Beds Or Sheds: What’s The Difference
Mark Twain’s old adage “Buy land, they’re not making it anymore” continues to remain relevant as we see property values increase in Ontario year over year, especially in industrial and multi-residential asset classes. Whether you are a business owner looking to divert earnings into an appreciating asset, or an individual investor seeking passive income outside of the stock market, the asset class you choose will largely depend on cash flow and recourse – both of these have their roots in statute.
In Ontario, two statutory regimes apply – one for residential tenancies and the other for commercial/industrial tenants. These two regimes afford investor landlords radically different rights with respect to their ability to contract with tenants.
Commercial tenancies are governed by the Commercial Tenancies Act, R.S.O. 1990, whereas residential tenancies are governed by the Residential Tenancies Act, 2006, S.O.
Below is a brief summary of how these two statutes differ.
| RESIDENTIAL | COMMERCIAL | |
| FORM OF AGREEMENT | In most cases, a standard form lease issued by the government of Ontario must be used, with little to no alteration. The exceptions being: mobile home parks, land lease communities, social and supportive housing, other types of special tenancies, and co-operative housing. | In commercial leases, the legislature expects a certain level of sophistication between parties, therefore parties are permitted to negotiate lease terms at their discretion. |
| RENTAL RATES AND INCREASES | In 2020, residential landlords were permitted to raise rents by 2.2% for existing tenants. However, the Government of Ontario recently passed legislation freezing rents for 2021 at 2020 levels. (S. 136.1) | Parties may negotiate rental rates, there is no statutory cap on how much rents may increase. In the event of a renewal or extension of a term, leases may state that rents be at market rates for comparable buildings. |
| DEPOSITS | The deposit may not be greater than one month’s rent (S. 106.2) | No limitation on deposits |
| RESPONSIBILITY TO REPAIR | Tenant is responsible for ordinary cleanliness (S. 33) and damage caused by the willful or negligent conduct of the tenant or someone the tenant has permitted to (S. 34) Landlord is responsible for maintaining a residential complex, including rental units, in a good state of repair (S. 20) |
No statutory obligation to repair. Leases typically include maintenance and repair as additional rent paid for by the tenant, and may place the onus of repair on the tenant, with the exception of capital and/or structural repairs. |
| LANDLORD’S RIGHT TO TERMINATE FOR NON-PAYMENT OF RENT | If rent is unpaid, a Landlord must give the Tenant notice of termination (S. 59). Once a notice of termination has been provided, if the remedy is not cured by the Tenant, the Landlord may apply to the Landlord Tenant Board for an order to terminate the tenancy (S. 69). |
If rent remains unpaid for 15 days after when it ought to have been paid, even without formal demand, the landlord may re-enter and repossess the property (S. 18(1)) *Currently, this is not available for Landlord’s who qualify for the Canada Emergency Commercial Rent Assistance Program* |
| LANDLORD’S RIGHT UPON DEFAULT OF TENANT | No landlord shall seize a tenant’s property for default in the payment of rent or for other breach (S. 40) | Landlord’s may re-enter and relet without obtaining an order to terminate, along with suing for damages. Landlord’s also have available to them the right of distress (S. 40) whereby they may seize and sell the personal property of the tenant, provided that goods and chattels are appraised by two appraisers and sold for the best price possible (S. 53) It is important to note although that the right of distress carries with it liability for the Landlord (S. 55) |
| ACCELERATION OF RENT | A provision in a residential lease which states that the remaining rent for a term becomes due upon default by the tenant including failure by the tenant to pay rent is void (S. 15). | No statutory limitation surrounding inclusion of clause related to accelerated rents. |
While the above is meant to serve as a brief comparison of the dual statutory regimes, the overarching theme is that commercial landlords are afforded far more discretion in negotiating terms, and being able to enforce their rights against delinquent tenants.
At KMB Law, we help buyer groups analyze and mitigate these risks. Whether you are buying beds or sheds, please do not hesitate to contact myself at 905-276-0419 or odeguerre@kmblaw.com
This article is provided for general information purposes and should not be considered a legal opinion. Clients are advised to obtain legal advice on their specific situations.
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