As an investor, it can sometimes be a tough transition when you purchase a property full of tenants who have been living there for decades and are accustomed to paying low rent.
Equally frustrating is if those same existing tenants aren’t amicable about policy rules or changes that you try to implement. While their lease agreement protects them in some capacity, it doesn’t preclude them from changes related to safety standards.
Similarly, as the new property owner, you have some discretion when it comes to how much you want to charge in rent. While there may be an existing lease agreement, there are situations where you can increase the rent on a residential unit provided certain conditions are met.
Even though there may be a few bumps along the road, in general it may be to your advantage to retain tenants who are motivated to stay and who have track records of timely payment.
Nevertheless, if you find the need to increase rent or even evict a seasoned tenant, here are a few things to know about navigating those processes.
Rules for Increasing Rent Investors Should Know
It can be hard being a new property owner and having to communicate to seasoned tenants that their rent they are accustomed to pay will be increasing.
Let’s face it, anyone might get a little frustrated that they now must pay more for essentially the exact good or service. Your tenant may even push back or resist these increases, but at the end of the day you have to cover your costs and receive a sufficient premium for the risk you are assuming.
You didn’t buy the property to lose money. However, it’s important you tread lightly and be amicable when approaching a rental situation where you plan to increase a tenant’s rent. There are several rules you must follow for the increase to be legally binding.
First, it’s important to note that normally you can only increase rent if 12-months have passed either since the last rent increase or the date tenancy began.1
Ideally, if you know you will be increasing rent down the road, you should communicate that with your tenant to at least give them ample notice, as well as the courtesy to digest and prepare (or object) to their new pricing.
Outside of any additional notice you want to provide, you are obligated to provide formal written notice of a rent increase at least 90 days before it becomes effective.1
Additionally, the amount you increase rents by cannot exceed the threshold set by any given government. For example, the maximum rent can be increased in Ontario for 2022 is 1.2%.1
It’s imperative that your calculation on the notice you provide to your tenants does not exceed the threshold, otherwise your tenant has means to dispute the improper amount with the Landlord and Tenant Board.1
In certain circumstances, rent can be increased outside the regular guidelines. For example, you can submit a request to the Landlord and Tenant Board to approve a rental increase outside the normal rules.1 Other situations may warrant exemption from the rent control rules as well.
Choosing to Evict a Seasoned Tenant
If you find that you are unhappy with a tenant that came with your building, choosing to evict is certainly an option. However, evicting a tenant is a very serious matter, so it’s important you exhaust all options before giving someone the boot.
Keep in mind that you can’t just evict a renter for any old reason. You must have legal cause to evict your current renter.
Many seasoned tenants will have a pretty good track record of utilizing the space properly and paying their rent on time, meaning you might have to search for other cause to validate moving forward with an eviction.
If you can’t find apparent reasons to evict a seasoned tenant, there are a few ways to use the system to your advantage, so long as it’s done in good faith. These include a cash for keys approach, completing renovation or repair projects, or positioning the property for personal or family occupancy.
Cash for Keys
If you have a tenant that is unwilling to move or is opposing new rent hikes, a cash for keys approach can help you regain control over your property. This method involves offering your seasoned tenant a monetary incentive to vacate the property.
While this method can be slightly controversial, it can be a tactful way to avoid an arduous eviction process. Keep in mind that tenants are not obligated to take your offer and you cannot coerce tenants into accepting.
Nevertheless, if you decide to use a cash for keys approach then make sure all communications are properly documented and that you have a formal written agreement drawn up outlining the specific terms. It may also be a good idea to add contingencies to the payout subject to adequate condition of the property.
Repair and Renovation Projects
Under the Residential Tenancies Act, you can legally terminate tenancy if you plan on doing repairs or renovating your property to the extent that requires it be vacant in order to be completed safely.2
Like other scenarios, you are required to give notice of termination. This must be at least 120 days prior to the last day of the rental period or end of a fixed term lease.2 Tenants can then end the tenancy earlier with property notice.
While using renovations as a cause to terminate tenancy, it’s important to note that tenants have the right to choose to move back into the rental unit after the work is complete and the rent must be at the same amount it was before.
The caveat is that before the tenant moves out, they must provide written intent to re-occupy the property.2 If they don’t, then you can refuse to allow the tenant to move back. Most tenants do not know about this requirement so it can easily go overlooked.
Keep in mind that if the tenant fails to provide you notice to re-occupy the space, you still must compensate them with either the lesser of three months’ rent or rent equal to the amount of time the unit has been out of service undergoing repairs or improvements.2
Personal or Family Use
One last option that you can try if you find no other cause to evict is to terminate tenancy due to personal or family use. This must be done in good faith, but the Residential Tenancy Act permits you to use the property for personal occupancy or by a specified family member so long as that period is one year or more.2
A specified family member can include a child or parent or either you or your spouse (if married) and there is no law that says you cannot charge them rent.2 However, you are required to sign an affidavit attesting that the rental unit will be used for your personal use, or that of a family member.2
Key things to note is that the property must remain primarily residential in nature, meaning if you intend to use the property for certain commercial purposes, that may not be permitted. You also cannot leave the property vacant or only used for storage.
Lastly, like other options, you are required to still compensate your tenant for their vacancy. The amount must be equal to a month’s rent.2 While you can alternatively offer them another rental unit to rent, that might not always be an option or your ultimate goal.
1 Government of Ontario. (2021, December 31). Residential rent increases. Ontario.Ca. Retrieved March 22, 2022, from https://www.ontario.ca/page/residential-rent-increases
2 Tribunals Ontario – Landlord and Tenant Board. (2021, September). Eviction for Personal Use, Demolition, Repairs and Conversion (Interpretation Guideline 12). Landlord and Tenant Board. https://www.tribunalsontario.ca/documents/ltb/Interpretation%20Guidelines/12%20-%20Eviction%20for%20Personal%20Use.html#:~:text=Personal%20Use%20by%20the%20Landlord,family%20member%20or%20a%20caregiver