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Fixing AGIs

If it was up to me, I know exactly where I would send every last Above Guideline Increase (AGI) application.

These applications do serve a purpose when used correctly. They allow a landlord to recover some of the cost of high value renovations and repairs on their buildings. Where there is an increase in safety, access or value for tenants a small rent increase is appropriate.

But, since the 2006 enactment of the Residential Tenancies Act (RTA) this once obscure process is being used more and more. The Landlord and Tenant Board's annual report for 2005-2006 reported 209 L5 (AGI) applications. Since the RTA came to force this has risen to 613 in their 2021-2022 report, which also notes an all time high of 758 in 2019. An increase of 300% in 15 years.

As we saw in AGI Playbooks many landlords are now doing unnecessary renovations then filing AGI applications, casually expecting them to be approved. This has gone on long enough that many now feel entitled to falsify AGIs in order to give their investors a good return on their shares. A February 2021 Report from Renovictions-To also shows us, in stunning detail, just how bad and how widespread this disgraceful practice has become.

It is clear the original purpose of helping landlords recover from an extraordinary capital expense is lost. AGIs are now being almost exclusively used to circumvent Ontario's Rent Controls, at their tenant's expense.

It is hard to see this as anything but a deeply flawed process that openly invites abuse.

The Problem

Landlords are getting away with this because of a serious procedural flaw in the way AGI applications are processed.

To understand this we need to first look at what does and does not qualify for an Above Guideline increase in rents. Examining the inclusions and exclusions for capital expenditures in the RTA Part 126 and it's companion Ontario Regulation 516/06 Section III leads us to the conclusion that capital expenses claimed on AGIs must only be for work that is necessary. Vanity or decorative work is specifically excluded as is work on items that are not in need of repair or replacement.

Extending the question of necessity just one small step further we can see that "necessary" depends entirely on the condition of the worksite, just before the work begins. "Was this worksite or thing, actually in need of repair or replacement?"

Moreover; since these qualifiers are not financial a landlord should not be able to make claims simply because he spent some money (although most do). In the RTA, the financial question of how much was spent and how much rent increase is justifiable should follow the successful demonstration of necessity.

Thus, an AGI application resolves itself to an applicant vs respondent contest between landlord and tenant to prove or disprove the necessity of the work claimed on the application.

This is all well and good, so far, but...

The procedural problem becomes obvious when we realize that the simple act of doing the intended work will completely obliterate any credible evidence of that worksite's condition immediately prior. While this is a natural outcome of fixing things it also destroys the evidence a tenant would need to mount a defence against their landlord's claims in a hearing. Because of their late entry into the AGI process, tenants find themselves unable to gather evidence and documents or solicit reports, leaving them utterly defenseless against their landlord's claims.

Since no rebuttal is possible, AGI applications most often boil down to a defenseless tenant before an adjudicator who ends up taking the landlord's evidence and testimony on face value.

Researching this imbalance on the Canadian Legal Information Institute (CanLII) database very quickly shows that virtually all reported AGI tribunals were heard without challenge and rent increases were granted. Phrases such as "The tenants lead no evidence" are common as are the tenants' desperate appeals to reason. It should also be noted that only a small portion of these cases are actually reported and the ones resolved by consent orders and mediation are not reported at all. If all AGI cases were reported and examined, it is likely the picture would be much darker.

There can be no doubt the current process is heavily biased in favour of the landlord.

The Fix

The principles of Natural Justice upon which the Ontario Tribunals are based require that for a fair hearing both parties must be equally able to provide testimony and evidence before a neutral adjudicator. It is clear that the current process for capital work in AGIs does not meet this requirement. In most cases the tenants are blocked from providing credible evidence and testimony in counter. This, as explained above, is a result of bringing the tenants into the process long after any evidence they might use in a hearing has been destroyed by the work performed.

Fortunately the fix is quite simple: hold the AGI hearing before the work begins, so that both landlord and tenants have access to the unaltered worksite and an equal opportunity to gather evidence and then present their cases.

This new process would work like this:

  1. The landlord plans a renovation or repair project.
  2. Once the project is bid and the cost is known an AGI application is filed.
  3. Tenants are given adequate time to gather evidence before the work starts.
  4. In the resulting hearing, both landlord and tenants have the chance to argue their cases.
  5. The adjudicator makes his/her decision.
  6. If the rent increase is approved it is applied at the end of the project.
  7. If the rent increase is not approved the landlord has the option to proceed or not.

Goal Of Changes

The goal of moving the hearing forward to a time when evidence of the state of the worksite still exists is two fold:

Sometimes the simplest changes make all the difference.
Lets keep everyone honest: Make the process fair!

Last Update: 2022-11-26
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