Roughly a third of Canadians rent their shelter, rather than own it. In Toronto and much of Southern Ontario, that percentage is close to half of everyone fortunate enough to have a roof over their head at night.

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Explaining the rise in voluntary vacancies

With that kind of demand for rental homes and rents themselves higher than ever, you’d think that supply would be pouring in to serve the market. But it’s not. Rental housing remains in tight market conditions due to complexity, excruciating approval processes, and often stressful relations between landlords and tenants. Paradoxically, voluntary vacancies abound in some sub-markets. 

Why?

Fear of non-payment of rent

The high cost and low speed of bringing new construction to market is part of the problem, but the supply crisis and the tension felt on both sides in the rental experience is mostly underpinned by one root problem: landlord fear of leasing to a non-paying tenant.

That fear is justified, and if it becomes a real it is often a financial Armageddon or close to it for the small landlords that supply 30% of Ontario rental stock. 

LTB backlog

The backlog of unpaid rent in Ontario, probably lost forever, is now conservatively estimated to be in the hundreds of millions of dollars according to Landlord Tenant Board (LTB) judgments made just since 2021. The real tab is probably much higher. In fact, in 2022-23, 60% of all filings were that of  L1-Application Evict a Tenant for Non-payment of Rent and to Collect Rent the Tenant Owes. They are nearly twice as numerous as the next largest filing type, L2-Application to End a Tenancy and Evict a Tenant), which can also encompass money lost by landlords. 

The fear of not getting paid except, if the landlord’s lucky, until after months of lost rent, time, and stress, is the keystone issue keeping Ontario's rental market broken. It spills into everything. Take away that fear, and we will solve far more than all the garden suites, secondary units, and other well-intended but marginal fixes could ever hope to remedy.

How do we take that fear away?  

The 2-45 Solution

We do it by making evictions for non-payment of rent much swifter and almost impossible for tenants to stall or overturn. 

That may sound harsh, but a new legal framework built around this objective would benefit landlords AND tenants immensely, as I’ll show.

My solution is something I call the 2-45 solution. It’s roughly this.

What is the 2-45 Solution?

The new legal norm for pre-occupancy deposit would become first month's rent, plus last 2 months rent. That's the "2" in “2-45 Solution”.

If a tenant misses a rental payment during the tenancy, and can't work out a remedy with the landlord, then between the 15th and 20th of that first month that rent is missed the landlord can file online with the LTB or other appointed authority for a summary eviction for the last day of the following month. That's approximately 45 days away from earliest filing. That's the "45" in the "2-45 Solution". 

The Sheriff shows up on Eviction Day and enforces the order. Period.

Potential benefits of implementation of the 2-45 Solution

This could be the best thing that ever happened to Ontario landlords and tenants alike, here’s why:

Stopping Landlord Losses  

The landlord loses no rent under 2-45 because the 2-month rent deposit they received at the start of tenancy covers the whole eviction window start to finish. Admittedly, they may suffer some post-eviction vacancy given possible challenges of showing property to new tenants before eviction of the non-payer. When landlords lose, we all lose.

We’re all in this economy together, and like a spike in car thefts driving up insurance premiums, our huge tally of lost rent indirectly fuels higher rents. That’s not good for tenants.

Approvals Made Easier 

The depth, number of documents, and time needed for the tenant approval process could be reduced. Currently, because eviction for non-payment is so slow, some landlords are driven to extreme scrutiny and excessive security requests in a bid to feel safe renting even to tenants with fairly solid profiles.

Non-RTA-compliant deposits, months and months of prepaid rent, questionable leasing clauses, guarantors, unspoken income-ratios unrealistic for today’s economy, all this stuff often demanded in lease negotiations today is mostly fuelled by the non-payer fear.

Non-Traditional Tenants Win 

Most landlords have good hearts, and want to help good applicants who may be just a little outside ‘the approval box’, but they can’t do it at an unacceptable risk. Under 2-45, weaker credit scores, lower income-to-rent-ratio, retirees, students, and newcomers, all these more challenged tenants might see higher approval rates because of reduced risk to the landlord of taking on a ‘non-traditional’ tenant.

Likewise, non-prime rental properties, which by their very nature attract a greater share of weaker profile tenants, could see faster leasing because under our current mess the risk of approving a potential non-payer is perceived as more costly than voluntarily keeping the unit vacant until the ‘perfect’ tenant comes along. The incentive is upside-down. 2-45 could reduce vacancy and get leases written – that’s a win-win.

Freed-up Supply 

Many existing rental properties would be freed-up for good tenants that are currently being tied-up by non-paying tenants in our forever-eviction quagmire. Non-paying tenants don't just hurt landlords, they hurt good tenants too by tying-up available dwellings.

New Supply 

While it’s hard to quantify how much new supply 2-45 would bring, putting it in place would assure all potential landlords that the law has their back and their risks of getting into the rental property business are now greatly reduced, thus coaxing new supply to market.

At its most optimistic, 2-45 could help launch a Dunkirk-style rescue of our broken market, where every ‘small boat’ becomes critical to the overall victory. Attacking the problem with an armada of new rental units from first time providers, either as is or through retrofit, could provide relief much faster than relying on new large-project construction alone, though 2-45 would certainly be a tailwind on new large projects too.

Potential Non-Payments Prevented 

It’s an unfortunate truth that not all tenants who don’t pay, can’t pay. Again, it’s tough to quantify, but it’s reasonable to project that the mere existence of 2-45 legislation would reduce the rate of non-payment, even unapplied. Under our current reality of a backlogged LTB and ability of bad-faith tenants to drag out evictions, leases are almost acting as un-secured contracts. That needs to change.

Car loans are secured by re-possession of the car. Rental properties deserve the same treatment or better. People will usually go to great lengths to pay their car loans because their car is vital and they don’t want the repo man showing up in their driveway.

Right now, despite their apartment being vital, the repo man (Sheriff) can be put off for a long time. For that subset of non-payers who could scrape together the rent if sufficiently motivated, 2-45 will ensure they do.

Ensuring Fairness: Adding Flexibility to the 2-45 Solution

The devil with any legislation is always in the details. Any effective drafting of a “2-45 Solution” bill would need reasonable wiggle room built-in for truly extraordinary circumstances. For starters, there should be a short window after a 2-45 filing for the tenant to appeal.

However, barring proof that the landlord’s claim is in error and no arrears exist, or there are accusations of criminal activity by the landlord, or other similar extreme circumstances, the eviction would stand. Likewise, the landlord would be allowed to withdraw the eviction order up to just before the eviction day, if he and the tenant reconcile their differences. 

Concluding thoughts

Let’s be realistic. The 2-45 Solution, or any similar proposal, is not alone a miracle cure for all that ails our Ontario rental market. It won't eliminate all bad behaviour by landlords or tenants or all the misguided rental legislation on the books today. Yet it likely has the best chance of making the greatest positive impact for both sides because it’s laser-focused on the biggest issue facing the market today – landlord fear of not getting paid their rent.

Take away that fear, and watch the Ontario rental market – a market that for so many of us touches directly on our quality of life - enter a new era of dynamism, fairness, choice, and stability for all involved.

Steve Mitchell is a Realtor® in Toronto with years of residential leasing experience representing both landlords and tenants in rental transactions. His opinions expressed here are solely his own and may not reflect those of his employing brokerage or any industry body of which he may be part.