The War on Small Business Owners and Landlords

I don’t follow politics.

I am a simple business owner, responsible mom and adult. 

Then there are these politicians that somehow think that operating a business and a rental portfolio are equivalent to growing money on the trees. You don’t need cash to invest into the properties or capital to start your business and somehow money will grow.

It’s sad enough that our Ontario government thinks that market rent has to be governed and controlled by the rules preset by them, not the market.

It’s even more so that the Bill 144 was introduced into Parliament and the first reading already carried.

For those of you who are not familiar with what Bill 144 is, I’ve captured the section that we, as real estate investors, would be mostly affected by.

Bill 144, Real Rent Control Act, 2017

“Lawful rent for new tenant

113 Subject to section 111, the lawful rent for the first rental period for a new tenant under a new tenancy agreement is,

(a) any amount that is equal to or less than the last lawful rent charged or that ought to have been charged to the previous tenant if the rental unit was previously rented in the last 12 months;

(b) with respect to a rental unit that has not been rented in the last 12 months, an amount that is equal to or less than the sum of,

(i) the last lawful rent charged or that ought to have been charged to the previous tenant,

(ii) all increases to the rent that the landlord would have been permitted to make under this Act if the rental unit had been occupied, and

(iii) all decreases to the rent that the landlord would have been required to make under this Act if the rental unit had been occupied; or

(c) the rent first charged to the tenant if the rental unit was not previously rented.” 

The new bill prevents any rent increase, other than the specific percentage allowed by the Ontario government, even after the previous tenants get out.

For those of you who have been following my blogs for a few years, I’ve shared with you a few times about my townhouse in Etobicoke that enables me to purchase a few more investment properties.

When I moved out from the property, the house was 4 years old. It is now 8 years old. My condo fees have increased from $120 per month to $185 (an average of 9% per year). My property tax also increased by 3% a year.

Rent increase guideline imposed by Ontario government is nowhere near sufficient to cover off these increases on an annual basis.

Thankfully, there was a changeover in tenancy and we increased the rent to market rent, to cover off these increased costs.

The increased rent also allows us to do some small repairs needed in the place, cleaning, etc. Keep in mind that this place is only 8 years old, maintenance costs are relatively low compared to houses that we invest in Hamilton and St. Catharines. 

For people who run rentals that are including utilities, their cost of running their businesses has increased substantially, thanks to the increase in hydro bills, in the last couple of years. As hydro bills are on the increase, smaller business landlords find themselves trying to save money by switching other utility providers to find better deals. Often, water bills can be costly, meaning that they are usually one of the most popular utilities to switch. 

Imagine if this Bill 144 were to pass, landlords would never be able to pass on the increase cost of operating the business to the tenants.

Bill 144 forces the landlord to absorb all the costs to keep the rent low.

If we are losing money or ending up putting money into the rental portfolio every single month, who would want to operate this business?

Just when the Province of Ontario is attracting about 140K immigrants annually, Bill 144 is discouraging people from investing in rental properties and providing more affordable housing to the people who are in need.

If you don’t think this is bad enough, small business owners can also be paying much more taxes (see my previous blog post).

Let us also not forget about Kathleen Wynne’s increase in minimum wage to $15 per hour, an attempt to win more votes in the future election.

Combined with the increased hydro costs caused by government inefficiencies, it’s tougher than ever to rely on yourself, own your own businesses and a small rental portfolio.

So much easier to just rent, rely on government benefits, and pension. Why care about creating jobs and contributing to our economy?

I don’t know how much influence we have over our MPPs, given that landlords and small business owners are a small percentage of the general population.

But I am still going to send an email to my Member of Provincial Parliament (MPP), to make a small difference and let them know that we, as landlords and small business owners, do care about the issue.

“The world is a dangerous place, not because of those who do evil, but because of those who look on and do nothing.” ~ Albert Einstein

I am sharing with you a sample email written by a fellow real estate investor to her local MPP. Have a read and take some action. It’s an email, it can take as little as five minutes.

Until next time, Happy Canadian Real Estate Investing.

Cherry Chan, CPA, CA

Your Real Estate Accountant

“Dear Sir,

I am writing to you because I know you are doing what you feel is in the best interest for Canadians.

I am a landlord, and I have several friends who are also landlords. We are fair, we treat our tenants with respect, we abide by the regulations currently in place, which by the way, is widely known to be highly skewed towards the tenants benefits in Ontario, the most populous of provinces where housing is needed.

If Ontario is trying to increase rental inventory, then these changes are not going to achieve it.

Here are the specific issues I have:

Section 113 of the Act is repealed and the following substituted: Lawful rent for new tenant;

“any amount that is equal to or less than the last lawful rent charged or that ought to have been charged to the previous tenant if the rental unit was previously rented in the last 12 months;”

Issue: This is unreasonable and unjustified.

Why?

1. Expenses to fix issues each and every time a tenant leaves (and if you are landlords or know of any, you will understand that this is EVERY time a tenant leaves), is continuously escalating. I paid $1,200 to repaint one of my houses 2 years ago, this year, I paid $1800. This is something that I do for my tenants so they can have a clean place to live when they come to my homes. This isn’t covered under the capital expenditure part which I now have to pay and wait months for a board to determine whether this qualifies for me to raise my rent.
2. Market changes. Like every other business, renting a house is a business. What these changes are saying to me, a business owner, is that as a business, I am not allowed to raise my prices based on market changes. What other businesses are regulated to not raise their prices? Basic foods and necessities are allowed to raise their prices based on market demands/supply. It’s just economics. Why is our business, that we’ve worked hard to build have to remain the same. This will definitely make landlords sell, and do the opposite of what the housing needs require.
3. Business dictates that as Landlords, we have to price our rental units based on what the market will allow. If a house is being rented for $1,400, then pricing our home way above market will not attract tenants. An Act to regulate what we can charge is not fit for Ontario’s capitalist society in which we live. Perhaps in Russia, not here in Canada.

Section 115

Application by tenant

What this is saying is that the Act is now giving the tenant the control over what rent they should be paying. They can simply tie up any rent increase with an application to the board and then give us notice just before they know I will be awarded (because I would only do this if justified). Do you know the process duration of ANYTHING that has to go to a board? This takes months and costs us Landlords money, in the mean time, the tenant just moves out. Do you know how many tenants just move out, regardless of how great you are, just because they can do it. We have no recourse. Tenants move out, break things, and we have to assume the costs because the time and cost to go through the courts to reimburse it is just not justified.

A registry?

Has Canada officially become Russia? If landlords are being asked to submit such information, then all other businesses in Canada should be subject to the same rules. Those who sell bread, milk, feminine products, gas, everything. Rental businesses is another business that needs to make money according to market conditions to survive.

If this act is passed as is, I certainly will be selling which will immediately reduce the inventory because it will not be worth it for me to continue this way. The money I make is minimal as is based on the house prices to enter the market. For most landlords, this is not a cash flow business, it is a long term retirement business but these regulations are now going to make a mutual fund more appealing.

I assure you, I won’t be the only landlord to do this.

I would like to remind law makers that Ontario is the most populous province, in more need of housing options, yet we have the most restrictive rules and this is not the way to foster increased housing.

I urge you to reach out to landlords in the various communities and get their feedback on this and table this properly before you consider having this passed. I urge you to look at these particular parts of the changes – the rent increase and the registry.

Thank you for your time.”