What’s Happening With Rent Discounts?

Leasing/Renting | November 23, 2020

landlord, discounts

I’m not sure if you’ve heard, but rents are down across the city.

Also, I like sarcasm.

Because you’d have to be new to planet earth to not know that rents are down.

This news is everywhere.  And even if you don’t read the newspaper, and have zero apps on your cell phone, you would still undoubtedly have heard about the rental prices in our city from somebody, somewhere.

The goal today isn’t to examine the reason for the decline in rental prices, but we can certainly touch on it.

Inventory has skyrocketed, as I wrote in an early-September blog post, “Top Five Burning Questions For The Fall Market“.  When November is finished, and we have the TRREB stats on hand, I’ll be sure to update that.

But along with an increase in inventory has come a decline in rentals.  I suspect that fewer students were renting this year, due to the pandemic, and a lot fewer young people decided to take the plunge and move out of their parent’s house, or in with a friend or partner, also due to the pandemic.

How much are rental prices down?

I have a listing right now for a condo that the owners were leasing out for $2,195/month, and we’re down to $1,795/month.  That’s a $400 drop or close to 20%.

Some owners are just playing dumb, or actually are dumb.  I wrote about that as the introduction to last week’s post, “The Most Over-Saturated Rental Buildings In Toronto.”  As a follow-up to that post, and the person in the story, the owner has now re-listed at the same price, after sitting for 133 days, and hasn’t made a single change in the new listing.

On the flip side, some owners are trying anything and everything to attract a tenant.

Offering a condo for $1,795/month that was previously listed for $2,195/month is a good start.  But that’s just accepting market rent.

Shouldn’t everybody be doing this?

Apparently, not.

Most landlords offering “discounts” are doing so in a very sneaky way.

In short, a landlord who had been getting $2,495/month for a unit, instead of offering the unit for $2,195/month, is now offering a $300 per month rebate or discount, in an attempt to keep that lease price at $2,495/month.

Why?

Two reasons:

1) The landlord wants to be able to increase rent based on the higher lease price, not the original price.

2) The landlord wants to keep the tenant on the hook for a higher lease price for the second year, from the start.

From what I’ve seen over the past few months, landlords and their agents have absolutely zero understanding of residential tenancy laws.  They have even less understanding of the very fundamentals of law, namely: you cannot contract out of it.

If something is illegal, you cannot contract out of it.

It’s illegal to run me over with your car, but I can’t sign a contract with you to allow you to drive your car over top of me on the front lawn, with zero legal recourse.

So when it comes to the Residential Tenancies Act, 2006, and subsequent legislation as we saw in Ontario in 2017, as well as new requirements such as the Ontario Standard Lease, ignorance of the rules does not supersede the rules themselves.

Case in point, thousands of downtown Toronto condo landlords and real estate agents are offering “rent discounts” or “rebates” on condos, but are doing so in ways which are illegal, and unenforceable.

So let’s start with an example of a listing that seems to demonstrate the landlord knows what he or she is doing:

In this case, the landlord is offering the unit for lease for $1,800 per month with a 12-month discount of $150 per month.

This is legal.

Here’s Section 7 of the Ontario Standard Lease:

So instead of offering this property for $1,650/month, the landlord can lease it for $1,800 per month with a $150 per month “discount” as per Section 7 of the Ontario Standard Lease, no problem.

This enables the landlord to tie the tenant to an $1,800 per month lease rate in the thirteenth month of the lease, ie. that’s when the tenant goes “month to month” after the first year.

This is the legal way to ensure the tenant is on the hook for a lease price of $1,800 per month after the first year.

It also allows the landlord to increase the rent, based on the Provincially-mandated allowable rate, from a price of $1,800 rather than $1,650.

Other listings show different variations of the discount, but I would urge the listing agents to choose their words carefully.

“Price goes to” isn’t really legalese.

The first example used the words “lawful rent,” which is taken right out of the Ontario Standard Lease, and refers to a “discount,” which is also per the OSL.

This second example is only providing a 3-month discount, but more concerning are the words “…price goes to.”

If the landlord were to sign a lease for $1,400 per month, and assume that he or she could increase the price to $1,550 per month after the third month, he or she would be mistaken.

This is where the confusion sets in.

Here’s another example:

This listing was on MLS as a $1,600/month listing.

But in fact, we see it’s really offered for $1,795/month with a $195/month discount for only three months of a twelve month lease term.

Is it misleading?  Yes.

Are hundreds of listings appearing this way?  Yes.

Again, I would wonder if the landlord intends to sign a lease at $1,795/month and then offer three discounted months.

Here’s an example of how not to offer a discount:

“Contact listing agent for details.”

Why?

It’s a buyer’s market.

Disclose the discount you’re offering, or you’ll continue to rot on the market.

How about this one:

What is the “original rent, you ask?”

The listing agent listed the property for $2,300/month, then, changed it to $1,699 after one day on the market.  Look:

That shows $1,699/month, but the “PC” for “price change” happened on day one, and it’s been up for only 14 days.

Sneaky!

It was never actually offered for lease at $2,300.  They’ve had it up twice; once at $1,699/month, and once at $1,800 per month, both times they’ve listed it at $2,300/month and then immediately changed the price.

Really, really sneaky!

However, this property did get leased out for $2,400 back in 2018:

How about some basic math?

What’s $2,000 minus $400?

Nobody ever said real estate agents were smart.

Here’s an example of “marketing” your rent discount:

The listing has been up for 66 days, so perhaps noting the discount on a photo isn’t the best way to go.

Here’s an example of trying to entice real estate agents:

For your information, the standard commission is a half month’s rent, so these folks are trying to draw in the agents who would put their client in this unit to make a full month’s rent as a fee.

Alright, so that’s the fun stuff.

But what does the chaos look like?

This:

This is a disaster waiting to happen for both the tenant and the landlord.

If they sign a lease for $2,250/month as a “lawful rent,” with a $350/month discount for twelve months, then we know, by the letter of the law, that the thirteenth month of this arrangement will be at $2,250/month.

But to include “second year can be adjusted based on market conditions” offers nothing but confusion.

The tenant is going to think that he or she is going to continue paying $1,900 per month and that some sort of negotiation on subsequent rent will take place, “based on market conditions.”  I don’t think tenants will realize that they’re on the hook for $2,250 per month.

And what is the landlord thinking here?  Is he or she looking to raise the rent over the $2,250/month?  Why include this note at all?  There’s zero upside here.  Just stick to the letter of the law.

Now what about a real-life example of where the landlord screwed up, and the tenant has the landlord by the you-know-whats?

Here’s a clause from an executed lease agreement that a colleague sent me:

This is written in broken English, as you can tell.

But whether it’s written by Shakespeare himself or not, it’s far from legal, and this landlord has no idea what’s coming to him.

This lease price in the agreement was $2,250/month, not $2,700 per month with a $450/month discount as we have examined above.  So this clause is meaningless.  Absolutely useless.

My colleague knew this and told her clients that they can accept the lease term and move into the condo at $2,250/month, then after one year, tell the landlord that they’ll continue paying $2,250/month on a month-to-month basis (assuming no rental increases allowed next year), or they’ll agree to the Provincially-mandated allowable rent increase (usually around 1.5%), on the $2,250/month amount.

The landlord, of course, will balk.

And the tenants will say, “Okay, well, there’s nothing you can do about it.  Take us to the Landlord & Tenant Board, see you in ten months!”

The tenants have all the power in this Province, so right or wrong, the tenants who signed this lease are going to win this battle before it’s ever fought.

Now, how about one more real-life example?

Here’s a really creative way to keep the lease price higher, provide a discount, but not risk getting caught up in the world of rental discounts and subsequent conversations about continued discounts after the first year:

Ah, yes!

A “decorating credit,” you say?

This is a discount.  We all know that.  But it’s not written as a discount, merely a decorating credit.  So if the tenant tries to renegotiate after the first year, he or she wouldn’t have the same “rental discount” in the lease agreement, specifically Section 7 of the Ontario Standard Lease, that the tenants in the examples above would have.

Folks, it’s the wild west out there when it comes to the rental market, and when dealing with rental discounts, the world gets even wilder.

Whether you’re a landlord or a tenant, be very, very careful.  Don’t try and out-smart the other side.  Don’t be a genius.  Just be honest, sincere, trustworthy, and put everything in writing after you’ve discussed and agreed.

Otherwise, get ready for rental-armageddon after twelve months…

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21 Comments

  1. Professional Shanker

    at 10:00 am

    Based on the 2020 fall rental rates in Toronto on average what year are we back to – 2016, 2017, 2018?

    1. Condodweller

      at 2:37 pm

      As someone pointed out previously these rents are spot prices meaning the majority of landlords are not getting these prices in the first place. You can easily check the history on housesigma but generally, prices took off about 3 years ago.

      1. Professional Shanker

        at 3:56 pm

        rent prices in a graphic format are available on housesigma? I just checked and I don’t see them, hence my question.

        1. Condodweller

          at 8:12 pm

          No I just look at individual units randomly and then look at their sold/leased history. I can get a pretty good idea after checking a certain amount. I also have a good idea based on personal experience as I have been monitoring rents in the downtown area where my unit it.

  2. Dafacts

    at 10:14 am

    Landlords offering “rent discounts” should be wary – according to the letter of the law, offering a discount for a year is not considered a discount, it will be considered the true rental price of the unit.

    https://stepstojustice.ca/steps/housing-law/understand-how-rent-discounts-work

    Any unit that was constructed after the rent stabilization threshold date will have the increases based on the discounted rate, not the imaginary “true value” of the unit.

    1. David

      at 2:22 pm

      Great find! I can’t wait until all of these realtor/lawyers get sued for negligence when the landlords realize they aren’t allowed to revert back to the higher rent after a year

      1. Dafacts

        at 5:07 pm

        Let’s be honest – someone not smart enough to do a 2-second Google for “rent discount Ontario” isn’t going to have their shit together enough to actually sue their real estate agent / lawyer.

        And real estate agents are liable for very little in the lease process – can’t imagine that the case would even proceed.

        1. David

          at 11:23 pm

          If you are paying a realtor a commission, they have a duty of care to know the specifics of the rent discount law. It wouldn’t be much to recover (less than 10K), so it would fall under small claims court.

          And like you said, this isn’t some fine print in the subsection of an obscure law…this is the RTA which a realtor, who is in the business of preparing leases, should be knowledgeable on.

    2. Caprice

      at 6:21 pm

      @ Dafacts, not sure what you mean by “rent stabilization threshold date”

      The rent increase guideline applies to the lawful rent if the discount is done correctly:

      – up to 3 months of free rent in any 12-month period, which must only be given in rent-free periods

      – a total discount of up to 1 month’s rent given anytime over the first 8 months of a 12-month rent period

      – a total discount of up to 1 month’s rent given anytime over the first 7 months, plus up to a 1 month rent-free period in the next 5 months after that

      https://stepstojustice.ca/steps/housing-law/understand-how-rent-discounts-work

      1. Dafacts

        at 9:51 am

        The Ford Government in 2018 changed rent control laws such that units built or converted after 2018 do not have rent stabilization applied to them, and thus can have increases of any percentage applied when the lease turns over.

        Units built before 2018 are limited to the maximum increase threshold (typically 1-2%, and 0% for 2020).

        A landlord trying to give a “$200 off per month” for the first year of the lease will end up with the discounted rate being considered the real lease’s rate as far as both increases, and collecting rent in the subsequent year.

  3. Marty

    at 1:14 pm

    BEST paragraph:

    It’s illegal to run me over with your car, but I can’t sign a contract with you to allow you to drive your car over top of me on the front lawn, with zero legal recourse.

  4. Condodweller

    at 2:25 pm

    So I checked my building again and there are 7 units listed for lease where there were over about 16 about a week ago. 3 or 4 are new listings which means about 12 have rented. What’s interesting is that about half of the current ones are original owners and the rest were bought about 10 years ago. Original owners have either paid off their mortgage or must be close. I’m thinking they also calculated with rent expectations of $1200-1500 which means they can easily take today’s lower rent or wait until the right tenant comes along. Mind you with the current lockdown which could be in place for a few months can test the patience of some.
    Anyone who bought/took possession about 5 years ago was probably working with the current low rents which means they should be just fine.
    It will be interesting to see what happens now with the new lockdown and if rents decrease further. I would say that $2200 for a tiny one bed unit is way too high and prices are correcting back to more normal.

    1. J G

      at 8:14 pm

      Rented or taken off market?

      16 available for rent 1 week ago, now there are only 2 or 3, I’m sure all were rented at market price.

      1. Condodweller

        at 7:19 pm

        Both. When I look at the last 30 days of delisted units for lease, out of 9 two were terminated, 1 was leased, the rest are up for lease again. Leasing is not like sales, I don’t think there are many reasons to play games with terminating/relisting. One unit was relisted a bunch of times but it’s the one that was purchased recently so it could be just an unrealistic expectation on the new onwer’s part.

        You are not doing the math right. Yes, they seem to be rented at CURRENT market price. In my book while the price is notable but the biggest point is that they rented.

        We will have big problems when in the face of price reductions units are still not finding renters.
        BTW I’m noticing that two bed units are more difficult to rent as they tend to be the ones that have been unrented for the longest time (within my small sample size).

  5. Condodweller

    at 2:48 pm

    David, it’s great that you are covering rentals. Have you considered covering retirement homes? Most people have no idea of the costs and options available. Since you love stats so much this is something you could really sink your teeth into.

    Also, this would prove to your critics that you are truly unbiased as this is presumably not something you derive income from.

  6. Jimbo

    at 6:45 pm

    Back in 2012 I rented a two bedroom two bathroom in suite laundry with a walk in closet for $1125 a month in Halifax. After the first year my rent was the only apartment to not increase in price. I felt it was fishy so I took a look at my lease agreement…. Saw they had me down for $11.25 a month. I probably could’ve got away with paying the $11 a month but decided it wasn’t worth the headache. The original rent was $1350 but I was able to get the cost down due to the vacancy rate. I already felt I was getting a good deal
    I think those apartments are going for $1500 now.

  7. cyber

    at 10:16 pm

    Could a landlord contract out of their rights? For example, would a clause where landlord commits to not increasing rent beyond provincial guideline – even if their condo was just built and not bound to rent control rules – at tenant’s request be enforceable?

    1. Clifford

      at 4:50 am

      What landlord wants to be tied into a lease that is 6-700 dollars below what thry were getting and even if rents rebound, that landlord will have to wait over a decade to get back to that rent. Rent controls make matters even worse but that’s a different story.

      I predict we will see many interesting ways landlords get out of these leases down the road. They’ll sell, they’ll move into the units or have a kid move in, etc. If I was a tenant I’d be very weary of accepting an unreasonably low rent. I mean. Go ahead and do it. Just don’t get comfortable. Landlord is not going to bleed money for a long extended period of time if thry don’t have to.

      Who would want to be a landlord in Ontario these days? Yikes! Wait till the government bans landlords from raising rent in between tenants. It’s coming.

  8. Julia REinvestor

    at 7:11 am

    Landlords offering a short term rental discount to new tenants will have trouble enforcing higher rents and finding tenants who agree to this.

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