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I bought a duplex: How do I change the rental agreement with tenants? Add to ...

Question:

My partner and I just bought a legal duplex and are moving into the main-floor unit. The upstairs tenants want to stay on in the house. They are currently paying an all-inclusive rent, however the house is fully set up as a duplex with a separate water heater, furnace and meters and we want to change the all-inclusive rent to rent plus utilities. We don’t take possession until Aug. 1, but don’t know how much notice we need to give the tenants, if we are allowed to change the rent and by how much, since we haven’t officially taken possession of the house yet.

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Answer:

This is a tricky situation, and you need to be careful in your approach. Here are some scenarios – and I should be clear up front that my advice will be from an Ontario perspective:

1) You can have a discussion with your tenants and come up with a solution that will satisfy all parties.

2) You can go by the book if the first option doesn’t pan out, and increase rent according to provincial guidelines.

Before I delve into the specifics for each option, note that no action can be taken before you take possession of the house (the exception is if you are asking the current property owners to give requisite notices to vacate the property upon closing or another date).

Option 1: A meeting of minds Before approaching your tenant citing legislation and making demands, it would be wise to have a friendly discussion about your intentions. Depending on how long they have been there, you can explain the increased operating costs associated with purchasing a home at today’s market value coupled with increases in utilities.

True, this isn’t their problem, but you may be surprised with the reasonableness of people – especially if you’re reasonable yourself.

Option 2: Go by the book If the tenant has been residing in the unit for more than 12 months, and they are given a minimum of 90-days notice in writing, you can implement an increase in rent annually.

Rent Increase Guidelines are set each year by the province based on the Ontario Consumer Price Index (CPI). In 2013, the rate of allowable rent increase was determined to be 2.5 per cent.

This means that with proper notice, you can lawfully increase the monthly rent by 2.5 per cent in 2013. So, if rent was $1,600 per month, an increase of $40 would be allowed.

You might be thinking that a 2.5-per-cent increase just isn’t enough in your situation, in which case you may have some recourse. Landlords can apply for an increase above the guideline with the Landlord and Tenant Board if growth in property taxes, utilities, security services and/or capital expenditures can be justified.

Unfortunately, the increase is not very substantial – 50 per cent of the current year’s allowable rent increase, to be exact. That would equal a 3.75 per cent (2.5 per cent plus 1.25 per cent) increase for 2013. The time and effort on your part in preparing proper documentation and cutting through the red tape may well not be worth it.

Finally, changing the lease agreement to exclude utilities is virtually impossible from my experience. This can only be achieved through a mutual agreement via a new lease (which the tenant has no obligation to enter).

As I’ve mentioned in previous columns, tenancy issues must be handled with extreme care and delicacy – you should always consult with an expert who has specific experience in your local jurisdiction and with your particular type of situation. Good luck!

Ricky Chadha is a broker with Royal LePage Estate Realty in Toronto, and specializes in applying social media and other digital tools to the business of real estate. You can find Ricky on Twitter @your416 or at his website RickyChadha.com .

Submit your questions to realestateexpert@globeandmail.com . Our Real Estate Expert will answer select questions, which could appear on The Globe and Mail website. Your name will not be published if your question is chosen.

The content provided in The Globe and Mail’s Ask a Real Estate Expert is for information purposes only and is neither intended to be relied upon nor to be a substitute for professional real estate advice.

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