Legal Matters
By Garry Shapiro, BCL, LLB, MBA and Evan Shapiro, HBA, JD
(Photo credit: istock.com)
There are many factors to consider before deciding to own and operate a residential rental property. The return on investment will depend on your ability to manage expenses such as your financing, tax, maintenance and tenant acquisition costs, as well as risks such as vacancies and disputes.
The following are important legal considerations when purchasing and/or operating a residential rental property:
Type of Rental Property
There are unique considerations based on the type of rental property, such as a condominium, basement apartment, multiplex, etc. For example, if you purchase a new pre-construction unit, as a purchaser you will not be entitled to the HST New Housing Rebate, although you may qualify for the HST New Residential Rental Property Rebate. For existing properties, and in particular basement apartments, prospective landlords should ensure that the unit is in compliance with all laws.
Ownership
If you are acquiring a rental property, consideration should be given to whether you will own the property in your personal capacity, through a corporation, or another business structure. If you plan to own the property with another individual or entity, it is important to have a well-documented agreement setting out each party’s rights and responsibilities.
Income and Capital Gains Tax
Rental income generated from the property will be subject to income tax, while increases in the value of your property at the time of disposition will be subject to capital gains tax. Individuals who convert all or a portion of their primary residence into a rental property should also be aware of the impact this will have on their primary residence exemption for capital gains purposes.
Landlord Rights and Obligations
The Residential Tenancies Act (RTA) sets out the rights and responsibilities of landlords and tenants. There have been a number of recent changes to the RTA, such as capping annual rental increases and providing compensation to tenants when the landlord has a valid and legal reason to evict and take back possession of the unit. Landlord and tenant disputes are adjudicated by the Landlord and Tenant Board.
Lease Agreement
It is essential for landlords to have a well-documented lease agreement with their tenants. This agreement will set out the parties’ rights and responsibilities, in addition to those set out in the RTA. From the perspective of a landlord, key terms include the identity of the tenant, the deposit, the term, responsibility for maintenance, payment of services and utilities, termination and renewal.
Whether you are looking to rent out your basement apartment or invest in a new rental property, it is essential that you consult knowledgeable and experienced mortgage brokers, real estate agents, accountants, and lawyers to fully understand and protect your investment.
Shapiro Real Estate & Business Lawyers
416.224.0808 | garryshapirolaw.com
