The 165 Ontario Story

How To Fight An AGI

Last Update: 2023-11-11

An Above Guideline Increase in rent --an AGI-- is the most complex proceeding a landlord can file with the Landlord Tenant Board (LTB).

In recent years there has been a sharp increase in these applications as landlords have begun abusing them to circumvent rent controls, especially when acquiring a new building. Many are actually doing renovations of questionable need for the sole purpose of filing these applications.

Since this directly affects their rent, tenants need to know how AGIs work and how to defend against them.

AGIs increase rent

Each AGI application your 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. Long term tenants in my building are Currently Paying on 4 of them.

Sued by your landlord

Many tenants have been broadsided by these applications. They find themselves unable to deal with the issue before them. Some have launched street protests, complained to news media, staged rent strikes and even staged "sit-in" demonstrations in their landlord's offices. Try as they will, none of that will change the law or it's interpretation when the hearing comes around. As a result, tenants find themselves defenseless and most AGI claims end up being approved without contest.

In a nutshell: An AGI application is a lawsuit. Tenants need to treat it as such.

A tenant's best strategy is to use the same legal process the landlord uses. They need to directly oppose the landlord's application in a tribunal hearing. The landlord will profess their AGI claims are valid, using evidence and testimony to support them. Tenants need to present credible arguments, also using evidence and testimony, to challenge each claim's validity.

The legislation governing AGIs is in the Residential Tenancies Act, Part 126 (RTA). Additional rules and regulations are in Ontario Regulation 516/06 Part 18 (OREG). You will need to be familiar with both if you want to work through this process successfully.

Landlord's right to file

The opening section, RTA part 126(1), spells out the landlord's right to file an application with the LTB.

  1. (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:
    1. 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.
    2. Eligible capital expenditures incurred respecting the residential complex or one or more of the rental units in it.
    3. 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.
2006, c. 17, s. 126 (1); 2017, c. 13, s. 22 (1).

The application, if accepted, will likely inspire a case management negotiation and/or a tribunal hearing before an adjudicator. Both landlords and tenants participate in these proceedings.

But, having the right to file an application does not mean it will always succeed. The outcome is a result of evidence and testimony from both landlord and tenants.

Inclusions and exclusions

Your landlord cannot claim just any old thing on an AGI application. There are clearly defined rules for what can and cannot be successfully claimed. This is a multi-part test that each claim has to pass before a rent increase can be calculated.

First, since renovations are Capital Expenditures we need the definition of a "capital expenditure" from the RTA 126(1)2 above. This is found in the OREG part 18.

  1. (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,
    1. an expenditure with respect to a leased asset if the lease qualifies as determined under subsection (2), and
    2. 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,

      3. but does not include,
    3. 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
    4. 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")
O. Reg. 516/06, s. 18.

Once a claim qualifies as a Capital Expenditure, further inclusions and exclusions are found in the RTA at part 126 sections (7) through (9). These determine which claims are eligible capital expenditures:

  1. (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,
    1. it is necessary to protect or restore the physical integrity of the residential complex or part of it;
    2. it is necessary to comply with subsection 20 (1) or clauses 161 (a) to (e);
    3. it is necessary to maintain the provision of a plumbing, heating, mechanical, electrical, ventilation or air conditioning system;
    4. it provides access for persons with disabilities;
    5. it promotes energy or water conservation; or
    6. it maintains or improves the security of the residential complex or part of it.

  2. (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,
    1. access for persons with disabilities;
    2. energy or water conservation; or
    3. security of the residential complex or part of it.

  3. (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.
2006, c. 17, s. 126 (7); 2017, c. 13, s. 22 (3).

That can be rather confusing so lets summarize:

What qualifies: What does not qualify:

It is important to understand that none of these including or excluding factors are financial. No matter if it's a dollar or a million, a landlord does not get to claim an AGI simply because he spent money (although most do).

Each application can carry multiple claims. For each claim, the primary test is whether it stands up in the face of the defined inclusions and exclusions. If it qualifies as an eligible capital expenditure only then is an adjudicator free to assess how much rent increase is justified. If it fails the test in any way, that claim should end right there.

To give you a few very simple examples:

Repairing and painting damaged walls will qualify but painting a wall simply to change it's colour should not.
Replacing a rusted out fire escape qualifies, cleaning surface rust off of an existing fire escape should not.
Repairing cracked and damaged balconies will qualify, simply painting the decks and railings should not.

The evidence problem

AGIs don't begin when the Notice of Hearing is served. They begin long before that with your landlord planning a project, getting the permits and then contracting the work. He has every chance to put together a convincing AGI claim well before starting the project.

Tenants have traditionally not reacted until the Notice of Hearing arrives, long after the work is completed. This is way -way- too late in the process. It leaves them with no credible evidence to tender during a hearing.

If we look at the list of inclusions and exclusions above, it is easy to see that the validity of an AGI claim will hinge almost entirely upon the condition of the worksite before the work started. A landlord will profess the worksite had deteriorated and needed work. Tenants need to be ready to respond to that.

Understand that as soon as workers begin to alter a worksite, any credible evidence of it's condition is gone; tossed in the garbage. After that first day, tenants will no longer be able to gather evidence and will not be able to credibly argue whether the work was or was not necessary.

The right time to get involved is when your landlord first announces his intention to do something that might lead to an AGI. Even if you only suspect an AGI might be coming, you need to get busy.

Carefully document the condition of the worksite, good and bad, before the work begins. Take pictures, make notes, take samples, etc. Keep logbooks of everything your landlord is doing. This is the evidence you will need for your rebuttal arguments on hearing day. You need to gather it up, organize it, make backup copies and store it securely until the hearings.

For example:

When my previous landlord announced renovations in our underground parking structure, I got down there the day after the "Notice of Construction" was served. With the help of a friend, we took about 200 pictures cataloguing it's appearance and made notes of everything that was both right and wrong about the place. The first hearing was more than a year later but we were ready for it.

Since your landlord is only required to notify you of work that may interfere with reasonable enjoyment of your unit, it is possible (and likely) they will do work you know nothing about. The first time you see any mention of it will be on the landlord's application. These claims need to be met with the argument that they are impossible to litigate since you had no prior knowledge and can offer no defence which biases it in the landlord's favour and should be disallowed.

Also, within the current process, every AGI application should be met with a Motion To Dismiss, argued on the basis that tenants were granted no opportunity to gather evidence and the process is thus heavily biased in favour of the landlord. If accepted, the whole thing ends right then and there. But, if the motion is denied you must be ready to proceed with the hearing.

Service and notice

Before the hearing you will receive a notice of the hearing date and a copy of the landlord's application. The application will be on a Form L5. You 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 your landlord with the LTB. The packet you receive should detail instructions on how you can acquire the full application. This is set out in the RTA:

  1. (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.
2006, c. 17, s. 126 (4).

and the relevant regulations are in the OREG:

  1. (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).

O. Reg. 516/06, s. 23.

Once you have the full disclosure it will need to be audited. Look for inconsistencies, hidden charges, bad math, pretty much anything you can find wrong with it. If there is any intention to deceive or gross errors are made, you may be able to have certain claims or the entire application dismissed in the hearing on that basis.

Also note that a landlord's 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.

The Need To Organize

Don't wait for someone else to do this for you. You need to get involved and work with other tenants to build your defence in these cases. Like it or not, if you've been named in the landlord's application you will be affected by the outcome.

The last thing you want at an AGI hearing is a disparate group of tenants, all with their own agendas speaking out of turn and making statements that inadvertently support the landlord's case or undermine yours. It is essential that you organize your building at least far enough that you can keep the hearings calm and dignified.

As noted above, these cases tend to hinge upon the condition of the building right before the work began. Ideally your case should be presented by a knowledgeable tenant who was in residence before the work began and can present the appropriate evidence and testimony. If you choose to hire legal council this tenant can make their presentation as a witness.

On a personal note, it has been my experience that relying on duty council is pretty much an act of self-sabotage in these cases. If you cannot adequately inform their arguments in just a few minutes, you will lose.

If your building does not already have a functioning tenants association, this is the time to start one. At the very least put together an ad-hoc committee to deal with the AGI and it's hearings. Then you will need to inform all tenants named on the application of your intentions.

This is also the time to begin preparing your testimony and arguments for the hearing. Leaving this to the last minute is a sure way to lose. You should work with your selected representative, to ensure everything is more than ready well in advance.

Case management

The first step in the hearing process is likely to be a "Case Management" meeting. This is a meeting in which both landlord and named tenants can participate with a goal of reaching a pre-hearing settlement or at least deciding which claims can be settled early and which should proceed to a hearing.

Civil law has always provided the 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 and the case is closed. This works well enough when there are a small number of parties involved and all can agree to the settlement terms. But it does not work for large groups where disparate concerns prevent reaching a true consensus.

Be aware that a case management meeting carries an innate bias. There is a hidden assumption that your landlord's claims are valid. But, as yet, there will be no proof of that. Negotiating in such an uncertain atmosphere is a mistake, every time. You will most likely end up paying almost the landlord's entire proposed rent increase, regardless of the validity of their claims.

Neither side is obligated to resolve the matter in this negotiation phase. In fact, you should never settle an AGI this way. The smart move is to demand your day in court. Force your landlord to prove his claims and make your rebuttals in a hopefully unbiased hearing.

The problem with consent orders is obvious:

In a recent case in this building I did not attend the case management hearing. I was very careful to instruct those who did go not settle the case that day: "Get us our day in court". But they got carried away with being able to ask questions and negotiated a reduction of less than half a percent in the landlord's initial claims. Then, acting on the advice of duty council and mistakenly thinking they had won, they ended up consenting to a 7.4% rent increase. (That's $74 on each $1000 rent) The small number who attended ended up costing us all an average of $70 per month for the next 15 years, over $12,000 each ... without our consent.

A consent order is only appropriate when all named parties are in unanimous agreement with the terms. Otherwise you are stripping away the right to an evidence based decision for those who would not consent.

The tribunal hearing

A tribunal is a court proceeding, much like the courtroom dramas on TV. It follows the usual Common Law pattern of litigation, where the applicant and respondent take turns. 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. You need to participate in this process as an equal but in opposition to your landlord.

Beyond this basic summary, more detailed procedural information is available in the Statutory Powers and Procedures Act. It is strongly recommended that you familiarize yourself with this legislation before engaging in a hearing.

The back and forth is simple: Your landlord says "We had to do this" and you counter with "No, you didn't", giving your reasons why not.

For example:

If your landlord is claiming the lobby was in bad condition, it's up to you to produce evidence that it was not.
If your landlord is claiming painting a wall, it will be up to you to establish that it was cosmetic work.

The hearing itself goes like this:

Step 1: Introductions and Motions
In this first step, the representatives introduce themselves to the adjudicator. The landlord will go first, then it's your turn. During your introduction you need to announce any motions or special requests you have.

Step 2: Landlord's Evidence
This is the landlord's chance to make his case by interviewing witnesses and introducing evidence to prove that each of his claims on the application are justified as rent increases.
In this step you will have the chance to question the landlord's witnesses. Use this chance to establish the witness's employer, credentials, fees, level of participation, etc. Also ask any questions you might have about the actual testimony they've given. Be aware that gently discrediting a witness's testimony can be a powerful step in making your own case later in the proceeding.

Step 3: Tenant's Evidence
This is where you will bring forward all the evidence you gathered from the unaltered worksite. Your goal, through testimony and evidence, is to cast doubt upon the landlord's claims. It is also a good idea to include some of the building's history, especially make note of repeated renovations and previous AGIs similar to each claim, the work of previous landlords and, provide as much documentation to support your anecdotal information as you can.
You will also be allowed to call witnesses if needed. But be aware that your landlord will have the right to question them and his goal will be the same as yours; to discredit their testimony. So, some caution about who you put "on the stand" is appropriate.

Step 4: Landlord's Summation
In this part of the hearing your landlord will offer a summary of his case and evidence as well as any legal arguments about his claims.

Step 5: Tenant's Summation
Here is where you get to make your big argument against the landlord's claims. Be sure to summarize your evidence and it's importance. You will want to point out the flaws in his evidence and testimony, make any legal arguments about the claims on the application and, especially, point out why you feel the landlord has failed to make his case.

Step 6: Adjournment and Consideration
In this final step the Adjudicator will ask his own questions, if any, and then adjourn the proceeding while he considers all that has been said. He will make his decisions based on the evidence before him.

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. The onus of proof is on the applicant (landlord). If your evidence is sufficient to bring your landlord's claims to doubt you should win the day. But you would do well to note there actually is no such thing as an "unbiased" decision, all adjudicators bring their own beliefs into the courtroom with them.

When it arrives, the adjudicator's order will outline the reasons for each decision on a claim by claim basis. You will know what was and was not accepted, and why. If you find any errors of fact or law or if you discover an apparent bias in the order you should immediately investigate your right to request a review of the order which can lead to amending the order or a fresh hearing in egregious cases.

Summary

I wish I could provide a step by step guide for preparing a case. AGI claims are often very unique with each requiring a somewhat different approach. But if you think about what is being claimed and construct logical arguments against each claim then back it up with evidence, you should do fine. The primary goal is to get your worksite evidence and documentation into the record to be considered by the adjudicator.

With most tenants having very little knowledge of this process, over time landlords have come to feel entitled to abuse it. They will file false claims and expect the LTB to approve them because of the lack of opposition from tenants. That has to end.

Tenants need to educate themselves then stand up as equals in a fight for fairness and justice. In AGI hearings, shooting down bad claims and taking the profit out of abusing the system -keeping landlords honest- is our best bet to achieve that.