When buying an investment property, it’s normal to focus on the business details. You scour the market before finding an ideal property at the right price. From there, you turn your attention to finding and vetting tenants and hopefully establishing a mutually beneficial relationship with someone who stays for the long term.
All of these are critical to your success as a real estate investor, but knowing the legal side is also essential. Understanding your rights and responsibilities will help you avoid many of the traps that even experienced landlords can fall into. This insight is just as much a part of a successful business plan as finding the right property and tenant in the first place.
While this guide is not intended as legal advice, it is a detailed walkthrough of the main points of the Residential Tenancies Act that every landlord should know.
What is the Residential Tenancies Act?
The Residential Tenancies Act (RTA) is a set of laws that outline both the tenant’s and landlord’s responsibilities in Ontario. It covers most residential units, including detached houses, semis, townhouses and apartments. The act generally does not apply to non-profit or subsidized housing, secondary school residences or short-term accommodation rentals.
The RTA governs everything from how much a landlord is allowed to increase the rent year over year to what recourse you have when a tenant damages the property.
Housing prices will always fluctuate, and yet real estate remains one of the safest long-term investments you can ever make. See some of our previous posts for more:
- The Market is Changing. Is Real Estate Still a Good Investment?
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- How to Sell an Investment Property
Landlord and Tenant Board
The Landlord and Tenant Board (LTB) is a tribunal that interprets the RTA and works to resolve any disputes that arise during the rental agreement.
The LTB also works to ensure that there are no unfair evictions. A landlord must apply for approval before they can legally remove a tenant from their unit.
Most inquiries, concerns and applications can be processed online, by email or by courier.
Ontario Standard Lease
The Ontario Standard Lease is the official contract between a landlord and tenant, containing all details in the agreement, including contact information, the rental amount and due date and whether subletting is allowed. The contract is designed to protect both parties and is required by law in most cases. When completed, both landlord and tenant have a clear understanding of their rights and responsibilities.
It’s important to note that you cannot use a written lease to impose rules that violate a tenant’s legal rights in any way. Some terms are unenforceable even when the tenant signs them, including not allowing pets, forbidding guests or roommates or requiring unauthorized deposits or fees.
Deposits and Payments
Your tenant may agree to pay the monthly rent using a credit card or postdated cheques, but you are not allowed to require it. Once you decide on a method, you can only change it if both parties agree in writing.
You can request that the tenant pay a deposit against their last month’s rent. However, you can’t demand more than the cost of a single month. You cannot request prepayment in advance for multiple months. Another thing that many landlords don’t realize is that you are required to pay interest each year on the deposit.
Many landlords also believe they are entitled to collect various deposits from their tenants, but only two are permitted under Ontario law:
1) A last month’s rent deposit
2) A key deposit.
Contrary to popular belief, deposits for damages, smoking, cleaning or pets are illegal.
Once you’ve decided to invest, the next big question is where? Here are some posts that can help you decide:
- Where to Invest in Real Estate in Ontario
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Recourse for Damages
Since you can’t legally require a damage deposit, what recourse do you have? All disputes are handled by the LTB, which will decide who is responsible to cover the cost of repairs.
To ensure a fair process, both landlord and tenant should walk through the home together to conduct a move-in checklist. When the tenant leaves, the home should be in the same condition.
Rent Increase Guidelines
Once the rental agreement is signed, you cannot increase your tenant’s rent for at least 12 months from the time they moved in or from the last increase.
After 12 months, you can raise the rent by the amount specified by the Ontario government standards.
What if your own expenses have increased or you’ve taken on extensive upgrades? You can apply to the LTB to approve your request. Random increases will likely be denied, but the LTB may approve a larger amount if you can prove that your own expenses justify it.
Your Obligations as a Landlord
A few simple guidelines will help your relationship with your tenant run smoothly. Your tenant will be happy, increasing the chances that they will stay for the long term. Your primary responsibility as a landlord is to provide and maintain a unit that complies with all health, safety and maintenance standards.
Remember that they have the right to reasonable enjoyment of their home, and of course, you can’t bully, harass or threaten your tenant under any circumstances.
Your Right to Enter the Premises
Your tenant has the right to privacy, and you can’t simply barge in whenever you want even though you are the property owner. You have the right to enter your tenant’s home whenever you have reasonable grounds and provide 24 hours’ notice. These reasons will be primarily to conduct maintenance and repairs or to perform an inspection of the property.
As with any rule, there are exceptions. You can enter the unit without notice in case of an emergency or whenever a tenant consents.
What Happens if a Tenant Doesn’t Pay?
Having to chase rent payments can be exasperating. As an investor, you have your own expenses, and you rely on those funds to hold and maintain your property. What recourses do you have if your tenant cannot or will not pay?
You are entitled to receive your payment as outlined in your contract. However, there are limits to what you can and cannot do.
- You can’t turn off any essential services like heat, hydro, hot water or gas.
- You can’t confiscate your tenant’s personal belongings in lieu of rent.
- You can’t lock them out of the unit unless you have an eviction order from the LTB.
If your tenant doesn’t pay, you can give them notice of termination of the rental agreement after 14 days. Often, this is enough to get results. Finding a new place to live is no easy task, and your tenant likely doesn’t want the headache.
However, you may have to escalate if there is still no resolution. After giving your tenant notice, the next step is to apply to the LTB to terminate the agreement and begin the eviction process.
Ending Your Rental Agreement
If either party wishes to end the agreement before the lease expires, there may be some financial penalty. However, neither of you is locked in, and you can void the tenancy at any time by providing written notice. When the landlord asks the tenant to vacate, it could fall under two categories:
- For cause: Where the tenant failed to pay rent, damaged the property, disturbed others in the area or engaged in illegal activity on the premises.
- No fault: When the landlord wants the property for their own use, either for a family member to move in or to sell it.
Keep in mind, if you ask your tenant to leave so you or a family member can move in, you are generally required to cover the last month’s rent on your tenant’s behalf.
Staying on the right side of the LTA won’t just help you stay out of legal trouble. It will cement your reputation as an ethical landlord and help you achieve longer tenancies and enjoy a more profitable long-term investment.
Are you searching for your next successful investment opportunity? We can help you spot exactly what you’re looking for. Reach out to us today for a free, no-obligation consultation or call 905-332-9223 to connect with us immediately.