Most tenants do not pay property taxes separately from their rent. In most situations, the rent a landlord charges a tenant includes a portion which helps the landlord cover property taxes. When a landlord’s property taxes are reduced by more than 2.49% from one year to the next, the Residential Tenancies Act (RTA) requires that rents also be reduced to reflect the decrease in the landlord’s municipal property taxes. This is called an automatic rent reduction.
If municipal taxes have been reduced by more than 2.49%, municipalities must send a notice of rent reduction to landlords and tenants of residential complexes that have 7 or more rental units. The notice of rent reduction sets out the percentage rent reduction that will be applied to all residential rental units in the complex.
While municipalities are not required to send notices to landlords and tenants of complexes that have 6 or fewer units, the automatic rent reduction rules apply to these complexes as well.
Most residential rental properties are affected by automatic rent reductions, but there are certain types of rental properties that are exempt from these rules. The chart below shows which types of properties can and cannot receive automatic rent reductions:
|Rent can be automatically reduced for:||Rent cannot be automatically reduced for:|
Automatic rent reductions can apply to mobile home parks and land lease communities. However, if the taxes charged for the site are not included in the tenant’s rent, then the amount of rent the tenant pays to the landlord is not affected by a reduction in taxes. In this case the automatic rent reduction would not apply.
Tenants of mobile home parks and land lease communities who receive a notice of rent reduction should discuss the rent reduction with their landlord before automatically reducing their rent.
For more information on rent and other charges for mobile home parks and land lease communities, please refer to the LTB’s brochure entitled Mobile Home Parks and Land Lease Communities.
To determine if there should be an automatic rent reduction, the property taxes for the current year are compared to the property taxes for the previous year to calculate the percentage by which taxes have decreased.
If the percentage decrease in taxes is more than 2.49 %, then the rent is automatically reduced according to the formulas set out in the chart below:
|IF the complex has:||THEN the rent reduction is equal to:|
|7 or more units||% decrease in taxes for complex multiplied by 20% = % rent reduction|
|6 or fewer units||% decrease in taxes for complex multiplied by 15% = % rent reduction|
On average, the amount that a landlord must pay for property taxes in a complex of 7 or more units is equal to 20% of the landlord’s total rent revenue for that complex. The average amount that a landlord must pay for property taxes in a complex containing 6 or fewer units is estimated at 15%.
Note: The rent reductions are calculated by using the actual property taxes charged to a landlord for the rental property. Special charges, penalties, user fees, etc. are not included in the calculation.
Here is an example of the rent reduction calculation for a residential complex that has 7 or more units:
Step 1: Determine percentage of tax decrease
|Year 2006 taxes:||$20,000|
|Year 2007 taxes:||$18,000|
|Taxes decreased by:||$2,000|
|The percentage tax decrease is:||$2,000 / $20,000 x 100 = 10 %|
Taxes must have decreased by more than 2.49% for the tenants to get a rent reduction. In this case, the taxes have decreased by 10%, so the rents for all units in the complex will be automatically reduced.
Step 2: Determine percentage of rent reduction
Since the complex has 7 or more units, the amount of the rent reduction is 20% of the percentage of the tax decrease. The tax decrease is 10%. Therefore, the rent reduction is 20% x 10% = 2%.
If the tenant pays rent of $800 per month, the reduction is 2% x $800 = $16. Therefore, the new monthly rent is $800 - $16 = $784.
The rent for all rental units in the residential complex would be reduced by the same percentage (2%).
Where the complex has 7 or more units and the property taxes have decreased by more than 2.49%, municipalities are required to send notices of rent reduction:
Automatic rent reductions take effect on December 31st of the year the property taxes decreased.
Note: Automatic rent reductions do not apply to tenants who take possession of a rental unit after December 31st of the year the property taxes are reduced. This means that, if a tenant agrees to rent a unit before December 31st but the tenancy does not begin until January 1st, the automatic rent reduction, if any, cannot be applied to the tenant’s rent.
The rent reductions are “automatic”; this means that tenants do not have to apply to the LTB to have the amount of the rent reduction approved in a Board order. Also, tenants do not have to get permission from the landlord to reduce the rent. However, it is recommended that tenants communicate with their landlord before reducing the rent.
If a landlord or tenant feels that the amount of rent reduction is too high or too low, they can apply to the LTB to have the amount of the rent reduction varied (see Application to Vary the Amount of a Rent Reduction – Form A4, for more information).
A landlord or a tenant could apply to have the amount of a rent reduction varied for any of the following reasons:
The application to vary the amount of a rent reduction is filed using form A4.
The deadline for applying is the later of:
Note: If a municipality did not issue a notice of rent reduction because a residential complex contains 6 or fewer units, the deadline for applying is the later of:
Filing an application to vary the amount of a rent reduction does not stop the rent reduction. It continues to be in effect for the entire residential complex until the LTB makes a decision that may affect the amount of the rent reduction.
Applications to vary the amount of a rent reduction are generally resolved by a written hearing. In this type of hearing, the landlord and tenant(s) do not go to a hearing location to present their evidence and submissions to an adjudicator. Instead, the landlord and tenant(s) are given deadlines to file written submissions to the LTB. An adjudicator will review the submissions and make a decision based on the evidence provided by the landlord and tenant(s).
The LTB will generally order the party who files the application (the applicant) to give the other parties a copy of the Notice of Written Hearing and a copy of the application. The Notice of Written Hearing sets out the deadlines to file and respond to written submissions.
Once the deadlines to file and respond to written submissions have expired, the adjudicator will issue a written decision called an order. The LTB will mail the order to the landlord and tenant(s) that are listed in the application. Depending on the reasons for the application, the LTB might decide that the amount of the rent reduction must be higher or lower, or stay the same.
The LTB’s order is effective as of December 31st of the year the property taxes were reduced. This means that either the landlord or tenant may have to repay the other for the amount that was either underpaid or overpaid from December 31st to the date of the LTB’s order.
Here is an example of what might happen if the amount of rent reduction is varied by the LTB:
|On December 31st, 2007, the rent is reduced by 2% because of an automatic rent reduction.||Original rent: $800.00
Minus 2%: -$16.00
Reduced rent: $784.00
|The landlord applies to the LTB on February 1st, 2008 because the property taxes are less than 20% of the landlord’s total rent revenue.||Rent remains: $784.00
(until the LTB issues an order)
|The LTB issues an order on April 15th, 2008, which states that the rent reduction is 1.4%, instead of 2%.||Original rent: $800.00
Minus 1.4%: - $11.20
Reduced rent: $788.80
|The tenant must now repay 0.6% (2% - 1.4%) of the rent payment for the 4 rent periods of January to April 2008.||0.6% of $800: $4.80
x 4 rent periods: $19.20
|The rent is still reduced, but by a lesser amount.||First rent reduction: $784.00
Varied rent reduction: $788.80
The reduced rent is permanent. This means that if the rent is increased at any time after the rent reduction takes effect, the increase will be calculated based on the reduced rent amount (in the example above, a rent increase would be calculated on $788.80.)
This brochure provides general information only. For more information about the law, or to obtain copies of the LTB’s forms and publications, you can: