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Last Update: 2023-10-17An application for an Above Guideline Increase in rent --an AGI-- is the most complex proceeding a landlord can file with the Ontario Landlord Tenant Board (LTB). It basically amounts to suing their tenants to recover extraordinary costs of renovations, tax increases or security services.
The most current legislation governing AGIs is in the Ontario Residential Tenancies Act (RTA), Paragraph 126. Additional rules and regulations are set out in Ontario Regulation 516/06 (OREG) Part III. Please note that you will need to be familiar with both documents if you want to work through this process successfully. When reading law, unless otherwise defined, you must use the ordinary meaning of words and read without interpretation. The law says exactly what it means.
When an application is filed on a Form L5, it engages a process like a civil lawsuit. It is an actual court case and all parties are advised to treat it as such.
For tenants: Yes, you are being sued by your landlord.
Since most AGIs are for renovations, that will be the focus of this article.
Rent increasesEach AGI application a landlord files can result in a rent increase of up to 9% on top of the provincial guideline. So if the current guideline is 2% that will result in an 11% rent increase. ($110 on $1,000) The increase is taken at the rate of up to 3% per year for three years, but then it can last for up to 25 years. Moreover; nothing stops a landlord from having more than one AGI on the go at the same time. In fact, several long term tenants in my building are currently paying on 4 of them.
Since this directly affects their rent, tenants need to know how AGIs work and how to defend against them.
Landlord's right to fileOnce one or more projects are completed, the landlord gains the right to file an application for an AGI with the LTB. The opening section, RTA part 126(1), spells this out for us:
(1) A landlord may apply to the Board for an order permitting the rent charged to be increased by more than the guideline for any or all of the rental units in a residential complex in any or all of the following cases:
- An 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 incurred respecting the residential complex or one or more of the rental units in it.
- 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.
In addition to the application the landlord is also required to show that the work has been completed and paid for. This is set out in the OREG paragraph 22 which says:
- 2. If the application is based on capital expenditures incurred,
- evidence of all costs and payments for the amounts claimed for capital work, including any information regarding grants and assistance from any level of government and insurance, resale, salvage and trade-in proceeds,
- details about each invoice and payment for each capital expenditure item, in the form approved by the Board, 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.
If the application is accepted (most are) the tenants are brought into the process as respondents to the application and a notice of hearing will be served.
Service and noticeBefore the hearing tenants will receive a notice of the hearing date and a copy of the landlord's application. The application will be on a Form L5. They will need to study this form and it's Instruction Pamphlet carefully, to know exactly what is being claimed.
The paperwork with the Notice of Hearing will be only a short form of the full application filed by the landlord. The packet tenants receive should detail instructions on how you can acquire full disclosure of the application. This is set out in the RTA:
- (4) If an application is made under this section that includes a claim for capital expenditures, the landlord shall make information that accompanies the application under subsection 185 (1) available to the tenants of the residential complex in accordance with the prescribed rules.
and the rules are in the OREG:
(1) The rules set out in this section apply for the purposes of subsection 126 (4) of the Act.
(2) Upon the request of a tenant subject to the application, the landlord shall provide the tenant with an electronic copy of the material provided to the Board under subsections 22 (1) and (2) in portable document format, at no charge to the tenant.
(3) Instead of providing the electronic copy referred to in subsection (2), the landlord and the tenant may agree that the landlord will provide the tenant with a photocopy of the material provided under subsections 22 (1) and (2), for no more than the landlord's reasonable out-of-pocket costs for the photocopying.
(4) Revoked: O. Reg. 37/20, s. 2 (2).
(5) If the landlord has an office in or close to the residential complex, the landlord shall, during normal business hours and at no charge, make a photocopy of the material provided under subsections 22 (1) and (2) available for viewing by tenants subject to the application.
(6) The landlord shall, in the application, inform every tenant subject to the application of the ways in which a tenant may obtain access under this section to the material provided under subsections 22 (1) and (2).
Once obtained the full disclosure will need to be audited. Tenants and/or their representatives will need to look for inconsistencies, hidden charges, bad math, pretty much anything wrong with it. If there is any intention to deceive or gross errors are made, tenants may be able to have certain claims or the entire application dismissed in the hearing on that basis.
Also note that failure or refusal to provide the full disclosure is grounds for dismissal of the entire application which can be presented as a motion at the beginning of the hearing.
Inclusions and exclusionsA landlord cannot claim just any old thing on an AGI application. Only "eligible capital expenditures" will result in a rent increase. There are clearly defined rules for what can and cannot be successfully claimed.
Before we can determine eligibility, we need the definition of a "capital expenditure" from the RTA 126(1)2 above. This is found in the OREG part 18.
- (1) In the Act and in this Part,
"capital expenditure" means an expenditure for an extraordinary or significant renovation, repair, replacement or new addition, the expected benefit of which extends for at least five years including,
- an expenditure with respect to a leased asset if the lease qualifies as determined under subsection (2), and
- an expenditure that the landlord is required to pay on work undertaken by a municipality, local board or public utility, other than work undertaken because of the landlord's failure to do it,
- routine or ordinary work undertaken on a regular basis or undertaken to maintain a capital asset in its operating state, such as cleaning and janitorial services, elevator servicing, general building maintenance, grounds-keeping and appliance repairs, or
- work that is substantially cosmetic in nature or is designed to enhance the level of prestige or luxury offered by a unit or residential complex; ("depense en immobilisations")
but does not include,
If the claim meets the above definition of a "capital expenditure" the next step is to determine if it is an "eligible capital expenditure". This is set out in the RTA at part 126 sections (7) through (9).
(7) Subject to subsections (8) and (9) and except under the prescribed circumstances, a capital expenditure is an eligible capital expenditure for the purposes of this section if,
- it is necessary to protect or restore the physical integrity of the residential complex or part of it;
- it is necessary to comply with subsection 20 (1) or clauses 161 (a) to (e);
- it is necessary to maintain the provision of a plumbing, heating, mechanical, electrical, ventilation or air conditioning system;
- it provides access for persons with disabilities;
- it promotes energy or water conservation; or
- it maintains or improves the security of the residential complex or part of it.
(8) A capital expenditure to replace a system or thing is not an eligible capital expenditure for the purposes of this section if the system or thing that was replaced did not require major repair or replacement, unless the replacement of the system or thing promotes,
- access for persons with disabilities;
- energy or water conservation; or
- security of the residential complex or part of it.
- (9) A capital expenditure is not an eligible capital expenditure with respect to a rental unit for the purposes of this section if a new tenant entered into a new tenancy agreement in respect of the rental unit and the new tenancy agreement took effect after the capital expenditure was completed.
That can be rather confusing so lets summarize:
- Renovations or repairs that are extraordinary in nature. (OREG 18.1)
- Improvement that lasts more than 5 years (OREG 18.1)
- Work done to restore the physical integrity of the building. (RTA 126.7a)
- Work done to continue supply of building services. (RTA 126.7c)
- Work improving access, conservation or security (RTA 126.7d-f)
- Projects with short term benefits (OREG 18.1)
- Routine building maintenance (OREG 18.1c)
- Projects that are cosmetic in nature (OREG 18.1d)
- Things that do not need fixing (RTA 126.8)
- Tenants who move in after a project is completed are exempt (RTA 126.9)
It is important to understand that none of these including or excluding factors are financial. A landlord does not get to claim an AGI simply because he spent money (although most do). Each item claimed has to first meet the definition of a capital expenditure and then qualify as an eligible capital expenditure according to the above inclusions and exclusions before a rent increase can be calculated.
In practice, this boils down to a simple question: Was the work structurally necessary?
Moreover; we can see that the question of necessity will hinge on the condition of the worksite just before the work began.
In a hearing, the landlord's task is to show through evidence and testimony that the work was indeed necessary.
The tenants will want to submit evidence and testimony arguing that it was not.
Case managementThe first step in the hearing process is likely to be a "Case Management" negotiation, which allows both parties to negotiate an agreement on some or all of the claims in the application, prior to a full hearing.
Civil Law has always provided this opportunity for contesting parties to work out an agreement before a hearing is held or an order is issued. This usually takes the form of a negotiation between the named parties, in the presence of a mediator. If an agreement is reached, the court will issue a Consent Order specifying the terms of the agreement and the case is closed.
If no agreement is reached, or if some claims remain unresolved, the next step is a tribunal hearing.
The tribunal hearingA tribunal is a court proceeding. It follows the usual Common Law pattern of litigation, where the applicant (landord) and respondent (tenants) take turns, pesenting their evidence and arguments. The adjudicator has the full authority to issue legally binding orders that have the same force of law as those issued by provincial court judges. Both applicant and respondents participate in this process as equals, but in opposition to one and other.
The adjudicator's orderThe final step in the AGI process is the issuing of an order. The order itself is legally binding; all parties are required to govern themselves according to the adjudicator's decisions.
The adjudicator's decision about each claim is made on a "balance of probability" basis. Basically that boils down to who he or she believes. In an unbiased hearing, if a tenant's case is sufficient to bring the landlord's claims to doubt the tenants should win the day.
When it arrives, the adjudicator's order will outline the reasons for each decision on a claim by claim basis. He will explain what was and was not accepted and detail the rent increases for each tenant.
If either party finds any errors of fact or law or if they discover an apparent bias in the order they can request a review of the order. A review can lead to amending the order or a new hearing in egregious cases.