, the RTA mandates an additional range of supplementary tenant applications, agreements and reductions - many of which are so complex and of such marginal value to tenants that they will be amongst the most under-used procedures in the entire RTA scheme. Foremost amongst these are the "serious breach" rent increase restriction Orders, which demand extreme repair or related landlord non-compliance to commence - and which for the most part lack any robust and independent mechanism to determine when the serious breach is remedied, leaving it to the landlord to decide when they have fully remedied the breach, and thus regained their entitlement to re-commence rent increases.

Aside from simple guideline increase situations, most tenants will find the rent control scheme highly complex and therefore inaccessible. Small landlords will find themselves floundering in all but the simplest of rent-related applications. Large landlords can be expected to delegate rent control matters to accountants and tax professionals, who they will find themselves unopposed by articulate counter-argument. Board members will find themselves challenged - insofar as they can comprehend the s.126 and related schemes - to act as de facto advocates for tenants driven from participation by the complexity and expense of the scheme.

(b) Rent Defined

. Overview

As is the case with any rent control scheme, the RTA requires a clear and exhaustive definition of "rent", along with complementary prohibitions on any additional charges or amounts that landlords may try to impose on tenants. Failure to do this invites a proliferation of landlord "non-rent" charges designed to circumvent rent control [Act s.110]. "Non-rent" charges are discussed below in s.5: "Non-Rent Charges and Security Deposits".

. "Rent" Defined

The definition of "rent" is set out here:
Act s.2(1) "rent"
"rent" includes the amount of any consideration paid or given or required to be paid or given by or on behalf of a tenant to a landlord or the landlord's agent for the right to occupy a rental unit and for any services and facilities and any privilege, accommodation or thing that the landlord provides for the tenant in respect of the occupancy of the rental unit, whether or not a separate charge is made for services and facilities or for the privilege, accommodation or thing, but "rent" does not include,

(a) an amount paid by a tenant to a landlord to reimburse the landlord for property taxes paid by the landlord with respect to a mobile home or a land lease home owned by a tenant, or

(b) an amount that a landlord charges a tenant of a rental unit in a care home for care services or meals; ....
Essentially then, any valuable consideration (which includes both money and things of value) flowing or due (through whatever route and in whatever form) to a landlord for occupation or anything related to the rental premises is "rent", subject only to exceptions for:
  • mobile home park property tax payments;
  • care home services;
  • rent deposits (for last month's rent) [see s.5(d) below]; and
  • allowed non-rent charges [see s.5(c) below].
. Included Services and Facilities

The "services and facilities" which are included within the definition of rent include [Act s.2(1)]:
  • furniture, appliances and furnishings,
  • parking and related facilities,
  • laundry facilities,
  • elevator facilities,
  • common recreational facilities,
  • garbage facilities and related services,
  • cleaning and maintenance services,
  • storage facilities,
  • intercom systems,
  • cable television facilities,
  • heating facilities and services,
  • air-conditioning facilities,
  • utilities and related services [see below], and
  • security services and facilities.
"Utilities" includes "heat, electricity and water" [Act s.2].

Pursuant to RTA 'utility cost apportionment' amendments in force 01 January 2011 [explained in detail in Ch.12, s.9: "Other Rent Proceedings: Apportionment of Utility Costs"], utility (water, heat and electricity) costs that are 'apportioned' to a tenant are removed from the legal definition of 'services and facilities' above, and thus the legal definition of 'rent'. Apportionment is basically an arrangement with the landlord whereby the landlord maintains direct responsibility for the utility, but 'passes through' a share of that expense to the tenant in a separate, non-rent account.

(c) Rent Increases

The topic of rent increases divides naturally into "guideline" and "above-guideline" [s.126] rent increases; above-guideline rent increases are covered more fully in Ch.11.

"Guideline" rent increases are ones that may be taken by the landlord on an annual basis simply (in most circumstances) by the service of proper Notice of Rent Increase on the tenant.

While landlord "above-quideline" rent increases [Act s.126] similarly require the issuance of proper Notice of Rent Increase [Act s.116(2)], they also require either an Application to the Board (or agreement with the tenant) to increase rent. While landlords may normally combine several different types of applications respecting one tenant into one Board application filing, this is not the case with rent increase applications, each of which must be filed separately [Act s.186(3)].
Case Note: 1086891 Ontario Inc v Barber (Div Ct, 2007)

In this case (decided under the Tenant Protection Act) two members (another dissenting) of the Divisional Court held that an agreement between landlord and tenant to 'freeze' rent levels for a period longer than one year was unenforceable by virtual of the non-waiver provisions of TPA s.2(1) [the similar provision in the RTA is s.3(1)].
(d) Other Rent Changes

In addition to the more 'traditional' rent increases mentioned above, the RTA also provides for a range of other mechanisms to increase or decrease rent outside of the "guideline" limits. These include:
  • tenant's application to decrease rent on reduction in services [Act s.130][see Ch.12, s.3];

  • tenant's application to decrease rent on reduction of municipal taxes and charges [Act s.133][see Ch.12, s.2];

  • municipal notice of rent reduction on property tax reduction [Act s.131][see Ch.12, s.2];

  • agreement to increase rent on increase in prescribed services [Act s.123][see Ch.12, s.4];

  • prescribed rent reduction on decrease in prescribed services [Act s.125][see Ch.12, s.4] ;

  • agreement to increase rent on capital expenditure or other increase in services [Act s.121][see Ch.12, s.5].
(e) Payment Issues

. Overview

Payment of rent by post-dated cheques, by periodic credit card charges, or by direct debit from a tenant's bank account is often favoured by landlord as a practical means of securing timely payment of rent. However, this practice has disadvantages for tenants who may wish - for whatever reason - to terminate such 'automatic' payments quickly. For instance, outstanding post-dated cheques require positive action and expense by the tenant to "put a stop payment" on them, and similarly quick action is required to terminate a direct debit or credit card arrangement.

A tenant's failure to effectively and promptly terminate these arrangements may leave the landlord with a disputed rent payment in hand which strengthens their hand in any later rent or damages dispute with the tenant, and even a strengthened right to sue (eg. an NSF cheque is a legal cause of action by itself, independent of the rent claim).

. Prohibitions on Requiring Certain Forms of Payment

Under the RTA, landlords are prohibiting from "requiring" tenants or prospective tenants to pay rent by way of post-dated cheques "or other negotiable instruments", or by way of automatic charges on a debit card, credit card or otherwise [Act s.108].

This prohibition applies to such landlord "requirements" when they are made by a landlord as a condition of the tenancy, but they do not prevent tenants or prospective tenants from voluntarily establishing such arrangements at their option outside of the contractual lease terms. The prohibition applies where landlords purport to make such payment terms their right under the tenancy agreement - be it written, oral or implied.

. Receipts

In order to provide a tenant with evidence of payment of rent, current tenants are entitled - on request - to receive receipts for any rent or other payment made to their landlord [Act s.109(1)] - apparently regardless of how long ago the payment was made. Landlords are prohibited from charging a fee for providing receipts.

This right extends to former tenants, but only to the expiration of one year after the tenancy terminates [Act s.109(2)].

Receipts must minimally comply with the following particulars [Reg s.9]:
  • address of the rental unit to which the payment relates;

  • names of the tenants to whom the payment relates;

  • amounts, dates and purposes of any payments;

  • landlord's name;

  • signature of landlord or authorized agent.

2. Notice of Rent Increase

(a) Overview

In order to assert a right to a rent increase (subject to the below-discussed exceptions), landlords are required to serve their tenants with proper written Notice of Rent Increase (NRI) at least 90 days before the date that the increase takes effect [Act s.116(1)]. The NRI must be in the Board-approved form and "shall set out the landlord's intention to increase the rent and the amount of the new rent" [Act s.116(3)]. Failure to comply with this Notice requirement voids the landlord's right to take that rent increase [Act s.116(4)].

Form N1: Notice of Rent Increase

There are uncertainties as to the effect of any failure of the NRI to fully comply with the form's information requirements. While non-compliance with such important issues as the 90-day notice period, the stated amount of the new rent, and use of the proper form will be viewed as fatal to the increase, the RTA is otherwise forgiving of mere 'technical' (ie. minor or non-prejudicial) lapses in form completion:
s.212
Substantial compliance with this Act respecting the contents of forms, notices or documents is sufficient.
(b) Where No Notice of Rent Increase Required

. Overview

There are some specialized and infrequent circumstances where no Notice of Rent Increase is required - they are are explained in this sub-section.

. Where "Serious Breach" Order Prohibiting Rent Increases for Non-Repair Remedied

Where the landlord is subject to a "serious breach" Order restricting rent increases due to non-repair of the premises [see Ch.3, s.5(c)], then the right to take rent increases from any issued Notices of Rent Increase is suspended. However when the landlord later makes (or claims to have made) the repairs they may re-commence taking the "suspended" rent increase without further Notice of Rent Increase. In effect, rent increases are prohibited during the "serious" non-compliance determined by the Board, and allowed once the landlord claims the serious breach is remedied.

Situations where Notice of Rent Increase is not required also arise in some circumstances where a new tenant has moved into premises subject to such a "serious breach Order", and the landlord then reasserts their right to increase rent based on an assertion that they have complied with the Order [see Ch.12, s.6: "Other Rent Proceedings: Serious Breach Rent Increase Restriction Orders and New Tenants"].

. Where Agreed Increase in Services Results in Rent Increase

The duty to give Notice of Rent Increase does not apply to rent increases resulting from an increase in services agreed to between landlord and tenant under s.123 [see Ch.12, s.4: "Other Rent Proceedings: Changes in Rent on Agreement to Change Prescribed Services etc"].

. Where Agreed Increase Based on Capital Expenditures or Services Increase

The duty to give Notice of Rent Increase does not apply to agreements to increase rent as a result of increased (or promised increases) in capital expenditures or services under s.121 [see Ch.12, s.5: "Other Rent Proceedings: Agreements to Increase Rent on Capital Expenditures and Other Service Increases"] [Act s.121(6)].

Further, while generally the failure of a tenant to terminate a tenancy after receiving a Notice of Rent Increase acts to condone (accept) the increase [Act s.118], this is not the case where the landlord and tenant enter into an agreement to increase rent based on an increase in capital expenditures and/or services. In that case any prior Notice of Rent Increase that is not yet in effect before the agreement comes into effect is voided [Act s.121(7)].


3. "Guideline" Rent Increases

(a) Overview

In a "guideline" rent increase, a landlord may increase the rent of a tenant annually "during the term of their tenancy", by any amount up to the applicable current "guideline increase" (see below) [Act s.120(1)].

Note however that the guideline amount [Act s.120(1)] does not apply to rent increases resulting from an agreed increase in services under s.123 [see Ch.12, s.4: "Other Rent Proceedings: Changes in Rent on Agreement to Change Prescribed Services etc"] [Act s.123(2)]. Of course, Board-approved s.126 "above-guideline" rent increases are also an exception [see Ch.11].

(b) 12-month Rule

"Annually" here is counted from the date of the last increase, or the date that the premises were first rented to the present tenant, whichever applies [Act s.119(1)]. This is called the "12 month rule". It basically only allows rent increases once every 12 months, but if the landlord "misses" a rent increase they may not 'catch-up' and resume the same annual schedule later on. In that case the date of the most recent rent increase taken establishes a new anniversary.

Note that the 12-month rule does not apply to rent increases resulting from an agreed increase in services under s.123 [see Ch.12, s.4] [Act s.119(2), 123(2)].

(c) Vacancy De-Control

Note the phrase "during the term of their tenancy" quoted in (a) above from s.120(1). This means that the guideline increase limits only apply to continuing tenants (and "assignees": see Ch.1, s.5]. The rent charged to "new tenants" is not subject to the "guideline increase" [Act s.113] - thus allowing the landlord to ask of the new tenant whatever rent amount they want (ie. market rent).

This rent control structuring is generally called "vacancy de-control", though a more accurate phrase might be: "occupancy control". Vacancy de-control has been perhaps the most contentious political aspect of the Residential Tenancies Act. The elimination of the rent registry, which formerly registered "legal rents" unit-by-unit in previous times of true rent control (which attached to units, regardless of occupancy), is also an aspect of the RTA's "vacancy de-control" system.

Just to be clear, "statutory tenants" (those whose continued possession of premises after the expiration of a term lease by law converts the tenancy to a periodic monthly tenancy) [see Ch.1, s.2(f): "Fundamentals: Formation of a Tenancy: Statutory versus Contractual Tenancies"] are 'continuing' tenants for purposes of guideline increases [Act s.38(1)].

(d) The "Guideline"

The amount of each annual guideline increase is determined by the Ministry of Municipal Affairs and Housing in relation to the federal Statistics Canada Consumer Price Index, as follows [Act s.2(1) "guideline", 120(2)(3)]:
Act 120(2)
The guideline for a calendar year is the percentage change from year to year in the Consumer Price Index for Ontario for prices of goods and services as reported monthly by Statistics Canada, averaged over the 12-month period that ends at the end of May of the previous calendar year, rounded to the first decimal oiint.
Annual rent increases guidelines are published at this link:

Rent Increase Guidelines.


4. Lawful Rent

(a) Overview

No rent control scheme can operate without the obvious provision that:
Act s.111(1)
No landlord shall charge rent for a rental unit in an amount that is greater than the lawful rent permitted under this Part.
The topic of "lawful rent" involves the basic question: what is the rent that the tenant is legally required to pay for their rental unit? Determining "lawful rent" is not always obvious, and - even when not dealing with complex s.126 "above-guideline" rent increases - can involve complex analyses of amounts of past rent, timing issues of Notices of Rent Increase, past discounts in rent, existence of rent increase restrictions, and a number of other issues.

Establishing "lawful rent" over past periods is the foundation upon which any claims to recover "illegal" rents paid are based [see Ch.12, s.7: "Other Rent Proceedings: General Application to Recover Illegally-Paid Monies"].

Also discussed in this section are provisions accomodating for the effect of various "rent discount" and "rent premium" arrangements on "lawful rent", without which the amount of "lawful rent" would be distorted by virtue of the main vacancy decontrol rule that the "lawful rent" for a new tenant is the rent first charged them [Act s.113]. Some of these provisions are - for what they purport to achieve - amongst the most ludicrously complicated to be found in legislation already significantly guilty of that sin.

(b) Some Key Principles

Aside from the basic issues of the 12-month rule [see s.3(b) above] and Notice of Rent Increase notice period [see s.2(a) above], there are some basic rent principles that have a large impact on the issue of lawful rent.

The first is that any rent - regardless of legality at the time it was charged -is "deemed" lawful if not challenged by a tenant's recovery application made to the Board within one year [Act s.136(1); see Ch.12, s.7].

Another is that the landlord's "right" to take rent increases is not cumulative. That is, if authorized guideline increases are not taken on the anniversary, then that right is permanently delayed and may not "caught-up" later on. In that case the date of the most recent rent increase taken establishes a new anniversary. This is the case with Board-approved above-guideline rent increases as well [see Ch.11, s.2(c): "Above-Guideline [s.126] Rent Increases: Important Timing Issues: Take It or Lose It Increases"] - which additionally may be permanently lost if not properly taken.

Further, the destruction of the rent registry brought about by the RTA effectively terminates any near-future political drive towards "true" rent controls (tied to units with a supporting permanent rent registry), and reaffirms the "vacancy decontrol" started in the TPA. Vacancy decontrol ties rent regulation to tenancy agreements rather than to rental units, and essentially 'cancels' the rent history of any prior tenants upon the occurence of a vacancy in the rental unit (ie. the current tenant moving out, whether a new tenant is coming in or not). Upon the occurence of a vacancy the landlord is free to charge a "market rent", if of course the prospective tenant will pay for it [Act s.113].

Lastly, one form of rent charge, used more commonly in commercial landlord and tenant contexts, is the "acceleration clause". Typically this is structured as a provision that renders all rent due over the entire future course of the lease on the occurence of even slight default by the tenant (which is typically specified to be non-payment or late payment of rent). Such charges are expressly made illegal under the RTA and in any event would constitute a gross violation of basic rent control and security of tenure principles [Act s.15].

(c) Transition from Previous Legislation

Since it's origin in the 1980s, Ontario's rent control laws have changed almost in lockstep with changes in the political party in power. This has necessitated sometimes complex transition provisions and the need for practitioners (particularly regarding previously available long-term illegal rent recovery cases) to be versed in past rent control regimes as well as present.

While the death of "true" rent control (ie. tied to units, with a "rent registry") is to be lamented as a tenant's rights matter and often amounts to a retroactive legalization of landlord fraud, I for one will not lament the end of the complexities that the frequently-changing regimes entailed (although complexity has reasserted itself with a vengeance in the often byzantine above-guideline rent increase application provisions: see Ch.11).

That said - generally - the "lawful rent" for a rental unit occupied on 01 February 2007 (when the present Residential Tenancies Act came into force) is the same as the "lawful rent" that was chargeable under the predecessor Tenant Protection Act (TPA) on 31 January 2007 [Act s.112].

Given the one-year retroactive "deemed legal" provisions and the one-year limitation on illegal rent recovery mentioned above, the "legality" of rent charged under the TPA will continue to be legally relevant for at least the first year of the life of the RTA (in force 01 February 2007).

(d) Authorized Rent "Discounts"

. Overview

Landlords may offer temporarily free rents as a market inducement, or reduced rents in exchange for prompt rent payment or pre-payment. Such practices are given limited accomodation (I call them "authorized" rent discounts) within the RTA rent regulation regime by eliminating the negative effect that these discounts would otherwise have on the "lawful rent" level [Act 111(3)]. It is necessary to have these special RTA discounted rent provisions (explained below) as otherwise the basic vacancy decontrol rule would assert itself: ie. "the lawful rent for the first rental period for a new tenant under a new tenancy agreement is the rent first charged to the tenant" [Act s.113]. But for these special discount rules the legal rent would be permanently lowered by the discount.

The several forms of such "authorized" rent discounts as explained below. If more than one form of authorized rent discount operates within a tenancy then the 'legal rent' preservation effect still applies [Act s.111(2.2)].

. Three-Months per Year Rent-Free Discounts

Rent-free month discounts of up to three months in any 12-month period (including at commencement of the tenancy) are "authorized" without negative impact on the lawful rent that may be charged when the discount ends [Act s.111(2.1)1].

However, in order to qualify as "authorized" the arrangement must be set out in a written agreement, and must take actual 'rent-free period' form [Reg s.10(1)]. The law is structured to ensure that these are truly 'rent-free periods' and not partial discounts spread over longer periods (for instance, a "three month" discount 'spread' over 12 months is effectively an "unauthorized" year-long 25% discount).

Therefore, where rent is paid monthly, such a discount must be 'given' - insofar as possible - in full month periods. Thus - for example - a rent discount of 2.5 months must be 'given' in two full months and one half-month rent-free period/s. Similarly, where rent is paid weekly, a discount must be given in periods of a week or more. The periods need not be consecutive.

Again, the goal of these provisions is to avoid longer-term partial discounts, which would strain the credibility of these "legal rent" discount exceptions.

. Prompt Payment and Pre-Payment Discounts

Further, rent "discounts" of no more than 2 per cent of the rent may be given at anytime during a tenancy (including commencement), without negative impact on the lawful rent, if given as an inducement for prompt rent payment or longer term rent pre-payment [Act s.111(2)].

In order to preserve their "authorized" status the law only requires that such arrangements "must be provided for in a written or oral agreement" [Reg s.10(0.1)] - a perhaps unnecessary stipulation.

. Other Rent Discounts

Additional "authorized" rent discounts are allowed in various amounts and various allocations over the below-designated 12-month periods.

The "authorized" discount structures include any of the following, as long as the arrangement is provided for in writing [Act s.111(2.1)2; Reg s.11(1):
  • up to one month's rent discount, allocated anywhere in the first eight months of the 12-month period;

  • up to two month's rent discount, with no more than one month's discount being allocated to the first seven months of the 12-month period, and the balance to the last five months in one month only [this may be designed for eight-month (two-semester) student rentals].
For purposes of these provisions, the "12-month period" during which such a discount is permitted (without negative effect on the 'legal rent' level) is any of the following 12-month periods, as applicable [Reg s.11(2)]:
  • the next 12 months after commencement of the tenancy;

  • where a rent increase is taken, the next 12 months after that. However this does not apply to a rent increase brought about subsequent to an agreement between the parties to add services under s.123 [see Ch.12, s.4: "Other Rent Proceedings: Changes in Rent on Agreement to Change Prescribed Services"];

  • where a rent increase has been taken in past but has not been taken on the next anniversary when it could have been, the 12-month period following the most recent anniversary of the last rent increase properly taken;

  • where no rent increase has ever been taken, the next 12 months following the anniversary of the commencement of the tenancy."
A discount is also authorized if contained in a "tenancy agreement that operates under the Strong Communities Housing Allowance Program - Toronto Pilot, if the landlord sets out the discounted rent and the undiscounted rent in the written tenancy agreement and in a written notice to the tenant accompanying any notice of rent increase given to the tenant".

(e) "Regulated" Rent Discounts

"Regulated" (author's term) here simply means that a discount was given that did not conform to the above [(d)] "authorized" discount rules. As such it can negatively impact on the amount of "lawful rent" - however this impact is itself regulated, as follows [Act s.111(3)].

The "lawful rent" determination in a "regulated" rent discount situation is as per the following General Regulation provision. These provisions, for the amount of use that they are likely to have, are ludicrously complex and do not benefit from summarization, so I just link them in raw form:

RTA General Regulation s.12

When determining the amount of "lawful rent" for this purpose, the following amounts will be disregarded as "rent" [Reg s.14]:
  • rent increases during the "12-month period" (above) resulting from agreements to increase services under s.123 [see Ch.12, s.4];

  • rent decreases during the "12-month period" (above) resulting from agreements to decrease services under s.123 and 125 [see Ch.12, s.4], and

  • "amounts which cannot be lawfully charged for a reason other than the operation of section Regs 12 or 13" (other generally illegal rent charges, excepting lawful rent discounts).
(f) Rent Premium Situations

Under previous rent control regimes landlords would sometimes try to establish a legal maximum rent level higher than even market rent, but then 'drop' the actual rent down to a market level - effectively circumventing rent controls by giving themselves constant freedom to raise the rent up to the artificial "maximum" allowed.

Under the present RTA regime, a similar tactic is conceivable if a landlord charges a rent premium (raised rent) in the first month of a tenancy higher than the regular rent charged for the balance of the year. Thus the "lawful rent" is artificially high. In a provision designed to prevent this tactic, the RTA will deem the "lawful rent" to be the "regular" non-premium amount by disregarding the inflated premium rent from its calculations [Act 111(4); Reg s.13].

Additionally, when determining the amount of "lawful rent" for this purpose, the following amounts will be disregarded as "rent" [Reg s.14]:
  • rent increases during the "12-month period" (above) resulting from agreements to increase services under s.123 [see Ch.12, s.4];

  • rent decreases during the "12-month period" (above) resulting from agreements to decrease services under s.125 [see Ch.12, s.4]; and

  • "amounts which cannot be lawfully charged for a reason other than the operation of section Regs 12 or 13;" (other generally illegal rent charges, excepting lawful rent discounts).

5. Non-Rent Charges and Security Deposits

(a) Overview

You can't talk about "non-rent" amounts without appreciating what "rent" is [see s.1: "Overview", above]. Essentially "rent" is any consideration paid for the "right to occupy a rental unit and for any services and facilities and any privilege, accommodation or thing that the landlord provides for the tenant in respect of the occupancy of the rental unit" [Act s.2 "rent"].

While this definition seems exhaustive it has not always been adequate to achieve the full coverage required to facilitate an effective scheme of rent control. Landlords and their advisors as a class have been quite persistent in formulating additional charges and levies on a tenant in an effort to circumvent rent control laws. As such, similar legal ingenuity has had to be expended to define, regulate and outlaw all such additional "non-rent" charges.

Notorious early forms of such 'extra charges' were "key money" (money paid literally to get keys to the unit), "sublet fees" (usually a recouping of a last month's rent deposit as a "fee" for assigning a tenancy) and NSF (not sufficient funds) charges for bounced rent cheques. Perhaps the first successful prosecution for such a "sublet fee" equal in amount to the last month's rent deposit was conducted by the author in the case of Kelly v Carslake (1990) 20 ACWS (3d) 408 (Ont Provincial Court). I also acted for the prosecution in a similarly successful [unreported] prosecution against the same landlord for illegal "key money" charges, which were levied ostensibly as security against loss of the keys.

This section discusses such "non-rent" charges and security deposits (including the well-known last month's "rent deposits"), along with their illegality and the few "legal" exceptions. Also relevant to these issues are the remedies available to recover such amounts [see Ch.12, s.7; Act s.135] and prosecutions for illegal charges [see Ch.17, s.3(m): "Offences: Strict Liability Offences: Collecting or Requiring Illegal Charges"].

(b) Prohibited Non-Rent Charges

Landlords and "superintendent(s), property manager(s) or other person(s) who acts on behalf of a landlord with respect to a rental unit" are prohibited (subject to some exceptions, see below) - with or without the authority of the landlord from - directly or indirectly [Act s.134(1)(2)]:
  • collecting, requiring or attempting to collect or require "from a tenant or prospective tenant of the rental unit a fee, premium, commission, bonus, penalty, key deposit or other like amount of money whether or not the money is refundable";

  • requiring or attempting to require "a tenant or prospective tenant to pay any [non-rent] consideration for goods or services as a condition for granting the tenancy or continuing to permit occupancy of a rental unit", or

  • renting premises for several rents, which in aggregate exceed the lawful rent for the rental unit (eg. by separate rents to sharing tenants).
Tenants, and anyone acting on their behalf are prohibited (subject to some exceptions, see below) from - directly or indirectly [Act s.134(3)]:
  • subletting a rental unit for a rent that is greater than the lawful rent for it, regardless of the number of such tenants;

  • collecting, requiring or attempting to collect or require "from any person any fee, premium, commission, bonus, penalty, key deposit or other like amount of money, for subletting a rental unit, for surrendering occupancy of a rental unit or for otherwise parting with possession of a rental unit"; or

  • requiring or attempting to require "a person to pay any [non-rent] consideration for goods or services as a condition for the subletting, assignment or surrender of occupancy or possession".
(c) Allowed Non-Rent Charges

The following non-rent charges may be made in addition to rent [Reg s.17] (ie. they are "legal"):
  • Keys and Related Costs

    Respecting "keys, remote entry devices or cards", the actual cost, the actual or expected direct cost of:

    - additional copies requested by the tenant,

    - replacement copies, excepting those "required because the landlord, on the landlord's initiative, changed the locks",

    - a "refundable key, remote entry device or card deposit". [this is a legalization of one form of the old illegal "key money" charges]

  • NSF Charges

    NSF (not sufficient funds) bank charges made to the landlord in their actual amount, plus the landlord's "administrative charge of not greater than $20", respecting dishonoured (bounced) tenant cheques;

  • Legal Settlement

    Payments by a tenant or subtenant made in settlement of potential or active Board or court legal proceedings (ie. monies paid in such settlements are not governed by rent controls or considered illegal charges) [see Ch.14, s.2 and 3: "Hearings, Orders and Enforcement: Mediated and Unmediated Settlements"];

    This allows legal disputes to be settled by payment of money without running afoul of these 'extra charge' prohibitions.

  • Mobile Home Park and Land Lease Community Site Rentals

    Site rental in a "mobile home park or land lease community at the commencement of a tenancy" [see Ch.2, s.4];

  • Transfer Between Some Social Housing Units Units

    A "transfer fee" of up to $250 for rental unit transfers made at the request of the tenant:

    - "between rental units to which subsection 6 (1) or (3) of this Regulation applies, if the rental units are located in the same residential complex" [these are "Privately-Contracted RGI" and "Rural and Native Rental Housing Program" units: see Ch.2, s.8(d) and (e)], or

    - some social housing units listed in Act s.7(1) paras. 1-4 [see Ch.2, s.8(b): "Special and Exempt Premises: Social Housing: SHRA, Federal and Related Housing Program Exceptions"];

  • Mobile Home and Land Lease Home Property Tax Reimbursement to the Landlord
(d) Security Deposits

. Overview

While the distinction can break down in actual residential L&T practice, "deposits" are technically distinct from "charges" in that they are a form of security - ostensibly only being "held" pending a possible future circumstance. On their face they are sought to secure a landlord against future potential losses, though practically they have also been used in persistent landlord efforts to develop additional "non-rent" amounts which might be levied free from rent controls.

With the notable exception of the common last month's "rent deposit" (this is the term the RTA uses) [and any deposits allowed as "legal" charges listed in (c) above] all security deposits are illegal [Act s.105(1)]. While a "legal" "rent deposit" is supposed to be applied only to last month's rent [Act s.106(10)], it is common in disputed landlord-initiated terminations for it to be held back and treated as a credit to the tenant in settling the landlord's total claimed account (rent, damages and anything else). Note now the prosecution provision related to this [Ch.17, s.3(g): "Offences: Strict Liability Offences: Failure to Apply Rent Deposit to Last Month's Rent"].

The legal definition of "security deposit" is set out here:
Act s.105(2)
"security deposit" means money, property or a right paid or given by, or on behalf of, a tenant of a rental unit to a landlord or to anyone on the landlord's behalf to be held by or for the account of the landlord as security for the performance of an obligation or the payment of a liability of the tenant or to be returned to the tenant upon the happening of a condition.
. Requiring a Rent Deposit

As noted above, a security deposit that is dedicated to "payment of the rent for the last rent period before the tenancy terminates" is legal [Act s.105(1), 106(10)]. This does not however mean that all tenants must pay it. Whether a tenant has to pay it turns on whether - and how - the landlord requires it.

A landlord may only require such a "rent deposit" "on or before entering into the tenancy agreement" [Act s.106(1)]. Note that a tenancy agreement is entered into, or "executed" on the date of the written, oral or implied acts that reflect the fact of agreement - as distinct from the dates that the tenant has the right to take possession, or the date that the tenant in fact exercises that right [see Ch.1, s.2(c): "Fundamentals: Formation of a Tenancy: Commencement"]. Basically, a landlord seeking to "add" a "rent deposit" burden on a tenant after the date of agreeing to [or "executing", if written] the tenancy agreement, has no right to do so.

. Where Possession Not Taken or Tenancy Transferred

Where a landlord has taken a rent deposit and the tenancy "is not given" then it must be refunded to the prospective tenant [Act s.107(1)] (ie. it must not be retained as some sort of non-refundable "application fee").

If of course there is a change in the agreed rental unit before possession is taken the landlord may apply such a rent deposit with respect to the new rental unit, subject to refund to the tenant of any excessive amount [Act s.107(2)].
Case Note: Musilla v Avcan Management (Ont CA, 2011)

This was a tenant's appeal from a Divisional Court ruling which denied their application for return of a one month's rent deposit. The tenant paid one month's rent deposit and tendered the rental application - which the landlord accepted. Then, when the tenant repudiated the arrangement and refused to execute the full tenancy agreement (which was a requirement of the rental application), the landlord claimed the deposit was forfeit as per terms of the rental application. In their application to the Board, the tenant relied on RTA s.107(1):
RTA s.107(1)
A landlord shall repay the amount received as a rent deposit in respect of a rental unit if vacant possession of the rental unit is not given to the prospective tenant.
The landlord claimed loss of several months rent despite mitigation efforts.

The Board refused the application, and the Divisional Court concurred, on grounds that some element of refusal or inability on the part had to be present to satisfy the requirement that possession be "not given". However the tenant's appeal to the Court of Appeal was granted on grounds that the landlord could not rely on terms of the rental application which were both illegal (insofar as they purported to justify a forfeiture of the deposit) and inadequate [insofar as they only allowed retention of the deposit against last month's rent if a tenancy agreement was entered into (which it wasn't)]. The Court of Appeal did agreed with the Board and Divisional Court in interpreting the phrase "not given" to require some degree of refusal or inability on the part of the landlord, not the tenant's unilateral behaviour in reneging on the tenancy agreement.
. Rent Deposit Amount and Annual Top-Up

The amount of a rent deposit may not exceed one month's rent, the rental "period" used by most tenancies. However where a shorter period is used (such as in a weekly tenancy), the rent deposit shall be in an amount equal to the rent amount for that shorter period [Act s.106(2)].

On the occurence of a rent increase [made typically (though not necessarily) on an annual basis] the landlord is entitled to have the rent deposit "topped up" to the new rent level. This has typically been achieved by a landlord notice to add the supplementary amount to the rent paid for date that the rent increase takes effect [Act s.106(3)]. Now perhaps more often this will be done by "setting-off" the interest due on such deposits [see below: "Interest Accrual on Rent Deposits"].

. Rent Deposits and Changing Landlords

It is a basic principle of landlord and tenant law that "covenants run with the land", such that purchasers of rental property take the property 'subject to' the tenancies' continuance - and on the same terms as existed between the previous parties [Act s.18]. Another way of putting this is that the purchaser 'steps into the shoes' of the vendor.

Thus, except as noted below, the status of a rent deposit through such a transaction is preserved as a credit to the tenant without the need for any activity on their part. It is the duty of the transferor and transferee (ie. seller and buyer of the property) to make appropriate adjustments in their sales transaction to also "transfer" the security deposit to the new landlord.

. Rent Deposits and Mortgage Proceedings

However, this is not the case where the transfer is by way of mortgage power of sale or foreclosure (these are two different procedures). In a foreclosure the mortgagee (typically a bank or mortgage company) takes (usually temporary) ownership of the premises meaning to sell it on the market later, while in a power of sale procedure the mortgagee does not take ownership - they simply sell it under a contractual right to do so.

In both of these cases the security deposit is - along with the discharge of the mortgage in question, interest and sales expenses - only one of the priorities of payout from the sales proceeds (actually the fifth) [Mortgages Act, s.27]. As such it is implicit that there is no "running" of the security deposit to the eventual non-mortgagee purchaser.
Note:
Indeed, but for express statutory provisions confirming the "running" of tenancies themselves through such mortgage proceedings [Mortgages Act, s.47], there appears to be no common law running of tenancy covenants through mortgage proceedings at all [see Ch.2, s.9: "Special and Exempt Premises: Mortgage Proceedings"].
Consistent with this 'paying-out' of the security deposit to the tenant (where funds remain), there is (in fairness to the tenant) a bar on the eventual "new" landlord/purchaser - either mortgagee-in-possession (from foreclosure) or subsequent purchaser (through a power of sale) requiring any new security deposit, except that the subsequent purchaser (through either a power of sale or a foreclosure) may require a security deposit in the amount of any security deposit "refunded" to the tenant (as per Mortgages Act 27, above) [Act s.106(4),(5)].

It also appears to be a necessary consequence of this legal structuring that - where there is no mortgage proceeds "refund" to the tenant (and while they cannot be required to pay "another" security deposit) - neither can they claim the original rent deposit as a credit against the new landlord. All they are left with is a monetary claim against the old landlord [see Ch.16: "Civil Remedies"].

. Interest Accrual on Rent Deposits

Tenants who have paid a rent deposit are entitled to be paid or credited [by way of set-off from rent: Act s.106(9)] annually with interest accruing on it at the same rate as the currently-applicable guideline increase percentage [Act s.106(6)].

Note however that the interest rate for the first year period ending AFTER the RTA comes into force on 01 February 2007 shall be calculated at an annual rate of six percent for the months of the preceding year PRIOR to 01 February, and the 2007 guideline amount (2.6%) for the months AFTER 01 February [Act s.106(8)].

As noted above, the landlord may apply this annual interest amount to "top-up" the rent deposit to the maximum amount allowed (typically, at the date of annual rent increase). If the rent increase is in the guideline amount the application of the interest thus serves to automatically increase the rent deposit in precisely that amount [Act s.106(7)].

(e) Suite Meter-Related Electricity Charges

Effective 01 January 2011, the RTA was amended to facilitate the installation of "suite meters", which are electricity meters that measure the consumption of specific rental units in the hope that tenants (in conjunction with a shift to their direct responsibility for the electricity bill) will thus be assisted and motivated in conservation efforts. The change to direct tenant responsibility for electricity costs brings with it the likelihood of ancillary "charges, fees and security deposits" by the electricity provider. Such charges etc are exempt from the 'illegal charge' provisions of the RTA.

These 'illegal charge' exceptions are discussed in more detail in Ch.12, s.8(j): "Other Rent Proceedings: Suite Meters".


6. Exemptions from Some Rent Control Provisions

(a) Exempt Categories

Residential rental units are exempt from the rent review rules listed in (b) below if they are newly entering into the residential rent market:
  • where the building containing the unit existed and had no occupancy whatsoever before 17 June 1998 ["it was not occupied for any purpose before June 17, 1998"];

  • where the building containing the unit existed and only had commercial use before 01 November 1991 ["no part of the building, mobile home park or land lease community was occupied for residential purposes before November 1, 1991"]; or

  • in any case, where the rental unit existed in 1975 and since then has had no residential rental use ["it is a rental unit no part of which has been previously rented since July 29, 1975"].

    This last ('since 1975') exception logically only applies at the initiation of a new residential tenancy, as after that point the exception no longer applies on it's own terms (there now having been residential rental use 'since 1975').
These odd exceptions have been carried forward from several prior rent review regimes coming into force on those dates. The idea behind them is that the imposition of rent review over properties which had not had residential rental use since before those laws (and thus before those dates) constitutes a form of expropriation of title. There is no reported case law on any of these exemptions and they rarely arise in practice.

(b) Exempted Rules

The rental units listed in (b) above are exempt from the following RTA rules [Act s.6(2)]:
  • Deemed Assignment on 60 Days unchallenged occupation by Unauthorized Occupant or Overholding Subtenant [Act s.104] [see Ch.1, s.5(f)]

  • Prohibition against charging more than lawful rent and related discount exceptions [Act s.111] [see s.4 above]

  • Lawful rent at commencement of RTA is carried through from TPA [Act s.112]

  • Guideline increase limit [Act s.120] [see s.3 above]

  • Agreements to increase rent where increased capital expenditures or services, and related tenant application where failure [Act s.121,122] [see Ch.12, s.5]

  • Above-guideline rent increase applications and related provisions [Act s.126-129, 167] [see Ch.11]

  • Tenant application to reduce rent where reduction in services [Act s.130] [see Ch.12, s.3]

  • Rent reduction where property tax decrease and municipal notice; applications to vary [Act s.131-133] [see Ch.12, s.2]

  • Mobile home park site assignment and subseqeunt purchase of home, rent increase [Act s.165] [see Ch.2, s.4(d)]
Of the main rent control provisions, this leaves the following rules still applicable to the units listed in (b) above:
  • Security Deposits and Illegal Charges: prohibitions on security deposits and other non-rent charges, except last month's "rent deposit" [Act s.105, 134] [see s.5 above]

  • Vacancy Decontrol on New Tenancy [Act s.113] [see s.1 above]

  • Notice of Rent Increase Required [Act s.116] [see s.2 above] (although Form N2: Notice of Rent Increase (Rental Unit Partially Exempt) is used).

  • Twelve-Month Rule [Act s.119] [see s.3(b) above]

  • Changes in Rent on Agreement to Change Prescribed Services [Act s.123, 125] [see Ch.12, s.4]

  • "legalization" of illegal rents if unchallenged for more than a year [Act s.136] [see s.4 above]
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