As the Canadian rental industry grows and changes, so do residential tenancy laws. Joe Hoffer, Partner Cohen Highley LLP, addresses three significant areas of concern affecting all rental housing providers at this time.
1. Renting to “niche” demographics: students, new immigrants, seniors, empty nesters
With the recent onslaught of refugees arriving in Canada and the influx of baby boomers turning to rental, apartment owners and managers need to be cognizant of the unique marketing, administrative and legal challenges that niche demographic groups present.
“When renting to students, the landlord is often actually renting to the parent and the parent is concerned with safety, quality, and location,” says Hoffer. “When it comes to guaranteeing payment of rent, the usual “joint and several” liability rules in lease guarantees can be a deal breaker. Student guarantees can, however, be drafted so that liability for payment of rent is restricted to the guarantor’s own child (not extending to roommates) whereas liability damage to common areas (as opposed to the child’s own bedroom) is joint. There are also innovative legal strategies to deal with on-line leasing, lease termination clauses, and student/tenant turnover when roommates don’t get along.”
By contrast, Hoffer notes that renting to seniors may involve unique lifestyle considerations, which can successfully be navigated without offending any age-related Human Rights Code restrictions. That said, it can attract Code liability when required to “accommodate” disabilities relating to mobility and personal care as tenants age in place.
“Again, leasing strategies can help minimize risk to operators while providing for a financially and physically healthy living environment for tenants,” says Hoffer.
New immigrants pose unique challenges when it comes to assessing financial risk as they are likely to lack the usual criteria used in assessing rental applications, namely: a credit history, employment history and banking/personal references.
“The best approach is to follow standard assessment protocols, which come into play with any applicant that has minimal financial history (such as students or young people renting for the first time),” explains Hoffer. “Requesting a Guarantor is an acceptable practice in all jurisdictions and provides assurance that if the rent is not paid, the operator has recourse. The key for landlords and managers is to ensure the Guarantor is reliable. You should collect all usual financial and personal information and do a full credit check. It is also a good practice to have tenant orientation protocols and community connections in place to facilitate the integration of the new tenant into both their new home and the community. Follow-up unit inspections and customer satisfaction surveys can further strengthen the legal and customer relationship.”
2. Condo rentals and enforcing tenant compliance
The rapid growth of condo/strata development and the influx of owner investment into this form of housing has brought with it an exponential increase in legal proceedings in all jurisdictions in Canada. While each province has its own legal and administrative process and rules relative to the specific development and operations, the nature of the legal disputes is remarkably similar: owner disputes with boards; corporation disputes with developers; inter-corporate disputes over cost and facility sharing agreements; and of course, disputes involving tenant occupied units.
“Most condo/strata documents permit leasing of units, but enforcement of rules and by-laws may be complicated by Residential Tenancy legislation,” notes Hoffer. “In Ontario, for example, a unit owner can potentially evict a tenant at the Landlord and Tenant Board quickly and at modest expense. However, if the unit owner fails to take proper action, the condo corporation can take the unit owner to court, force the unit owner to take action and/or obtain an order requiring the occupant to leave—and pass all reasonable legal costs associated with the proceeding on to the unit owner. The options and outcomes are determined by the facts of each case, and for lawyers at least, condo litigation is robust and profitable but the price is exacted from condo boards and unit owners.”
That said, Hoffer points out that skilled management teams can greatly reduce the corporation’s financial risk in securing good outcomes when condo/strata rentals go sideways.
3. Increasing Net Operating Income
Today, many strategies are being deployed to increase the prospects for a healthy balance sheet of a rental housing operation. Capital expenditures to capture energy savings and implementation of electricity sub-metering are common ways to reduce operating expenses and risk. In some provinces (particularly Ontario and British Columbia) the capital investment can form the basis for above rent control guideline rent increases.
“Ontario in particular has seen heavy investment in apartment building remediation and rehabilitation,” says Hoffer. “Low cap rates and vacancies have provided an incentive to undertake major capital investment. In addition, Ontario’s skyrocketing electricity costs have contributed to a boom in the electricity sub-metering business—shifting price and consumption risk to tenants while fostering positive and palpable electricity conservation outcomes.”
Hoffer explains that the principal risk for operators lies in the failure to ensure the capital expenditures, much of which are directed in part to enhancing curb appeal, also meet the criteria which qualify for a capital expenditure allowance that can then be passed through in an above guideline rent increase application.
“With some strategic planning in consultation with legal counsel and capital planners, rental building owners can realize a rental return and a much improved capital asset,” he concludes.
Erin Ruddy is the editor of Canadian Apartment Magazine.