Rent Increases and Deposits in Ontario

This article, consecutive to the first, is meant to highlight two more of the most frequent issues brought up in our discussions with tenants. It also focuses on the rights of tenants in a long-term residential lease where rent is paid monthly. There are other arrangements such as community housing and where a tenant is the roommate of the landlord. These are not covered here. For more comprehensive information, please refer to the Resources section at the end of this article.

These articles are not meant to construe legal advice but are an attempt to clarify common situations and ensure tenants are aware that they do have rights. The appropriate documents are discussed for reference. Where a dispute or concern arises, it is always best to consult with a legal professional.

tl;dr

Topics:

Monthly rent & annual rent increases
Deposits

Rent & Rent Increases

In Ontario, when a new tenancy is entered into, the landlord and tenant decide how much the rent will be for the apartment and which services will be included in the rent (e.g. parking, cable, heat, electricity). Once a tenant has a lease and is occupying the apartment, rent increases are effectively limited by the Province. Residences first occupied prior to November 15, 2018 are subject to a rental increase guideline amount. Residences first occupied after this date are not under rent control. They theory behind this is to encourage developers to create new rental housing stock. Note that during the pandemic, there has been some temporary changes to these rules.

The rental guideline increases are derived from the Ontario consumer price index (CPI) which is meant to reflect the basic rate of inflation and why many pensions are also indexed by CPI. Do be aware that for most landlords, their real expenses (property taxes, utilities, insurance, maintenance costs, etc.) often increase faster than the rate of inflation causing them increased financial pressure. This does not give a landlord the right to unilaterally increase a tenant’s rent above the guideline except in limited circumstances. In the same token, the majority of landlords do increase rents by the guideline amount each year simply to keep up with the increasing expenses.

One of those exceptions is the Above Guideline Increase (AGI) which allows a landlord to seek permission to increase the rent by a limited amount based on increases due to property taxes, security services or capital expenditures. Utilities are no longer available through an AGI.

Another exception is where the landlord and tenant can agree to a rent increase above the guideline if they agree that the landlord will do major repairs or renovations, buy new equipment for the rental unit, or add a new service for the tenant. This agreement must be in writing. The proper form for this agreement (Form N10) is available from the LTB. The highest increase that can be agreed to is 3% above the guideline. This becomes a binding agreement after 5 days.

If a landlord does increase the rent above the guideline and without falling into one of the exceptions, then the tenant has the right to object to it for up to one year after the rent increase. If a tenant does not object to it within the year, then the rent is deemed to be the new rent. Note that as a tenant, even if you agree to the rent increase (or even propose it), you still have the right to object to it for up to a year.

It is also important to note that as a tenant, rent must be paid on or before the start of the rental period (typically the 1st of the month) to not be in default. A landlord can issue a termination form (N4) as soon as the day after the rent was due. Even if the rent is paid after the issuance of an N4, persistent late rents can put a tenancy at risk. In most cases, landlords rely on on-time payment of the rent to pay for the operational aspects of the business.

In the next section, we will cover various topics such as deposits, tenant insurance as well as a tenant & landlord’s expectation of reasonable enjoyment.

Deposits

In Ontario, rental deposits for residential apartments are very limited and can only be used as last month’s rent (LMR) and a key deposit. The LMR cannot be more than one month’s rent. The key deposit cannot exceed the cost of replacing the issued keys. Do note that some keys (such as coded keys) can be expensive.

A landlord cannot ask for a damage deposit for a long-term residential tenancy nor can they ask for a pet deposit.

Interest is to be paid on last month’s rent to the tenant. The rate is set to be the same as the rent increase guideline noted earlier. While this interest can be paid annually, it is much more common for a landlord to simply apply it to last month’s rent to ensure it is always topped up to reflect a tenant’s current rent. Last month’s rent cannot exceed the monthly rent price and thus if the landlord did not increase the rent at the guideline rate then at least a portion of the interest will likely be owed.

Key Takeaways

Ontario has Rent Control with Vacancy decontrol

Annual rent increases are defined by the Ontario government and use Ontario CPI as the base.
Vacancy decontrol allows tenants and landlords to negotiate a rent satisfactory to both parties (usually market rate)

There are mechanisms to allow above guideline increases including AGI and N10
Rent increases can only be done 12 months after the last increases and the landlord must use form N1.

Where rent that is not paid on time, a landlord may issue an N4 as soon as the next day which can lead to eviction.

If payment of rent is an issue, it is best to work with the landlord to determine a payment arrangement.
Withholding rent due to maintenance issues is not legal in Ontario

Deposits

Only last month’s rent and a key deposit (for reasonable replacement cost) can be charged

Last month’s rent is to be paid an annual interest equivalent to the rent increase amount which is set by the Ontario government.
Other deposits such as a pet deposit are not legal however, the tenant is still responsible for damages caused by pets.