Ontario Above Guideline Rent Increase (AGI): Qualifying Grounds, LTB Application, and Tenant Rights

1. The Rent Increase Guideline

Under Residential Tenancies Act, 2006 (RTA) s. 120, a landlord may not increase the rent charged to a sitting tenant by more than the rent increase guideline in any 12-month period unless an LTB order permits a higher increase. The guideline is set annually by the Ministry of Municipal Affairs and Housing based on the Ontario Consumer Price Index.

A landlord must give 90 days' written notice before any rent increase — even a within-guideline increase. The notice must use Form N1 (Notice of Rent Increase) and specify the new rent amount and the effective date.

2. Units Exempt from Rent Control

Under RTA s. 6.1, as amended by the More Homes More Choice Act, 2019, rent control does not apply to:

• Rental units first occupied for residential purposes on or after November 15, 2018
• Units in new buildings (condos, purpose-built rental) first occupied after that date
• New basement apartments and secondary suites first occupied after November 15, 2018

For exempt units, a landlord may increase rent by any amount between tenancies or during a tenancy without LTB approval. The above guideline increase mechanism under s. 126 applies only to units subject to rent control — i.e., units first occupied before November 15, 2018.

3. Grounds for an AGI Application

RTA s. 126 permits a landlord to apply to the LTB for a rent increase above the guideline on one or both of two grounds:

"Extraordinary" means the operating cost increase exceeds the guideline percentage. The LTB calculates whether the increase exceeds what the guideline covers based on the building's cost structure.

4. Eligible Capital Expenditures

O. Reg. 516/06 under the RTA defines "eligible capital expenditure" and the methodology for calculating its impact on rent. Key rules:

• Must be an improvement, replacement, or new addition — not routine maintenance
• Improvements vs. repairs: Replacing a functional (if aging) boiler is a repair (not eligible); replacing a failed boiler with a more efficient system may qualify as an improvement or replacement
• Capital expenditures are amortized over their useful life — the LTB calculates an annual rental charge per unit based on the cost, useful life, and a prescribed interest rate
• Only the annualized impact on each rental unit is considered, not the total capital cost
• Pre-existing mortgages on capital expenditures may be considered

Examples of eligible capital expenditures: roof replacement, elevator modernization, new boiler or HVAC system, electrical system upgrade, fire safety improvements required by law, new windows, garage or parking structure repairs.

Examples of ineligible costs: cosmetic renovations, new furnishings for common areas, routine painting and cleaning, management fees, general repairs that do not qualify as improvements.

5. Extraordinary Operating Cost Increases

Eligible operating costs under RTA s. 126(7) include:

• Municipal taxes and charges (property taxes and local improvement charges)
• Utilities: natural gas, electricity, water and sewage
• Property insurance premiums
• Security services where they did not previously exist

Management fees, maintenance costs, and mortgage costs are not eligible operating costsfor AGI purposes. A landlord who has experienced rising labour costs or inflationary pressures in service contracts cannot claim those increases as grounds for an AGI.

The LTB uses the Rent Adjustment Formula prescribed in O. Reg. 516/06 to calculate the allowable increase. The formula compares operating costs in the "base year" to costs in the "comparison year" to identify the extraordinary portion.

6. LTB Application Process (L5 Form)

A landlord applies for an AGI using Form L5 filed with the Landlord and Tenant Board:

1. File Form L5: The application must specify the grounds (capital expenditures, operating costs, or both), the residential complex affected, and the requested increase
2. Serve notice on tenants: Landlord must serve a copy of the L5 application on every affected tenant within 5 business days of filing
3. LTB review: The LTB reviews the application and may request additional documentation. A hearing is scheduled
4. Hearing: Landlord presents evidence of eligible costs. Tenants may participate and cross-examine. LTB member determines the allowable increase
5. Order issued: If approved, an Order specifying the increase percentage, effective date, and duration is issued
6. N2 notice: Landlord must serve Form N2 (Notice of Rent Increase — AGI) on each tenant at least 90 days before the increase takes effect

7. Tenant Participation and Objections

Tenants have the right to participate in AGI hearings and raise objections. Common tenant defences and arguments:

Maintenance Standards (the "Maintenance Bar")

Under RTA s. 126(12), the LTB must not make an order granting an AGI if the landlord is in serious breach of the duty to maintain and repair the residential complex. Tenants can raise outstanding maintenance issues as a bar to the AGI — this is a powerful defence. Outstanding maintenance work orders, T6 applications (Maintenance Application), or evidence of serious disrepair can prevent the AGI from being granted.

Capital Expenditure Challenges

• The work was routine maintenance, not an eligible capital expenditure
• The cost claimed was inflated or not actually incurred
• The useful life assigned by the landlord is incorrect — affecting the annual amortization

Operating Cost Challenges

• The increase in operating costs was not extraordinary — it was below or at the guideline level
• The cost increase was partly caused by the landlord's own choices (e.g., switching to more expensive utility provider)

8. How AGI Orders Work

When the LTB grants an AGI application, the Order specifies:

• The maximum percentage increase permitted (above the annual guideline)
• The residential complex to which it applies
• The eligible capital expenditures or operating cost increases on which it is based
• The period over which the capital expenditure increase may be collected (the amortization period)

For capital expenditures, the increase is typically spread over multiple years — reflecting the amortized annual cost of the expenditure. Once the amortization period expires, the allowable increase from that capital expenditure disappears from the allowable rent.

The AGI increase is applied on top of the annual guideline — not instead of it. A landlord with an AGI order for 3% in a year when the guideline is 2.5% may increase rent by up to 5.5%.

9. Maintenance Standard and Work Orders

The maintenance bar (s. 126(12)) is the most strategically important tool for tenants opposing an AGI. To use it effectively:

1. File outstanding T6 maintenance applications before the AGI hearing
2. Request the LTB to link the T6 and L5 hearings
3. File complaints with Municipal Property Standards if there are property standard bylaw violations
4. Gather evidence: photographs, written complaints to landlord, records of repair requests, reports from city property standards officers

10. Notice Requirements

Procedural requirements for any rent increase (guideline or above guideline):

• 90 days' written notice: Required before any rent increase takes effect — Form N1 (guideline) or N2 (AGI)
• 12-month gap: A landlord may only increase rent once in any 12-month period
• N2 for AGI: Must specify the LTB order number, the approved increase percentage, and the effective date
• Non-compliance: A rent increase without proper notice is void — the tenant does not owe the increased amount

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