Major repairs and replacements are an inevitable part of owning a residential rental property. For certain qualifying projects, Ontario’s RTA allows a landlord to seek an AGI to recover eligible capital expenditures — but a large expense is not automatically an eligible capital expenditure.
Major repairs and replacements are an inevitable part of owning a residential rental property. Roofs deteriorate, balconies require restoration, and windows, plumbing and mechanical systems eventually need replacement.
For certain qualifying projects, Ontario’s Residential Tenancies Act, 2006 (RTA) allows a landlord to seek an Above Guideline Rent Increase (AGI) to recover eligible capital expenditures.
But an important distinction applies: a large expense is not automatically an eligible capital expenditure.
What May Qualify as a Capital Expenditure?
Generally, a capital expenditure involves an extraordinary or significant renovation, repair, replacement or new addition to a residential complex or rental unit, with an expected benefit of at least five years.
Depending on the circumstances, potentially qualifying projects may include:
- roof replacement;
- balcony restoration;
- window and exterior door replacement;
- major plumbing or electrical work;
- heating and mechanical systems;
- accessibility improvements; and
- certain energy, water conservation or security improvements.
Whether a particular project qualifies depends on the nature and purpose of the work and the requirements established by the RTA and its regulations.
What May Not Qualify?
Routine maintenance generally does not qualify simply because it is expensive.
There are also restrictions on work that is substantially cosmetic or primarily intended to enhance the luxury or prestige of the property.
Where an existing building component is replaced, additional requirements may apply. The question is not simply how much did the landlord spend? It is also why was the work necessary and does it satisfy the legal definition of a capital expenditure?
Timing Is Important
Capital expenditures are subject to a specific eligibility period.
Generally, the work must have been completed within the 18-month period ending 90 days before the first effective date of the rent increase sought.
Under the current L5 application requirements, the capital expenditure work must also be completely paid for when the application is filed.
Waiting too long to consider an AGI can therefore affect whether an otherwise qualifying expenditure can be included.
Keep the Documentation
Landlords considering an AGI should maintain clear records of major capital projects, including:
- contracts;
- invoices;
- proof of payment;
- completion dates; and
- information describing the work performed and why it was required.
Good documentation can become particularly important where several contractors, projects or rental units are involved.
Consider the AGI Before You File
An AGI should not be an afterthought following a major project.
If substantial capital work is being planned or has recently been completed, landlords should consider potential AGI eligibility early enough to understand the applicable timing requirements and preserve the necessary documentation.
The key question is not simply:
“Was this project expensive?”
It is:
“Does this project qualify as an eligible capital expenditure for an Above Guideline Rent Increase?”
This article provides general information about Ontario residential tenancy law and does not constitute legal advice. Whether a particular expenditure qualifies for an AGI depends on the facts and applicable law.
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Written by
AGI Paralegal
AGI Paralegal is the above-guideline rent increase practice of Gobin & Leyenson LLP, assisting Ontario residential landlords with the assessment, preparation and representation of AGI applications before the Landlord and Tenant Board.