Canada: Key Changes To The Residential Tenancies Act And The New Tax Regimes Under Ontario's Fair Housing Plan

On April 24, 2017, the Ontario government introduced new legislation, the Rental Fairness Act, 2017 which includes a number of proposed amendments to the Residential Tenancies Act, 2006 (the "RTA"). The stated purpose of the legislation is to contribute to a long-term goal of affordable housing and to ensure fairness to landlords and tenants alike. The key elements of the legislation are highlighted below.

Elimination of Post-1991 Exemption

The main proposed amendment includes expanding rent control to all private rental units, effective as of April 20, 2017, including those occupied on or after November 1, 1991. Prior to this change, rent control existed only for sitting tenants of units occupied prior to November 1, 1991. Notices of rent increases sent before April 20, 2017 – even with a later effective date – will be allowed to proceed. The legislation requires the rent control guidelines to apply to all notices and increases given on or after April 20, 2017. One potential outcome of the proposed change to the longstanding "new construction" exemption would be to discourage developers from considering future projects, as it diminishes their prospect of return on investment, which ultimately could lead to a decrease in the availability of rental units.

Change to Above Guideline Increases ("AGI")

Although situations continue to exist which entitle a landlord to apply for an AGI, the new amendments remove the ability to apply for an AGI for extraordinary increases in the cost of utilities. The new amendments also include a prohibition on AGIs in buildings with outstanding elevator work orders. All elevator work orders must be cleared before new AGI applications will be considered. The ostensible driving force behind this change is to force prompt work completion, reflecting the fact that an elevator is an important amenity in a high-rise building.

In addition, regulations may be created to add new circumstances where otherwise-eligible capital expenditures would not be eligible for AGI applications. The government has committed to consultation in the development of the regulations related to capital expenditure AGIs.

Requiring a Standard Lease

The Ontario government will also develop a standard lease that will be required to be used by all landlords. The government has committed to consultation on the standard lease. Currently, Ontario and Alberta are the only provinces within Canada without a standard lease. According to the Province of Ontario, a standard lease aims to decrease disputes between landlords and tenants and allows transparency between landlords and tenants, while also ensuring fairness between parties. Landlords will also be relieved of the responsibility of creating a lease, as they will now have a base upon which to build. It is worth noting that this amendment does not diminish the parties' rights to negotiate additional clauses in the lease, but rather ensures a baseline upon which tenants and landlords alike can rely on within all rental units.

Under the new regime, if the landlord does not provide the standard lease within 21 days of a tenant's written request, the tenant could withhold one month's rent, until the landlord provides the lease. In the event that a landlord does not provide the standard lease within 30 days after the tenant has withheld the rent, the tenant would no longer be liable to repay the withheld rent. A tenant who has not received a standard lease could terminate the tenancy on 60 days' notice at any time.

Changes to Landlord's "Own Use" Eviction Provisions

Corporations will no longer be able to rely on the landlord's "own use" provisions. Instead, only individual landlords will be able to rely on this as a ground for eviction. The changes require the landlord or the landlord's family to reside in the unit for at least one year and provide this intention in writing to the tenant. The changes also require the landlord to compensate the tenant one month's rent or offer the tenant another acceptable rental unit.

The changes also deem the landlord to have acted in bad faith if the landlord advertises or re-rents the unit for a higher rent within one year and shifts the onus to the landlord to disprove bad faith at the LTB. If bad faith cannot be disproved, the LTB could order additional compensation to be paid to the tenant.

Tax Regimes

Borrowing ideas from our western neighbour, Ontario's "Fair Housing Plan" is proposed to introduce two new tax regimes that aim to curb excessive housing prices. These tax regimes are the "Non-Resident Speculation Tax" and the "Vacancy Tax."

Non-Resident Speculation Tax

This is a 15 per cent tax, effective April 21, 2017, to all nonresident home purchasers in the Greater Golden Horseshoe region. According to the Ontario government, this tax aims to curb foreign purchasers from purchasing homes they will not live in for the sole purpose of investment. Those who are subject to the Non-Resident Speculation Tax will be eligible for a rebate if they qualify for certain exceptions, including having a bona fide reason for purchasing the property and becoming a permanent resident within four years of a sale. The main caveat with respect to the rebate is that the property must be a principal residence. As well, certain international students and legal workers in Ontario who have worked for one year will not be caught in this new tax regime.

Vacancy Tax

While not a formal municipal tax, Ontario is giving Toronto and several other municipalities the ability to introduce this tax in their respective jurisdictions. Although the measure is not finalized in Ontario, Vancouver is in the process of implementing a 1 per cent vacancy tax. There are approximately 65,000 vacant homes in Toronto. Taxing these vacant homes will be a step towards increasing housing affordability in the province's busiest regions, thus increasing fairness to Canadians in the housing market.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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