The 165 Ontario Story
How Ontario Landlords Are Abusing Above Guideline Increases
Last update: 2023-11-11By most accounts The 165, as it's called, is a more or less ordinary apartment building.
There is, however, one thing that distinguishes it from other buildings in this area. It has become the example showing how landlords all across Ontario are abusing Above Guideline Increases in rent (AGIs) both to jack up rents for existing tenants and to present an artificially high profit to investors.
The game is exposed by repetition. As the building has passed from one owner to the next over the past 15 years, each in turn has arbitrarily declared the building to be in bad condition and launched into mass renovations. More than once a new owner has purchased a freshly renovated building that probably could have been rented out for several years without major issues but still proceeded to do their own round of extensive renovations.
During all this, tenants have been put At Risk by jackhammers, power tools, loud noise, high dust levels, repeated water shutdowns and more as they are continuously inconvenienced by the latest round of work being done.
This, of course raises powerful questions about the need and reasons behind all this continual renovation and leaves one to wonder what is really going on.
Building historyThe "165 Ontario Street" address first appeared in St. Catharines Ontario's municipal registries in 1965. Originally named "Lucerne Apartments" this building is home to about 300 people in 157 units.
When first built, this was a moderately luxurious building with larger than average apartments. The building's skin was ivory coloured glazed brick. The lobby was furnished with couches and a waterfall aquarium that was home to half a dozen huge gold fish. There was music in the elevators and a small office where you could connect with the superintendent and maintenance man who both lived in the building.
For reasons unknown, the building was allowed to deteriorate somewhat and by the time I moved in on July 2, 1984 it was in a medium-ish state of disrepair. The hallways were clean but the carpets, doors and walls were showing signs of wear. The apartments themselves were in a general state of good repair. Everything worked well enough but the walls needed a good coat of paint and my apartment needed floor refinishing.
At that time the building was home to a surprising number of long term residents, a couple of whom were the first renters of their units. Others had already been here for 10 and 15 years. There was a sense of community in the building as we all got to know one another and always greeted one another in the halls. It wasn't uncommon for groups of us to congregate on the front steps during nice weather and have some truly fun conversations.
Sadly, in it's somewhat run-down state the building had started to attract a class of tenants who were less than fully invested in having a nice home and tended to cause problems with noise, loud parties and such. But overall, it was still an okay place to live.
In the late-1990s, by municipal orders, the building was placed under control of a management company who were commissioned to restore the building into a better state of repair. These extensive "top down" Renovations took almost 2 years to complete. The result was a very nice 1960s-chique building that was almost empty as people moved out to escape the noise and disruptions.
Once fully renovated, the building was turned over to a second management company who took on the task of re-renting the, now, nearly empty building. After causing considerable chaos with a revolving door of rentals and evictions (both of which they got commissions for) the management contract finally expired and control reverted to the original owners, A&L Investments.
Most buildings get this kind of major renovation once in their lifetimes. The original decor stood for 35 years without major issues. There seemed little reason to think the renovations completed in 2000 would be any less durable so life went back to normal.
This, however, was not to last.
Renovation feverPicture this: You are finally getting a well deserved night of catch-up sleep and suddenly, at the crack of dawn, you are jolted wide awake by the deafening rattle of a jackhammer, right on your balcony and half a dozen workmen are clustered just inches outside your window. Definitely not fun.
When it's not the jackhammers and grinders on your balconies, it's workmen swarming the building with some other annoying power tool or a sledge hammer, making noise, blocking the hallways, raising huge clouds of dust and fumes; generally overwhelming your life.
Now imagine it's been like this for 15 years. The work goes on almost every working day and sometimes on weekends, with things being done and then redone as the building repeatedly passes from one landlord to the next.
This hellish string of events started in 2007 when the original owners sold the building to Transglobe Property Management, who immediately launched into a round of extensive Renovations that ran from 2008 to 2010.
Then in 2011 TransGlobe failed in the aftermath of an expose from CBC Marketplace, was privatized and reformed as Starlight Investments who took control of the building in early 2012. They too immediately launched into a round of more extensive Renovations as soon as they took possession of the property.
By mid 2013 the building had been completely transformed both inside and out. The outer skin was now painted two-tone brown, the balconies were replaced with tinted glass, the lobby and hallways had been redone repeatedly and the interiors of almost all of the apartments had been completely redesigned at least once.
But that wasn't the end of it. In 2016 the building passed to NorthView REIT, who did yet another round of Renovations beginning as soon as they took over the building.
Finally in 2020, Starlight bought out NorthView, regained control of the building for a short while and then sold it to CLV InterRent who took possession in 2021. Now these guys are ambitious. We've now had more than 2 years of the most intense Renovations yet.
One has to wonder why a new landlord would come in here like a drunken bull in a china shop, changing everything in sight with no real consideration for work already done. Surely they must have noticed they had just purchased a freshly renovated building they could have rented out for several years before any extensive work was needed.
What would motivate a landlord to do this?
Bypassing rent controlsNot so long ago, an apartment building was a long term investment, using rental cash flow to pay the bills until it acquired enough value to sell for a nice profit. The payoff was in the building, not the rent.
Landlords have been trading on the stock market since 1993 as Real Estate Investment Trusts (REITs) and are far more investor driven than ever before. The time scale for return on investments has gone from years to days. Where keeping their tenants happy was once the goal, now it is their investors they try to please with constantly increasing dividends and rising share prices. Now the payoff is in the rent.
But, the province of Ontario has a system of Rent Controls that limit how much a landlord can legally increase rent from year to year. This puts a landlord up against a hard limit. It places a natural cap on their income. Once all their apartments are rented, their income plateaus, increasing only once a year by the amounts allowed by rent controls. They now need to find ways to increase property value and cash flow or they risk an investor sell off that could bankrupt them.
With the growing Commodification and the ongoing Manipulation of the housing market many landlords have taken to aggressively bypassing Ontario's rent controls as a means to increase both rental income and portfolio values on their properties, to meet the constant demands for increasing share values by investors.
Fortunately for landlords -but not for their tenants- Ontario's rent controls are rather leaky.
- They do not apply to vacant apartments
- Buildings first occupied after November 15th of 2018 are exempt.
- They allow for Above Guideline Increases (AGIs) in rents for occupied units.
Renovations, being capital investments, are a prime tool. Many landlords --especially REITs-- have actually flipped from filing AGIs because they did renovations to doing renovations so they can file AGIs. There is no denying the effectiveness of this strategy. Using AGIs this building's multiple landlords have managed to Drive Up Rents for long term tenants in this building by nearly double the provincially allowed rates.
As tenants flee the disruption of mass renovations, landlords use easy rent increases on vacant apartments and, eventually, the ability to file AGIs on occupied units to jack up rents. Finally, they will put on a rental push near the end of renovations to bring in as many new "market value" tenants as they can and catch them up in the resulting AGIs. All done in the name of showing ever increasing portfolio values to their investors.
The AGI's secret valueBeyond simply applying for a rent increase, AGIs have a second use. Each capital expense item claimed on an AGI application also carries a Lifetime And Value that is visible on both the application and final order. Once approved by the Landlord Tenant Board, these can be used by a landlord to manipulate his portfolio to present an artificially high state of worth.
If we take the example of a $1,000,000 landlord who does a $200,000 renovation with a 10 year lifetime. (for easy numbers)
- Initially it looks like he had an $800,000 year.
- But with a court document validating his capital expenses he can take the $200,000 and apply at least most of it that to his property value as an improvement.
- Now he's back to a $1,000,000 year.
- Then with the same documents, he can amortize the capital expense over the lifetime of the project, meaning that he's only writing down $20,000 a year, for 10 years. (an apparent increase of $180,000)
- So now it looks like he just had a $1,180,000 year.
This is spending money to make money. It increases share values and drives investor interest by providing the appearance of "continual growth".
AGI playbooksAGIs were originally designed to help landlords who didn't have the financial resources to cover extraordinary expenses. When working in cooperation with tenants, they serve this purpose very nicely. The landlord upgrades the property and tenants get increased value from their homes, justifying a small rent increase.
But, today's landlords tend to come out swinging. When they acquire a new property they immediately launch into mass renovations, making large capital investments in the building. If you scan down the Full List of renovations done on this building you will see that an astonishing amount of work has been done in a relatively short time. Their game is exposed by the repetition of the Same Renovations as each new landlord took his turn. That they had just purchased a building, freshly renovated by their predecessor, does not matter to them. They don't care about the building's history or condition. They're going to do this work anyway.
It would be quite the mistake to think this is some kind of gift from a generous new landlord.
What we are seeing is an "AGI Playbook", a list of renovations to be performed whether they are necessary or not, using AGIs to increase rent and force tenants to pay for the renovations. This playbook is written into a landlord's business plan and followed solely as a means to motivate investors. It drives up rents, increasing cash flow. Through a combination of court-fixed values and lifetimes, it allows amortization of expenses and increases in property value. It's done to give a much larger impression of profitability; all at the tenant's expense.
On September 23 we received the first in what is likely to be a chain of several Rent Increase Notices with increases that are 3% over the provincial guideline. The AGIs are coming. See the "AGI Blog" for updates.
False claimsAbove guideline increases are not automatic. A landlord does not get to increase rents solely because he spent some money. Each claim on an AGI has to be justified according to Inclusions and Exclusions set out in the Residential Tenancies Act and it's regulations. So, we need to ask how much of all this was actually necessary, restorative work that would qualify for a rent increase.
Even more unsettling is just how much of the work done on this building is actually Duplication of recent work done by previous landlords. For example: What are the odds that our balconies needed to be redone 4 times in 20 years when the originals stood for 35 years?
At the time of this writing, we are in the interregnum between heavy renovations and receiving the AGI applications from CLV. I, for one, will be overjoyed if they don't come but it makes no sense for them to do all this work and then not follow through.
These pictures are typical of hundreds that were taken just a few days before CLV started redoing our balconies. Looking through them, I don't see balconies that were deteriorating or in need of repair. I see nice balconies, in good condition that people were using and enjoying. But, that didn't stop CLV from spending over a year "fixing" them.
A similar examination of the work done on the elevator landings, lobby, apartment doors and in individual apartments will raise the same questions about need and reasons. But landlords are doing this work anyway.
By all indications only a few of these AGI claims should be approved, yet virtually all are.
Gaming the systemThe obvious question at this point is: "If these AGI claims are not credible, how are they getting approved?"
Landlords are getting away with these bogus claims because of a serious procedural flaw in the way AGI applications for capital expenditures are processed.
To begin, it is important to note that a landlord is not required to inform his tenants of an impending AGI application. He is also not required to notify his tenants of the project itself if the work does not interfere with their "reasonable enjoyment" of their rental premises. It is, thus, entirely possible to do work that tenants know nothing about, in secured parts of a building.
In the current process a landlord will plan a project and do the work. Once the work is completed and the billing information is collected, he gains the Right To File an L5 application for an Above Guideline Increase in rent. Then, once a hearing is scheduled his tenants will receive Service And Notice of the hearing date.
Thus, most tenants are simply broadsided by these applications. AGIs really are a lawsuit dumped into the lap of an unsuspecting tenant.
Evidence lostBut the problem does not end there.
We need to also understand that in the process of doing renovations, the work itself will naturally obliterate the condition of the worksite just before the work began. With the tenants not being brought into the process until the work is completed, this effectively prevents them from gathering evidence that would be needed to mount a credible defense in a Tribunal Hearing.
Replacing a fire escape first requires removing and disposing of the old one. Since the tenants are not brought into the process until the old one is long gone, they have no opportunity to document its condition immediately prior to replacement. That is: They have no way to prove it did not need replacing.
A hearing will come down to a contest between landlord and tenant evidence, hinging on the Residential Tenancies Act's Inclusions And Exclusions this creates a powerful bias in the proceeding. The landlord has every chance to gather and present his evidence, but the tenants do not.
Since no rebuttal is possible, AGI applications most often boil down to a defenseless tenant, who knows full well he is being cheated, standing before an adjudicator who ends up taking the landlord's unchallenged evidence and testimony on face value.Researching this imbalance on the Canadian Legal Information Institute (CanLII) database very quickly shows that virtually all reported AGI tribunals were heard without challenge and rent increases were almost always granted. Phrases such as "The tenants lead no evidence" are common as are the tenants' desperate appeals to reason. It should also be noted that only a small portion of these cases are actually reported and the ones resolved by consent orders and mediation are not reported at all. If all AGI cases were reported, it is likely this picture would be much darker.
It is impossible to see this as anything but a deeply flawed process that openly invites abuse.
Province wideThere is considerble evidence this extends well beyond this building.
I first got into this issue in 2014, after a disastrous hearing in SOL-40297-13. It went so badly off the rails that I filed a review request and got an order for a de novo (new) hearing. When investigating Starlight for the tenant's defense I initially discovered another 18 Starlight Buildings that were painted like The 165 and had identical tinted glass balconies. On deeper investigation, using Google Street View, I uncovered a total of 100 Buildings from their portfolio, all done the same way within a two year period. It is simply not rational to believe that such a large cluster of buildings, of varying age, size and structure, scattered all over the province would all need identical renovations in such a short period of time.
Moreover; mine is not the only evidence of this activity. A February 2021 Report from Renovictions-To also shows us, in stunning detail, just how bad and how widespread this disgraceful practice has become. It is interesting to note, from this report, that Starlight Investments has filed more AGI applications than any other landlord in Ontario.
Province wide, there has been a steady increase in AGI applications as Ontario's landlords are increasingly abusing them to circumvent rent controls. Since the 2006 enactment of the Residential Tenancies Act (RTA) and a 2007 shift in Tax Exemptions from the Harper government, this once obscure process is being used more and more. The Landlord and Tenant Board's annual report for 2005-2006 reported 209 L5 (AGI) applications. This has risen to 613 in their 2021-2022 report, which also notes an all time high of 758 in 2019. This represents an overall increase of 300%.
Coupled with the current shortage of rentable units in the province, this massive loophole has become a prime tool for landlords to increase both rents and property values, giving investors a stronger incentive and providing higher returns for shareholders; all at the tenant's expense.
In this building alone, landlords have used AGIs to Force Tenants to pay for over $2,700,000 in renovations, most of which are of dubious merit.
After more than a decade of abusing AGIs it is likely landlords are collecting literally millions of dollars in undeserved rent increases, province wide, every month. Many now display a strong sense of entitlement. Not only do they think they are allowed to do an end run around rent controls, they seem to think tenants automatically owe them the extra money. AGIs have become the goose that lays golden eggs and it's very unlikely landlords will voluntarily give that up any time soon.
Tenants find themselves living in construction zones, with the Safety Issues that involves, enduring months or years of disruption only to be sued for the cost of it all, at the end. Many are at their budgetary limits and some are even ending up homeless because of it. It should be no surprise we are seeing province wide protest and outcry about this deeply flawed process.
There can be no doubt the current process is heavily biased to favour the landlord and it is plenty obvious they are taking full advantage of it.
The fixThe current levels of dishonesty and gouging cannot be allowed to continue.
The principles of Natural Justice upon which the Ontario Tribunals are based require that for a fair hearing both parties must be equally able to provide testimony and evidence before a neutral adjudicator. It is clear that the current process for capital work in AGIs does not meet this requirement. In most cases the tenants are blocked from providing credible evidence and testimony in counter. This, as explained above, is a result of bringing the tenants into the process long after any evidence they might use in a hearing has been destroyed by the work performed.
Fortunately the fix is quite easy.
Simply modify paragraph 126(4) of the Residential Tenancies Act to require a landlord to announce their intention to file an Above Guideline Increase:
(4) If A landlord intends to make an application under this section that includes a claim of capital expenditures, the landlord shall post notice to the tenants 60 days before work commences describing the nature of the work to be carried out and the intention to make an application.
(4.1) When 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.
Since the landlord is already obliged to post notice under Ontario Regulation 516/06 part 8, in order to avoid rent abatements, this adds only the small additional burden of announcing their intention to file for an AGI. But for his tenants it provides a window of opportunity for them to examine the worksite and gather evidence and information about it's condition. This in turn allows them to participate fully, with evidence and testimony, in the resulting hearings.
The benefit of this is two fold:
First: it restores fairness, allowing equal participation by both parties in a tribunal hearingSometimes the simplest changes make all the difference.
Second: tenants will be able to expose false claims, preventing abuses by landlords.
Lets keep everyone honest: Make the process fair!