October 21, 1999

To: Community Services Committee

From: Commissioner of Community and Neighbourhood Services

Subject: Implementation of a Tenant Defence Fund

Purpose:

The purpose of the report is to discuss implementation of a Tenant Defence Fund to help tenants deal with above guideline rent increases.

Financial Implications:

As the establishment of a Tenant Defence Fund would require an unanticipated increase in the approved 1999 Operating Budget, this report should be forwarded to Policy and Finance Committee and to Budget Advisory Committee as per the "Financial Control Protocols within the Revised Council-Committee Structure" which was adopted by Council.

Recommendations:

It is recommended that:

1. Should Council decide to approve a role for the City in helping to organize tenants and to ensure tenants have adequate representation before the ORHT, that a Tenant Defence Fund be established in the manner outlined in this report.

2. Should the Committee recommend that a Tenant Defence Fund be established, this report be forwarded to Policy and Finance Committee and to Budget Advisory Committee as per the "Financial Control Protocols within the Revised Council-Committee Structure" which was adopted by Council.

3. The appropriate City officials be authorized to take the necessary action to give effect to these recommendations.

Council Reference:

At its meeting September 13, 1999, Planning and Transportation Committee gave consideration to a report (August 24, 1999) from Councillor Michael Walker, Chair, Sub-Committee to Restore Rent Control, respecting a Tenant Defence Fund. The report included a request that the Planning and Transportation Committee endorse a recommendation to establish a Tenant Defence Fund, in principle, to assist tenants and tenant associations in opposing unreasonable above-guideline rent increases. The Planning and Transportation Committee referred the report to the Commissioner of Community and Neighbourhood Services, with a request that the Commissioner report back to the Committee in consultation with the Chief Financial Officer and the Acting Commissioner of Urban Planning and Development Services on October 4, 1999.

At its meeting of October 4, 1999, the Planning and Transportation Committee considered a report from the Commissioner of Community and Neighbourhood Services. The Commissioner indicated that consultants had been hired in July to consult with the tenant and landlord community and to recommend a role for the city in providing information and support services to tenants. As this work is directly relevant to the proposed Tenant Defence Fund, the Commissioner suggested, it would be premature to comment on the Fund before the results of this work were available. The Committee also asked all the Community Councils to comment on motions being put forward by Toronto Community Council on this matter.

The Committee also requested that staff report on: any tenant groups presently in need of expanded assistance by the City; and the feasibility of funding the Tenant Defence Fund using 1/5th of 1% of all taxes paid by rental buildings in the City. These issues are addressed in this report.

Staff of Planning, Social Development, Municipal Standards, Legal and Finance service areas have been consulted in the preparation of this report.

Background:

Above Guideline Rent Increases

The Province's Tenant Protection Act (TPA) which is administered by the Ontario Rental Housing Tribunal, has made significant changes to the rules for allowing landlords to increase rents above the rent control guideline. Although it is still necessary for landlords to make an application for an increase above the guideline, and to prove the need for this increase, the process and grounds have changed.

Tenants receive less notice of the landlord's application for an above guideline increase than under prior rent regulation laws. Under the TPA, the landlord needs only to give notice to the tenants ten days before the hearing, as opposed to prior legislation which required the landlord to provide a copy of the application to all tenants at least 80 days before the first date of the first rent increase proposed by the application, and gave tenants anywhere from 25 to 55 days or more to respond. As a result, under the TPA tenants have very little time to examine the above guideline application and to organize a response. Preparing the response may also be costly if technical assistance is required, such as a lawyer, accountant or person with expertise in matters of capital work.

In addition to changes in the process, the grounds upon which the tenants may argue against the above guideline increase have been substantially reduced. Under previous legislation, tenants could argue that the proposed increase should be offset because of other maintenance problems, reduced or withdrawn services and facilities, or because the capital expenditure work claimed on the landlords application was required because of ongoing neglect of the problem by the landlord. These tenant arguments are no longer considered as part of the landlords application. Instead, tenants would need to file their own application where there has been a breach of maintenance obligations and/or loss or reduction of services or facilities.

Based on information provided to Lapointe and Welch (related to the broader review of tenant and landlord services), we know that there have been 545 applications from landlords to increase their rents above the rent guideline during the first year of the TPA, affecting 55,000 units. The chart in Appendix A shows that a large number of these applications were made in December of 1998 which was the deadline for applying for above guideline increases based on capital costs incurred from 1996-1999. At present there is a backlog of at least 300 AGI applications before the ORHT that will take at least 6 months to process. Further detail on application and order activity under the TPA is provided in Appendix A.

Recently, a request under the Provincial Freedom of Information and Protection of Privacy Act was submitted to the Ontario Rental Housing Tribunal by City Planning staff for detailed information about above guideline increase applications (including number of units affected, increases awarded) and about eviction applications (reasons for applications, number of evictions ordered, etc.)

At the October 4^th Planning and Transportation Committee meeting staff were asked to seek an adjournment of hearings before the Tribunal where we felt it was essential. Since such information is not available publicly, staff have requested of the Tribunal a full list of all upcoming applications for AGI's scheduled for hearings in the next few months. Staff have also consulted with individuals who are providing services to tenants at hearings, and may be alerted of cases where City intervention is warranted. It should be noted that, to date, Tribunal adjudicators have generally granted adjournments where tenants themselves have requested them at the hearings, if they can demonstrate that they have had inadequate time to prepare. It must also be noted that in a recent case where the City has sought standing before the Tribunal in order to request an adjournment (One Clarendon Place), we were denied standing.

On October 4^th, staff were also asked to determine the number of tenants' groups that are presently in need of expanded assistance from the City. The Review of Information and Advisory Services for Tenants and Landlords (also before your Committee) describes the full range of agencies supporting tenants and notes that there is a general lack of resources for tenant organizing and representation. Almost certainly a large number of the more than 300 AGI cases now before the Tribunal could benefit from financial assistance, but we would suggest that any direct City support (if it is to be offered) is best provided in the manner proposed below for the Tenant Defence Fund.

Comments on "Unreasonable" Increases

Staff were asked by the Planning and Transportation Committee to also comment on what might represent an "unreasonable" rent increase. While we do not feel it is possible to make a general determination as to what percentage would constitute an unreasonable rent increase, we can provide information on what the Tribunal considers to be "reasonable." In making a determination on an application for an increase above the guideline due to capital expenditures (and the vast majority of applications to date are for recovery of capital expenditures), the Tribunal member is permitted to disallow any capital expenditure they decide is "unreasonable." The TPA does not define "unreasonable"; rather, it describes which capital expenditures would not be considered "unreasonable". A capital expenditure will not be considered "unreasonable" if:

- it is necessary to protect or restore physical integrity;

- it is necessary to maintain maintenance, health, safety or other housing related standards required by law;

- it is necessary to maintain provision of plumbing, heating, mechanical, electrical, ventilation or air conditioning systems;

- it provides access for persons with disabilities;

- it promotes energy or water conservation; or

- it maintains or improves the security of the residential complex.

Therefore, any rent increases (related to capital expenditures) that are not based on any of the above guideline will be considered unreasonable by the Tribunal.

Proposal for a Tenant Defence Fund

The Tenant Defence Fund (TDF) was proposed by the Subcommittee to Restore Rent Control to assist tenants and tenants associations wishing to oppose unreasonable above guideline rent increases at the Ontario Rental Housing Tribunal. The TDF aims to provide assistance in organizing and representing tenants, as well as technical assistance to dispute the landlord's repairs (or other matters related to the application) at Tribunal hearings . The Sub-Committee proposed that the TDF be used to hire two tenant consultants or organizers who could assist tenants effectively in organizing and presenting their case at the Tribunal hearings, and one construction engineer/consultant who could testify as an expert on behalf of tenants at the hearings.

The proposal also discussed how the services would be provided and presented several options for further consideration, including: hiring the required staff internally to work in the Shelter, Housing and Support Division, issuing a Request for Proposals to solicit individuals outside of the Corporation, or involving the Federation of Metro Tenants Associations. Another part of the strategy was to consider how a system and criteria would be established for managing the TDF, including the possibility of providing intervenor funding to groups needing assistance.

While the proposal requested $300,000 for the TDF, the Planning and Transportation Committee asked staff to explore the feasibility of allocating one-fifth of 1% of property tax revenue from rental buildings to set up the fund.

Discussion:

Strategy for Above-Guideline Rent Increases

Staff have been asked to comment on the Tenant Defence Fund (TDF) proposal, and in particular to develop a plan for its implementation.

The Committee should consider the TDF proposal in the context of the broader Information and Advisory City role and related actions recommended in my report on the Review of Tenant and Landlord Services, which is also before your Committee.

There are a number of merits for establishing a Tenant Defence Fund at this time. First, as noted above, there are a large number of AGI applications (more than 300), currently before the Tribunal to be processed over the next six months or more, affecting about 55,000 tenant households. Very little summary information is available on these applications, but we are aware that many are made to recover the landlord's costs for capital expenditure work, and may result in rent increases of up to 4% above the rent control guideline, with additional above guideline increases phased-in over the next few years. Given the City's interest in protecting the affordable housing stock, we have an interest in the outcome of these applications. In addition, taking steps to avoid large above guideline increases for low income tenants may be cost effective in that significantly increased rents can lead to economic evictions which puts greater pressure on City-funded rent bank and hostel services programs.

There are also arguments against the City taking direct action on the matter of AGI's. First, the grounds for opposing an AGI application before the Tribunal are well-defined and limited and there is little chance that an AGI application will actually be denied - rather, there is a greater likelihood that the level of increase might be reduced by one or two percent based on evidence that is brought forward (and the resultant orders do not limit what the landlord may charge to a new tenant who moves in after the first effective date of the order). Second, from a housing stock point of view, some rental housing is in need of major repair and work must proceed in order to ensure its longevity. In the absence of housing programs (such as an expanded federal rental repair program) the costs of such repairs must be covered through increased rental revenues. Third, the City must be cautious in the approach it takes to help tenants represent themselves before the Tribunal (see Legal comments below). In the past, the former municipalities may have become directly involved in similar matters where there is a clear municipal interest that goes beyond the direct interest of the parties involved. In general, the broad effect of AGI's on the affordability of the rental stock is of municipal interest, but it would be difficult to identify individual AGI applications where there is a significant municipal interest.

The City Solicitor has provided a legal opinion which can be summarized as follows:

- If the proposed fund is to provide direct grants to tenants and/or tenants' associations, clear eligibility criteria must be established and the grants must be deemed by Council to be in the interest of the Municipality. In particular, if the grants are intended to help tenants oppose "unreasonable" above-guideline rent increases, there must be clear criteria for determining the reasonableness of a given application, and the municipal interest would be best supportable where issues of broad implication to tenants other than the applicants are at stake.

- The City has no authority to act on behalf of tenants by acting as an agent for them before the tribunal or to provide expert witnesses on their behalf. Such advocacy would be in the name of the tenant rather than in the name of the City, as the City has no legal interest in the application. Furthermore, the City could be found liable for any damages sustained by the tenants if incorrect or misleading advice is given and the tenant acts on such advice to his/her detriment.

- The City could contract with existing outside organizations to assist tenants in disputing above guideline rent increases, by issuing a request for proposals for these services, maintaining a list of tenants who are referred and monitoring the progress of the applications. However, the City should limit its liability under such a contract and such an arrangement would best be structured as a grant (to avoid the appearance that the City is doing indirectly what it does not have the power to do directly).

It can be concluded that, in general, the City cannot play a direct role in AGI hearings (i.e. directly organizing, advising and representing tenants), but it could provide support through a grant process (with clear criteria) if it deems such support to be in the interest of the municipality. However, as noted in our other report on the Review of Information and Advisory Services for Tenants and Landlords, we suggest that the City's primary role should be to ensure that tenants have information and advice related to the TPA. We would note that the City is considering more direct involvement because the Province, which is the authority responsible for the Tenant Protection Act, has chosen not to redress the lack of resources in this area. As noted in our report on the Review of Information and Advisory Services, the City should request that the Province take appropriate action, and we have recommended that Council ask the Province to: provide earlier notification to tenants of AGI applications and expand the support available to tenants through the Legal Aid system.

Implementation of the Tenant Defence Fund

If the City chooses to proceed with a Tenant Defence Fund to support tenants dealing with AGI's, we would suggest an adjustment to the proposed approach, in light of the issues raised above. We feel the work would be carried out more effectively and efficiently by an agency or individuals outside the Corporation, focused specifically on this project. We would specifically propose that the activity be broken into two components, as follows:

Component 1: Identifying "Significant" Cases

A Request for Proposal would be issued immediately for the purposes of providing a grant to an agency or individuals to perform the following tasks:

a) Review the backlog of more than 300 cases before the Tribunal (staff are taking steps to obtain this data now); and

b) Obtain and review new AGI applications as soon as they are filed with the ORHT (unlike the 10 day notice that tenants receive prior to hearings, such applications must be filed 90 days before an increase is to take effect, providing some time to inform and meet with tenants)

c) Identify a select number of cases that are "significant" to the City, meeting one or more of the following criteria: involving a large number of vulnerable, low income tenants; potentially precedent-setting in terms of ORHT practice or decision-making; significant loss of affordability (i.e. potential for high cumulative rent increase and/or rents that are currently modest).

Component 2: Providing Technical Support to "Significant" Cases

The agency/individuals hired would recommend to the Commissioner a number of AGI applications to be supported by the City, on the following basis:

a) They are "significant" to the City based on the criteria above and supported by a rationale developed by the hired agency/individuals

b) The support to be provided would be tailored to each case, based on the advice of the hired agency/individuals, e.g. expert technical witness, organizational support, translation, special legal expertise, etc.

It is very difficult to anticipate the overall level of funding that would be required. We would propose that this be operated as a pilot project using the amount of $300,000 that was suggested in the original TDF proposal. $100,000 should be allocated to Component 1, to cover staffing (i.e. two community workers/consultants) and expenses (related to research/analysis and meeting with tenants and other parties to AGI applications). This then makes $200,000 available for technical support in Component 2, based on recommendations made from the hired agency/individuals to the Commissioner. The Component 2 funding should be made available immediately so that support could be provided to applications coming up for hearings before the Tribunal in the near future.

Staff were also asked to report on the feasibility of funding the TDF using 1/5th of 1% of all of the taxes paid by rental buildings in the City. According to Finance staff, this amount of funding represents $1.3 Million in 1999 (i.e. with "rental" defined as tenanted, self-contained units in residential buildings on the tax roll). Regardless of the source, if the funding is to come from the existing tax base, it would have a significant impact in that it is an unanticipated increase in the approved operating budget beyond the level that existing revenues will cover. It is recommended that Council make a policy decision on whether a TDF should be established, and that appropriate staff report on a source of funds through the protocols established by Council.

Conclusion:

Over 300 applications for above guideline rent increases, are currently waiting to be processed under the Tenant Protection Act. In order to support tenants dealing with these applications, it has been proposed that a Tenant Defence Fund be established. Generally, the City would not provide such direct support unless there was a clear municipal interest at stake. Should Council decide to proceed with this strategy, there should be a process for identifying cases that are of "significance" to the City and the assistance should be tailored to each case.

Appendices:

A. Application and Order Activity under the Tenant Protection Act

Contact Name:

Joanne Campbell

General Manager, Shelter, Housing & Support

Phone: 392-7885

Fax: 392-0548

E-mail: jcampbell@toronto.ca

Shirley Hoy

Commissioner, Community & Neighbourhood Services

Appendix A

Application and Order Activity

Under the Tenant Protection Act

1. ABOVE GUIDELINE RENT INCREASES

Process for Notifying Tenants

While tenants may first become aware of their landlords' intention of applying for an above guideline increase through the notice of rent increase they receive 90 days before the effective date, the notice does not give any indication about when the application has been filed or when the hearing is scheduled. Therefore tenants do not know how much time they have to prepare for the hearing until they contact the Tribunal about the application or until they receive the landlord's notice of hearing. Under the Ontario Rental Housing Tribunal's rules of practice and procedure, landlords are required to give notice at least 10 days before the hearing but many of them would only meet the minimum requirement and leave the notification to the last 10 days. However, applications for above-guideline increases are often complex and involve extensive technical and financial documentation. It is therefore difficult for tenants to prepare a response without sufficient time to examine the information.

Backlog of Applications

As a result of problems with the short time period for notification, many tenants have requested the Tribunal to grant adjournments of their hearings to a later date. This has created a backlog through the system from the date the landlord files an application to the date the hearing is held. Tribunal data show that, between the date of proclamation of the TPA (June 17, 1998) and September 30, 1999, there were altogether 545 applications for above-guideline increase and of these, only 218 applications have gone through a hearing resulting in the issuance of an order. As indicated in the following chart, in December 1998 alone, about 300 applications were filed, but the system did not move quickly enough to schedule hearings for the applications. This means that 342 cases, affecting about 55,000 tenant units, are still waiting to be resolved.

The delay in scheduling hearings may sometimes result in an order being issued after the annual rent increase should take effect. This can create uncertainty and confusion as to what amount of rent the tenants should pay on the rent increase date. By law, when this happens, tenants have the options of paying either the above guideline amount in the notice of rent increase, or just the amount based on the guideline increase, until the order is issued. In practice, neither of the two options would help the tenants, especially those with few financial resources, for the reasons that: first, some tenants may not be able to pay the above guideline increase upfront while waiting for a hearing; secondly, if the tenants choose to pay less than what was requested in the application, they will have to pay the difference for every month that has passed since the rent increase date and the date the order is issued; thirdly, in some cases, the Tribunal may order an increase less than what the landlord requested but the tenants have already paid for the increase. While the landlord must pay the difference between the higher rent and the ordered rent, tenants may not necessarily continue to pay the ordered rent, as the landlord may be able to increase the rent to maximum or charge for an additional service.

The Tribunal has recently issued a letter indicating that they are considering some procedural changes to deal with the delays. Consideration may be given to lengthening the time requiring landlords to serve the Notice of Hearing and re-distribution of work to allow for a more efficient process.

As the above guideline increase applications are affecting a large number of tenants, staff are attempting to obtain an in-depth understanding of the issues through a request to the Tribunal to provide building specific data, including address of the building where the application was filed, number of units affected, current rents, reason for the application, first effective day for the increase, amount of increase ordered and reason for the order.

2. Evictions

In addition to above guideline increase applications, the issue of evictions is also a growing concern. In Toronto, in the 15-month period between June 18, 1998 and September 30, 1999, a total of 31,989 applications for termination of tenancy have been filed by landlords, equivalent to an average of 2,132 applications per month.⁽¹⁾ This is an increase of 20% over the monthly average filed in 1997 (1,775).

While data about the total number of eviction orders issued in this period is not yet available from the Tribunal, the increase in applications may indicate a trend of potential increase in the number of tenants being evicted. At least from the data available, almost one-half (15,630) of these applications in Toronto did not go to a hearing and thus resulted in a default order to evict the tenant. This is due to the fact that under the new legislation, there is no hearing held if the tenant has not filed a dispute in writing within five calendar days of receiving a notice of hearing from the landlord. Many tenants are unable to submit a written dispute because they are not aware of this requirement, or they know it too late to do so, while others believe they cannot dispute the application because it is true that they have not paid their rent. Community organizations assisting tenants have reported a heightened sense of hopelessness and frustration among tenants facing the risk of eviction because of the short timeline for dispute and because of the difficulty in seeking other affordable accommodation at a time of low rental vacancy rate and high rents charged for vacant units.

The high percentage of default orders means that in a given month, at least about 1,000 tenant households in Toronto have been evicted from their homes. When the outcome of the other half of applications which have been resolved through a hearing is taken into account, the number of actual evictions could be even much higher, affecting more households. In order to develop strategies to prevent evictions, staff are attempting to obtain an accurate picture of the magnitude of the problem. Staff have requested data from the Tribunal in terms of a detailed breakdown of the grounds for eviction, applications that resulted in a default order, and those that resulted in an eviction order.

3. Demolitions and Conversions

While eviction is a serious concern, conversion to condominium, extensive renovations and demolitions may also affect tenants' security of tenure. The TPA has repealed the Rental Housing Protection Act which controlled conversions and demolitions of rental housing. Although the City has attempted to restrict conversions and demolitions through an amendment to its Official Plan, this amendment was recently challenged by several building owners and struck down by the Ontario Municipal Board. Therefore strategies that prevent evictions should include an assessment of the impact of the new law on condominium conversions and demolitions, to see if there is an increase of such activities and if evictions are increased as a result of these activities. For this purpose, a data request has also been made for applications for conversion, renovations and demolition, including specific addresses of the properties, number of units affected and outcome of the applications.

¹ These include landlords' applications for terminations based on the following grounds: non-payment of rent

(L1); illegal act, impaired safety, undue damage, persistent late payment of rents, interference with other's reasonable enjoyment, landlord's personal use of the unit, demolition, conversion, renovations and repairs (L2); tenant's notice to terminate (L3); and tenant's breach of conditions in a prior settlement order by the Tribunal (L4).