What to know about automatic rent reduction

As a renting tenant, you’re not usually required to pay for your landlord’s property taxes in separate installments. Your monthly rent payment is meant to cover your landlord’s property expenses and then some.

In this post, we’re going to look over automatic rent reductions (not to be confused with rent increases), which happen when a landlord’s property taxes are reduced by more than 2.49%, as outlined in the Residential Tenancies Act. 

When are rents reduced automatically?

If municipal property taxes are reduced by more than 2.49%, the city must send out a notice of rent reduction to tenants and landlords operating in residential complexes that have 7 or more rental units.

The notice will outline the percentage rent reduction that must be applied to all rental units in a complex of 7 or more.

Automatic rent reductions apply to buildings of 6 or fewer units too, however, the city is not required to send a notice to these tenants in these complexes.  

What types of properties are subject to automatic rent reductions?

Majority of rental properties are subject to the automatic rent reduction if the city reduces property taxes by more than 2.49%. There are specific property types that cannot receive automatic rent reductions, due to their tax classifications.

The types of rental properties that are subject to the rent reduction include:

• Apartment buildings
• Rented townhouses
• Duplexes, detached houses
• Rooming houses, boarding and lodging homes
• Mobile home parks, land lease communities
• Rented condos
• ‘for-profit’ co-ops

Below are the types of rental properties that cannot receive automatic reductions in rent:

• Public housing
• Non-profit housing projects or co-ops
• Vacation homes
• Certain housing owned by educational institutions
• Nursing homes
• Commercial, industrial or recreational properties

How is the rent reduction calculated?

The amount of rent reduction will depend on how many units are in your building. The property taxes of the current year will be compared to the property taxes of the year previous in order to calculate the percentage by which taxes have decreased.

According to the Social Justice Tribunals Ontario, in a building of 7+ units, the % decrease in taxes is multiplied by 20% = the % of rent reduction.

If the building has 6 or less units, the % change is multiplied by 15% instead of 20%.

When are rent reduction notices sent to tenants?

For complexes of 7 or more units, municipalities must send a notice of the automatic rent reduction between June 1^st and September 15^th to landlords. Tenants will receive their own notice of the rent reduction between October 1^st and December 15^th.

Automatic rent reductions then go into effect on December 31^st of the year the property taxes decreased.