Ottawa Citizen

Decrease in building’s property tax may lead to rent reduction

- BY DICKIE & LYMAN LLP WHO PRACTICE LANDLORD/TENANT LAW AND OTHER AREAS OF LAW

Q: I live in a large apartment building. A few day sago I received a notice from the City of Ottawa saying that my rent will be reduced by 1.20 per cent because the taxes at the building decreased by six per cent. A day later I got a notice from my landlord saying they are applying to vary the rent reduction. Can my landlord do that? I thought landlords had to pass through tax decreases to their tenants. A: The Residentia­l Tenancies Act (RTA) provides that when property taxes on rental buildings are reduced by more than 2.49 per cent, the benefit of the lower taxes goes to tenants in the form of rent reductions.

The RTA requires the city to send notices to all tenants in buildings of seven or more units where there is a year-over-year reduction in property taxes that exceeds 2.49 per cent of the taxes.

The calculatio­n for the notice assumes that property taxes represent 20 per cent of the total rent charged to tenants. When the taxes represent exactly 20 per cent of the annual rent charged, the calculatio­n reduces rents by the same dollar amount that the taxes were decreased.

However, if the taxes are less than 20 per cent of the total annual rental income for the building, the landlord can apply to the Landlord and Tenant Board (LTB) to vary the amount of the rent reduction. Otherwise the landlord could have a tax decrease of $20,000 and have to give the tenants a total of $25,000 or $30,000 in rent reductions.

A landlord or tenant can also apply to the LTB to vary the amount of the rent reduction if the municipal notice is incorrect in some other way or if the property taxes increased or decreased after the notice of rent reduction was sent.

When an applicatio­n to vary is filed, the LTB will typically hold a written hearing to determine the actual tax decrease and to calculate the proper rent reduction percentage so that the rent reduction in dollars matches the tax decrease in dollars.

Your landlord’s applicatio­n is probably based on the taxes being less than 20 per cent of the building ’s rent revenue. It is quite common for the taxes on rental buildings in Ottawa to be under 20 per cent. However, through their rents, Ottawa tenants still pay close to one-and-a-half times the tax rate that homeowners and condo owners pay.

Rent reductions due to property tax reductions remain in the rent base. In other words, if a rent of $1,000 is reduced by one per cent starting Jan. 1, 2018, the rent would become $990. Although a landlord can give guideline rent increases notices in the future, the base of the rent increase would be $990 and not $1,000.

This year, thousands of tenants in rental buildings received tax decreases and are due rent reductions. That is because building assessment­s changed for the 2017 taxes from the assessment for the 2016 taxes. Under the current law, assessment decreases are implemente­d in the first year of each four-year assessment cycle, whereas assessment increases are phased in over four years.

In 2018, it will be up to city council to determine whether tenants will receive further rent reductions, or instead face tax-driven rent increases, implemente­d by landlords making above-guideline rent increase applicatio­ns at the LTB.

RENTAL GUIDE WILL RETURN ON JAN. 13, 2018.

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