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?
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.
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.”
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.
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 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?
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:
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…