Can Building Improvements Qualify for an AGI if They Also Look Better?

Major repairs to a residential building often have two results: they address a structural or functional problem, and the finished property looks better.

Above Guideline Rent Increase (AGI)

An Ontario Divisional Court decision provides useful guidance.

The Balcony Repairs

In Helberg Properties Limited v. Caldwell, 2015 ONSC 7863, a landlord obtained an AGI based in part on substantial balcony and railing work at a 48-unit residential building.

The work included restoring concrete balcony slabs, applying a protective coating and installing new railings.

A tenant challenged the AGI, arguing, among other things, that the balcony work was substantially cosmetic and therefore should not qualify as an eligible capital expenditure.

The Landlord and Tenant Board disagreed, and the matter was appealed to the Divisional Court.

Cosmetic Benefit vs. Cosmetic Work

The distinction made in the case is important.

Major capital work will often make an older building look better. A new balcony, railing, window or other building component will naturally appear newer than the deteriorated component it replaces.

That does not necessarily make the expenditure cosmetic.

In Helberg, the LTB found that the work was necessary to address the integrity of the concrete balcony slabs and rusting railings. The Divisional Court upheld the decision and dismissed the tenant’s appeal.

The focus was therefore on why the work was undertaken and what it accomplished, rather than simply whether the finished project improved the building’s appearance.

Why This Matters for Ontario Landlords

Ontario’s AGI rules exclude work that is substantially cosmetic or intended to enhance the level of prestige or luxury of a rental property.

But there can be an important difference between:

work performed primarily to improve appearance, and

necessary capital work that also happens to improve appearance.

The distinction can have significant consequences when determining whether a substantial renovation, repair or replacement may qualify as an eligible capital expenditure.

The Purpose of the Project Matters

Landlords considering an AGI should therefore avoid assuming that a project either qualifies—or does not qualify—based solely on what was installed.

Two seemingly similar projects can have different purposes, circumstances and evidence.

The legal analysis may depend on why the work was required, the condition of what was replaced, and the nature of the project itself.

That is one reason potential AGI eligibility should be assessed based on the specific capital project rather than a general list of supposedly qualifying expenses.

Considering an AGI?

Gobin & Leyenson LLP assists Ontario residential landlords with the assessment, preparation and representation of Above Guideline Rent Increase applications before the Landlord and Tenant Board.

This article provides general information only and does not constitute legal advice. Whether a particular capital expenditure qualifies for an AGI depends on the facts and applicable law.