RESIDENTIAL RENT REGULATION AMENDMENT ACT, 1990
RESIDENTIAL RENT REGULATION AMENDMENT ACT, 1990
CONTENTS
Thursday 21 February 1991
Residential Rent Regulation Amendment Act, 1990, Bill 4
Afternoon sitting
Rent Control
Residential Rent Regulation Amendment Act, 1990, Bill 4
Adjournment
STANDING COMMITTEE ON GENERAL GOVERNMENT
Chair: Mancini, Remo (Essex South L)
Acting Chair: Abel, Donald (Wentworth North NDP)
Vice-Chair: Brown, Michael A. (Algoma-Manitoulin L)
Bisson, Gilles (Cochrane South NDP)
Drainville, Dennis (Victoria-Haliburton NDP)
Duignan, Noel (Halton North NDP)
Harrington, Margaret H. (Niagara Falls NDP)
Mahoney, Steven W. (Mississauga West L)
Mammoliti, George (Yorkview NDP)
Murdoch, Bill (Grey PC)
O'Neill, Yvonne (Ottawa Rideau L)
Scott, Ian G. (St George-St. David L)
Turnbull, David (York Mills PC)
Substitutions:
Cooper, Mike (Kitchener-Wilmot NDP) for Mr Mammoliti
Mahoney, Steven W. (Mississauga West L) for Mrs Y. O'Neill
Owens, Stephen (Scarborough Centre NDP) for Mr Drainville
Poole, Dianne (Eglinton L) for Mr Scott
Tilson, David (Dufferin-Peel PC) for Mr B. Murdoch
Ward, Margery (Don Mills NDP) for Mr Bisson
Clerk: Deller, Deborah
Staff:
Baldwin, Elizabeth, Legislative Counsel
Hunter, Leith, Legislative Counsel
Richmond, Jerry, Research Officer, Legislative Research Service
The committee met at 1014 in room 151.
RESIDENTIAL RENT REGULATION AMENDMENT ACT, 1990
Resuming consideration of Bill 4, An Act to amend the Residential Rent Regulation Act, 1986.
Section 8:
The Chair: Yesterday afternoon, before we adjourned, we had carried in their entirety subsections 100d(1), (2), (3), (4) and (5) and we had commenced debate on clauses 100e(1)(a) and (b). At that point Mr Tilson moved an amendment to clauses 100e(1)(a) and (b). We then adjourned and promised to commence this morning's proceedings with Mr Tilson's amendment. In lieu of that, I would ask Mr Tilson to possibly re-read his amendment so we know exactly what we are debating and then we will proceed with the proper rotation.
Mr Tilson: Yes, I will read the motion, although it is summarized. The words "garbage tippage fees" are being added to the section in the bill. That is the amendment. We can call it the garbage amendment.
My motion is that subsection 100e(1) of the act be struck out and the following substituted:
"100e(1) In this section, `extraordinary operating cost' means a change in the cost of municipal taxes, heating, hydro, water, insurance, cablevision and garbage tippage fees respecting the residential complex,
"(a) that creates a variance of at least 50% from the same component set out in the building operating cost index; or
"(b) that would justify a variance in gross potential rent of at least 1% from the amount resulting from the application of the building operating cost index component."
The purpose of this amendment was made in response to submissions that were made to the committee in Ottawa, I believe it was from a Kingston group -- I cannot remember which one -- which raised this issue. It is something that I had not thought about, particularly when we hear of the problem of tippage fees that are going up all over the province and how that affects tenants in apartments. The requirements from the Ministry of the Environment are going up all the time and of course naturally the tippage fees are going up as well. So I think that is something that is beyond the ability of the landlord to deal with, in the same way that municipal taxes, heating, hydro, water, insurance, cablevision, all of those items, are. Tenants need to get rid of their garbage, and obviously the tippage fees need to be paid for. That is the rationale of the amendment.
Hon Mr Cooke: Could I respond?
The Chair: The minister wishes to respond, and then we have Mr Mahoney and Ms Harrington.
Hon Mr Cooke: I gather there are some practical problems with this in that, unlike other extraordinary operating costs which are allowed under Bill 4, garbage tipping fees are not a separate BOCI component. So any fees related to garbage tippage would normally be claimed under the BOCI category "maintenance." The general category of maintenance costs is not an entire package that we are proposing would be passed through under Bill 4. What we have attempted to do is to have the guideline, which is supposed to reflect the overall cost increase of operating an apartment for that type of category, and then we have had a few areas where there might be some specific differences on a regional level. That is why cablevision, municipal taxes and those types of things have been special items that we have exempted, because at the regional level there could be something that would certainly not show up to the same extent province-wide, and those are easy to look at under the BOCI formula. There are some practical problems and there are some reasons why we have not allowed the entire maintenance package to go through.
Mr Mahoney: I do not know if I heard that as an adamant speech against the amendment. Are you suggesting there might be some way of working this out, the tipping fees, or you are just not accepting the amendment?
Hon Mr Cooke: What I am saying is that is what the cost-of-living adjustment is, the 5.4%, and you will see those costs will be picked up on the province-wide formula that was under Bill 51. We have allowed exceptions to that where there will clearly be some communities that will have substantial differences, property taxes being one of the examples.
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Mr Mahoney: I guess the difficulty I have is that these are costs that are not controlled in any way and are very much taxation costs. If you compare it to home owners, for example, where the costs for their garbage pickup and the tipping fees at disposal time are built right into the mill rate that is charged to each and every home owner, to say that those costs should simply be put into the guideline figure I think is really creating a double standard.
Hon Mr Cooke: I do not think I made myself clear. In the BOCI formula under Bill 51 this is not a separate item that can then figure into this formula of a 50% increase and the criteria that are used to determine whether it is an extraordinary increase. We would have to change the BOCI formula in order to work this type of an amendment, and perhaps in the permanent legislation that is something we should be doing, but we are not suggesting in Bill 4 that the BOCI formula under Bill 51 be changed, so there is not a way that it can be implemented. That is what I am saying.
Mr Mahoney: But I guess, in essence, by admitting that it should go in the permanent legislation, you --
Hon Mr Cooke: I did not say that; I said it should be considered.
Mr Mahoney: That it should be considered in the permanent legislation. Not to put words in the minister's mouth, but I would interpret that as saying the idea may have some merit and should be examined. If indeed that is the case, why would you not examine it in relation to this bill and make whatever amendments are necessary if indeed it turns out to have merit after the examination? At least, if you are not willing to accept the amendment today, take it into consideration, defer it, put it on the table to allow your people to come back with some kind of report as to whether or not it belongs in this section, because very clearly, as I was saying, and I think it was the intent of what Mr Tilson was saying, it is a cost that is very much a tax and as such should be treated in a very similar manner. If there is some technical problem, if the ministry officials are having difficulty in either amending the BOCI formula or finding some other way to include it, then perhaps the ministry could examine that.
Are you prepared to do that, to table this -- I should not be so presumptuous as to table another colleague's motion, but if it were to be tabled with the ministry to allow for a report back prior to passage of this bill at committee level, then that would give you some time to analyse whether or not the merit is there. If you come back and say you are not willing to accept it, then we have to have a vote, you line up your ducks and we line up ours and away we go. But you are sounding much more reasonable this morning than you did yesterday and I am simply trying to take advantage of that.
Mr Duignan: Don't worry, he won't let you.
Hon Mr Cooke: I do not think I should respond. I mean, this is the kindest thing you have said, so I am not sure that I --
Mr Mahoney: And it may continue to be.
Hon Mr Cooke: I am sure it will be. I am glad it is on the record.
Mr Mahoney: I learned from watching some very professional people in opposition over three years.
Hon Mr Cooke: Jeez, two kind things; you called us professional.
Mr Mahoney: In opposition.
Ms Poole: Maybe we should add the words "slick and professional."
Mr Mahoney: I thought you were great in opposition, I thought we were great in government, so what the heck.
The Vice-Chair: I think we are losing it here. Order.
Hon Mr Cooke: In the discussion document we certainly talk about the inflation index that will have to go into the permanent legislation, and we need to talk to people, landlords and tenants and other groups across the province to figure out how the BOCI formula should be changed to make it fairer.
But if you are going to rework the formula, I think it would be the wrong approach to rework the formula in a temporary bill without having consultation, and I think that is one of the purposes of the green paper and what we need to look at for the permanent piece of legislation. This is certainly an area that I would be more than willing to look at for incorporating in the formula, and anything else that we need to do, look at it when we are going through the consultation process, but I do not think it would be appropriate in the temporary legislation, because the whole BOCI formula would have to be reworked.
Mr Mahoney: Mr Chair, what I am hearing is it is a good idea but the government is not prepared to accept it as an amendment. I am going to be supporting this amendment; it makes sense.
Hon Mr Cooke: It might be a good idea, but it was not taken into consideration by the previous government when it put Bill 51 together, and we would like to fix it up in our permanent legislation.
Mr Mahoney: Perhaps you should fix it up in your temporary legislation, which is what is being attempted here. Really, what the previous government did, whether we included it or not, is somewhat irrelevant today. We are talking about an idea that has been put on the table by a member of this committee that has some merit. I even saw some heads nodding over there during a couple of the speeches. I do not know if they were falling off to sleep or if they were actually in agreement, but I get nervous when I see them starting to agree. I will be supporting this motion.
Ms Harrington: I want to say that Mr Tilson's motion does point to a very real concern. I know from my own riding that just within the last, say, 18 months we have put regulations in place at the municipal level where commercial people have to dump at a site and pay very high dollars for this. I sat on this committee with the commercial concerns in Niagara Falls, and it is very real, the escalating of these costs.
As the minister has said, because we cannot change the BOCI formula at this particular time and it gets rather complex -- when I was discussing this amendment with the ministry staff, I made it clear to them that when we look at the long-term legislation, which we hope will be very quickly dealt with -- as you know, our dog and pony show is going on the road as of the first week in March -- we will then look at this, as the minister has just said. So I thank you, Mr Tilson, for this genuine concern.
Mr Tilson: I think all of us in our ridings realize the environmental problems we have with waste. I cannot believe there is not a riding in the Legislature that is not expressing concerns with the disposal of its waste and, quite frankly, until the Ministry of the Environment gets its act together and starts dealing with the problems of waste around the province, tippage fees are going to continue to go up.
It is a major problem. The Minister of the Environment is not taking the fast action that a lot of people had hoped she would. It is a matter that I assume the minister did not think of when he put forward this interim legislation, this breathing space.
He has indicated, of course, that as a result of the dog and pony show that is being referred to, and perhaps other hearings it will entail when the permanent bill is prepared, it is going to be some time before permanent legislation is put forward. Common sense tells us, because of the environmental problems we have with waste around this province, that tippage fees are going to increase. Quite frankly, I do not care how we do this as long as it is done. I would prefer the amendment. I do believe it is an extraordinary operating cost. The minister does not; I do. As Mr Mahoney has pointed out, it could be compared to taxes. It is something that the landlord has no control over. That is what I define as an extraordinary operating cost. The major ones are listed and this is certainly a major one.
Tenants are going to be affected by garbage tippage fees. It is as clear as can be. If the minister is suggesting making a regulation that can implement it, I am certain that with all the talent this government claims it has, that can be solved. If it does not have the talent to solve it before interim legislation, then the amendment should be agreed upon, because otherwise landlords are going to have double whammies and it will be some time before the permanent legislation, which the minister indicated may deal with garbage tippage fees, will be dealt with. I do not think we can wait until the permanent legislation comes in, and it is for that reason that this amendment is being made.
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Ms Poole: As both Mr Tilson and Mrs Harrington have said in their comments, the garbage tippage fees are a very real problem. We are facing it, I think, in every riding in this province. I have not had a chance to explore this with Mr Tilson, because I was not aware of the procedural problems in changing this that the minister has just pointed out, but I would like to propose, if he is willing, a friendly amendment.
It appears right now, from the minister's comments, that the government members do not intend to support this amendment. I am prepared to accept the minister's explanation that it is because garbage tipping fees are not included right now in BOCI and this would create a procedural difficulty. However, I also think that Mr Mahoney's point is well taken, that the ministry, if it was given some time to explore this, may well be able to come up with a way out of this difficulty.
I would propose, if Mr Tilson is willing to accept this as a friendly amendment, that we amend subsection 100e(1) to say, "In this section, `extraordinary operating cost' means a change in the cost of municipal taxes, heating, hydro, water, insurance, cablevision or any other cost deemed by regulations respecting the residential complex." That would give the minister and his staff the opportunity to see if there was a way in which garbage tippage fees could be included, and if so, that by regulation they could then include that in this temporary legislation.
The Chair: Perhaps we could find out if Mr Tilson would --
Mr Tilson: Perhaps the minister could comment on that.
Hon Mr Cooke: Subject to the appropriate wording, not being a lawyer, I think there might be a couple of words that are used that would be fine, and that will give us some time to do some research into this and see whether there is something that needs to be addressed immediately and certainly would add the flexibility that we do not have now.
The Chair: I would like to hear from Mr Tilson on whether he thinks it is friendly.
Ms Poole: If I could just interrupt before then, Mr Chair, legislative counsel has advised me that the word should be "prescribed" as opposed to "deemed" -- "prescribed by regulation."
The Chair: Is the sense of this amendment considered friendly, Mr Tilson?
Mr Tilson: My problem is that I am not so sure how I am reading what the minister is saying about the principle of garbage tippage fees. I believe he stated that he did not consider it an extraordinary operating cost.
Hon Mr Cooke: What I said was, because it is not currently in the BOCI formula it is not something that can -- the explanation that I read to you yesterday about 100e, the technical definition of what an extraordinary increase is, relates specifically to components of the BOCI formula, and since this is not a specific component of the BOCI formula it is impossible to determine what the extraordinary increase would be. It is fine to say that we would accept the amendment, but it is not workable. I am talking about Mr Tilson's amendment as worded. I could sit here and say I am going to accept your amendment, but it would not be particularly useful.
Mr Tilson: Is it not workable because, in principle, you do not feel it should be part of the interim legislation or --
Hon Mr Cooke: It is because it is not in the BOCI formula.
Mr Tilson: If I had your undertaking to use your best efforts to put it into the BOCI formula, then I would agree to the friendly amendment, but if it is not your undertaking to do so, then I feel that strongly about it that it should be voted on.
Hon Mr Cooke: You have my commitment that I will take a look at it, but in less than the last 24 hours -- because I saw this amendment yesterday -- to this morning, I can tell you I have not spent any time on it. I have not had a chance to analyse what kinds of costs we are talking about and how much of a problem this is. I certainly will have the ministry do some work on this and I would be glad to share it with both the opposition critics and we can talk about it again. If Ms Poole's amendment carries, then obviously when we put our research together we can determine whether it is a major problem, and if it is a major problem, we can then, with her amendment, deal with it. Without her amendment we cannot deal with it, of course.
Mr Tilson: I understand what you are saying, although my difficulty is that I am still not certain as to how you feel about this subject philosophically, as to whether you think it should be part of the interim legislation or whether it is something that should simply wait until the permanent legislation comes about. I think it should be part of the permanent legislation, in some form or other, either in this bill or in a regulation that comes from this bill. So I need some indication from you --
Hon Mr Cooke: I do not have a philosophical view, because I have to get a better understanding of exactly the extent of the problem. That is what I think the first step should be for me. I would be more than willing to have the ministry do some work on it and then share the information with the two opposition critics. If we have Ms Poole's amendment, then we can talk about it and we do not need any amendments; we can accept your amendment and then deal with it. But I am not going to make an absolute commitment here that the BOCI formula is going to be changed, that we are going to deal with this, until I have an assessment and an analysis of the problem.
Mr Tilson: Mr Chair, I appreciate what the minister is saying. I would like some opportunity to discuss it with Mr Turnbull.
The Vice-Chair: Are you asking for a recess, Mr Tilson?
Mr Tilson: Either that, or if you want to set it down, we could deal with it later.
The Vice-Chair: I need some indication which one you want. I cannot make up your mind for you.
Mr Tilson: All right, let us have a recess and I will talk it over with Mr Turnbull.
The Vice-Chair: How much time would you need?
Mr Tilson: Oh, I don't know -- 15 minutes?
The Vice-Chair: Do I have unanimous agreement for a 15-minute recess?
Ms Harrington: How about five?
The Vice-Chair: I think, Mr Tilson, the best we can do is a five-minute recess for you.
Mr Mahoney: How about seven and a half?
Ms Poole: Seven and a half, I see the nod.
Mr Tilson: That is what you will give? It is not you, Mr Chair. I realize you are looking at the government side. But fine, we will do our best. I will come back and tell you what I am thinking of.
The Vice-Chair: I think that could be a good idea. Mrs Poole could perhaps talk to legislative counsel and see that it was the right language, if he chose to accept it, so that might work for everybody. Do I have unanimous agreement for a five-minute recess? The committee will return at 1044.
The committee recessed at 1039.
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The Acting Chair (Mr Abel): I see a quorum. I call the meeting to order.
Mr Tilson: I have had a chance to review this matter with Mr Turnbull and the members of our staff. We do understand the minister's comments with respect to the BOCI formula. However, that does not lessen our concerns about this issue. Specifically, it has now been drawn to our attention that the Environment minister is today announcing items involving waste. Specifically, it is expected she is going to be announcing -- and this is an article from the Toronto Star, Mr Chairman --
Mr Mahoney: It must be true.
Mr Tilson: It must be true. I am reading from the Toronto Star. The minister "is expected to announce today a mandatory 20% cut in packaging for all products sold in the province." As well, other items of her announcement will include "a requirement that municipalities charge the full cost of dumping garbage in landfills, a measure that would lead to increased tipping fees at many dumps. Metro area dumps already charge high fees, but others in the province charge low fees or allow free use." So as early as this afternoon, it is going to become quite apparent to anyone living in residential apartments that tippage fees are going to have a large effect on their way of life. I mean, they are going to go up. They have got to go up.
It has been pointed out to me that since 1983 tipping fees have risen over 600% in the GTA. That is a substantial increase. On average, builders are paying $300 per home to dispose of the approximately 2.5 tonnes of garbage. So it is a very serious problem of garbage tippage fees, and I think the individual in Ottawa who drew this to our attention is quite right.
At the same time, I appreciate what the minister is saying as to the technical definition, in making this amendment. I do acknowledge that. However, my staff believe, and hopefully the committee will give its unanimous consent. It is 11 o'clock now. My staff would be prepared to prepare an amendment for the consideration of this committee which would result in the BOCI formula being amended. We feel that we could do that by this afternoon, if the committee provided us with sufficient time. I must confess I appreciate Mrs Poole's suggestion, but I think that obviously as early as this afternoon it is going to become quite apparent that tippage fees are going to be a very, very serious matter in this province. I do not think we should disregard them.
Accordingly, Mr Chairman, I would ask that this specific amendment be tabled -- in other words, the debate on subsection 100e(1) be tabled until this afternoon to enable my staff to assist me in preparing an amendment that the committee would find more palatable.
The Acting Chair: The motion is to table.
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Hon Mr Cooke: Very briefly, I just do not think this is the appropriate way to be changing the BOCI formula. I think there has to be some work done, as I said, to assess the problem, and I would be willing to share that information with the opposition critics after the ministry had done some assessment of the problem. To make changes to the BOCI formula in committee without having that kind of assessment I think is wrong. I agree there are going to have to be some major changes to the formula in the permanent system, but I do not think we should start ad hocking it in committee. The BOCI formula is not even in the legislation; it is in a schedule attached to the legislation.
I just ask the member to take my commitment that this matter will be assessed. We will share that information with the opposition critics between now and when the House comes back and see if there is any way that it can be addressed if the assessment shows that it needs to be. I can point out to you that even if the BOCI formula were changed this afternoon, it would not do anything under the Bill 4 period, because you still have to have a base cost in the BOCI formula in order to have any increases kick in. So even if you made the amendment to the BOCI formula this afternoon, there would be no effect at all for at least a year.
Mr Tilson: I appreciate the undertaking that the minister has given this committee. However, I do feel this problem is most serious, and we are going to read the newspapers tomorrow and tonight indicating how serious this environmental issue is and how it is going to affect the tenants of this province. I think all parties support assisting the tenants in this very serious environmental issue.
I would simply ask the committee, if it is a technical reason why this amendment is being defeated -- and everyone agrees in principle that we do have an environmental problem -- that we at least be allowed several hours to present an amendment to you. If that amendment is unacceptable, then perhaps we could go back to dealing with the minister's undertaking and trying to resolve it that way.
Hon Mr Cooke: Can I just explain one thing again? I am not sure, you might have been talking to Mr Mahoney when I mentioned this a couple of minutes ago. If we were to change the BOCI formula this afternoon to have this component, any increase would not take effect for a year. The permanent legislation will be in place a year from now. It is not going to have the kind of impact that you think it is going to have in any case, so I am not quite sure that I understand the need. It takes a year for it to kick in because you have to have a base figure in, and the permanent legislation will be in by the time the year is up, so it will not have any practical impact, or the practical impact that you want it to have.
Mr Tilson: Just give me a moment, Mr Chairman?
The Vice-Chair: Yes, Mr Tilson.
Mr Tilson: Mr Chairman, obviously you will have to excuse a new member trying to learn the procedures of amending things. My understanding is that the amendment we would be proposing would in fact be an amendment to the regulations, which I think would be out of order. Accordingly, I am prepared to accept Mrs Poole's suggestion of a friendly amendment together with the undertaking that has been given to us by the minister.
The Vice-Chair: Thank you, Mr Tilson. Could someone give us the reading of the new amendment?
Mr Tilson: Instead of the words "and garbage tippage fees," they would be replaced with the words "or any other prescribed cost."
Mr Mahoney: Do you need time to get to know how to vote on this?
Mr Tilson: Forget it. That is acceptable to the government members of the committee, so I have no further comments to make, Mr Chairman.
The Vice-Chair: Thank you, Mr Tilson. Are there any more comments on the amendment?
Mr Mahoney: Recorded.
The Vice-Chair: Seeing none, is it the pleasure of the committee that the motion carry?
Mr Tilson: I think Mr Mahoney requested a recorded vote.
The Vice-Chair: Mr Mahoney has requested a recorded vote.
The committee divided on Mr Tilson's motion, which was agreed to on the following vote:
Ayes -- 8
Cooper, Duignan, Mahoney, Owens, Poole, Tilson, Turnbull, Ward, M.
Nays -- 2
Abel, Harrington
Motion agreed to.
The Vice-Chair: Are there any further questions comments or amendments to subsection 100e(1)?
Ms Poole: Just a point of clarification, Mr Chair: Yesterday, I brought forward the fact that I had an amendment that would affect the definition of municipal taxes under subsection 100e(1), and because of a numbering problem this would not be dealt with till subsection 100e(5a) of the act. The minister has indicated that his party will be supporting this amendment. I have no problem with either dealing with it now, since it is in conjunction with this particular clause, or with delaying it until later in the proceedings, whichever the minister or you deem appropriate.
The Vice-Chair: Legislative counsel?
Ms Hunter: I think it would be more appropriate to deal with it when we get to subsection 5a. Subsection 1 is basically a definition, and what you have is a substantive provision in the section that certainly deals with extraordinary operating costs but probably more properly refers, as it says in 5a, to clause 2(b), where you have the substantive bringing in of the extraordinary operating costs. My belief is that your aim, as I understand it, is best served by having it where it is and that there will be nothing to prevent you from raising it when we get to that part of the bill.
The Vice-Chair: So it is the pleasure of the committee we will continue to go through the sections as they appear. Could I have agreement, then, that subsection 100e(1), as amended, will carry? Carried.
Moving on to subsection 100e(2), Minister, do you have a comment?
Hon Mr Cooke: Clauses 2(a) and (b) set out the specific criteria for determining the justified rent increase for a whole-building review: (a) an operating cost allowance, the guideline percentage, residential complex cost index, which is 5.5% in 1991 multiplied by the gross potential rent of the complex; and (b) extraordinary operating costs for specific categories. The calculation for the six categories is set out in subsection 100e(1).
The Vice-Chair: Do you want to do all of them or just do the first two?
Hon Mr Cooke: I thought we were doing each. I think on clause (c) we have an amendment.
The Vice-Chair: We are dealing, just so the committee understands, with clauses 100e(2)(a) and (b). Are there any comments, questions or amendments?
Ms Harrington: Yes, I have an amendment.
Hon Mr Cooke: To clause (c). We are just going to do clauses (a) and (b) right now.
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The Vice-Chair: If there are not, is it the pleasure of the committee that clauses 100e(2)(a) and (b) carry? No, I have made an error. We will move on to clause (c) in procedure. Ms Harrington, you have an amendment to this section?
Ms Harrington moves that clause 100e(2)(c) of the act, as set out in section 8 of the bill, be struck out and the following substituted:
"(c) any increase or decrease of costs arising from changes in interest rate occurring on the renewal or refinancing by the landlord of a mortgage or loan where,
"(i) the mortgage or loan and the renewal or refinancing both relate to the landlord's acquisition or construction of the residential complex,
"(ii) the renewal or refinancing is made between parties dealing at arm's length, and
"(iii) the mortgage or loan was made between parties dealing at arm's length or was entered into before 29 November 1990."
Ms Harrington: Could I comment on it?
The Vice-Chair: Yes. Ms Harrington has proposed an amendment, Ms Harrington has some comments.
Ms Harrington: This amendment clarifies the intention that in order to qualify for consideration, the financing instrument, whether a mortgage/loan or renewal/refinancing, must relate to the landlord's acquisition or construction of the complex.
Mortgages/loans made before 29 November 1990 may be non-arm's-length, while mortgages and loans made on or after that date and all renewal and refinancing must be arm's-length. This was the original policy intention.
Ms Poole: My comments come as a question for clarification. Is the purpose of this amendment to ensure that a landlord who has basically paid off his or her mortgage on a building and then obtains a subsequent mortgage for other purposes, other than that relating to the building, would not be allowed to put those interest costs through? I do not know if my question is too confusing, but --
Hon Mr Cooke: I am going to ask Colleen to answer that. This amendment is simply clarifying exactly what was intended in the original bill, but I am going to ask Colleen to explain the technical aspect of it.
Ms Poole: Do you understand my question --
Ms Parrish: Yes, yes.
Ms Poole: -- which was kind of convoluted?
Ms Parrish: What you are asking me is whether or not this would permit refinancing, and it does not. It only relates to the renewal of what the debt instrument already was, so it really just deals with a fairly narrow case, the situation where the landlord had a mortgage on the property for $500,000 at 10% and the mortgage rate comes up for renewal and moves from 10% to 13%, and what you are picking up is that change, which is 3%. That is all that is being affected.
The drafting error which we made through inadvertence was this: In the old system you used to be able to have non-arm's-length mortgages and you could count those changes. We felt that one of the ways of testing whether or not you were having a bona fide interest rate, as opposed to manipulating the interest rate to do various things, was to require that there be a market test. So the idea is that if you go to the trust company or the bank and they say it is 13%, they have no incentive to manipulate the package around.
However, inadvertently we caught the following situation: An individual has a mortgage on his rental property with his mother. They then go to the Royal Bank after this bill is in place. They had the mortgage with their mother at 10% and they go to the Royal Bank and they get 12%, and we say, "You can't get anything because your first mortgage with your mother is non-arm's-length." So what we are saying is, that should not prohibit the new mortgage, which is at market rate, from coming into the system.
However, if you entered into that mortgage after 28 November -- for example, if I rush out today and I get this mortgage with my mother at 4% and then I rush over to the Royal Bank and get it at 12%, that difference will not be recognized. It is really just intended to fix the original intention of the act. The drafting accidentally caught that situation and all we are trying to do is to change that. I hope that was helpful.
Ms Poole: Yes.
Ms Parrish: It is a somewhat complex area to explain.
Mr Turnbull: Perhaps I will address myself directly to Colleen, if you do not mind, Minister.
You will continue to be allowed to have a non-arm's-length mortgage?
Ms Parrish: No, not if it is entered into after 28 November, if you renew it after that time.
Mr Turnbull: You will not be allowed to have a non-arm's-length?
Ms Parrish: You can have one, but you cannot recognize the interest rate change.
Mr Turnbull: There are simple ways of testing whether it is at market rate, but since institutions will be, to put it mildly, somewhat reluctant to give a mortgage today in view of Bill 4, this will create severe problems for some people if you cannot have a continuance of a non-arm's-length mortgage. The ability of the ministry to test the market rate is relatively simple. I mean, one does not need to be a rocket scientist to establish what the market rate of a mortgage is. So I am perplexed that at the same time Bill 4 is coming in you are going to disallow the continuance of a non-arm's-length mortgage at market rate.
Ms Parrish: The policy thinking behind the non-arm's-length rule is that non-arm's-length rules always create a more simple mechanism for testing the bona fides of the transaction and the parties to the transaction. You are right, you could probably think of all kinds of substitutions for that, but a non-arm's-length transaction is a good way of testing the bona fides of a transaction without having to have an extensive bureaucratic oversight and extensive rules designed to deal with those kinds of situations. Because there is no refinancing involved here, all you are getting is a straight renewal, so I am not sure if this is a significant problem or not. The thinking, though, was that a non-arm's-length test is a good way of dealing with all of the potential problems that may arise, and the ability to examine each individual transaction is limited.
Mr Turnbull: The Toronto Real Estate Board publishes on a regular basis a set of sheets which lays out the rate at which all of the lending institutions will advance first and second mortgages, and from this table it would be very easy to find an average of those. I mean, there is only a variation at most of half a percentage point, and to be able to use that as a benchmark -- the point I am making, and maybe I will address this more to the minister now. Minister, with this legislation you must be aware, whether you accept the people who broke down and cried, you must be aware that there is a problem with getting new mortgaging arrangements at this moment; and if a non-arm's-length mortgage is coming to an end, the ability of somebody, in view of Bill 4, to replace that mortgage with an arm's-length mortgage could be severely tested. It seems like the most inappropriate time to bring in this kind of amendment.
Hon Mr Cooke: I am sorry. I apologize, Mr Turnbull. I was just trying to talk to Colleen, if you could just give me two minutes and repeat your question.
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Mr Turnbull: Sure.
Mr Tilson: Mr Chairman, perhaps during this two-minute interval I could raise a point of order with you.
The Chair: Certainly, as long as it is easy.
Mr Tilson: My submission -- and I will try to keep within the two minutes -- is that this proposed amendment goes far beyond the intent of the section as outlined in the bill and is a substantial change to the bill, and is therefore out of order and should not be allowed because it is not --
The Chair: I am advised that the amendment is in order. But it was a nice try.
Mr Turnbull, could you please repeat the argument you were making?
Mr Turnbull: Minister, whether or not you accept that people were telling the truth when they broke down and cried here, it is a fact that you must be aware of and I am sure your staff has brought to your attention that there are going to be severe problems in remortgaging buildings under the present circumstances. If you are remortgaging your building -- and it has been argued that buildings have dropped by 25% in value as a result of this bill -- let's take the example that was used: You got a mortgage from your mother on a sixplex, say; you contracted for a five-year period and that is all you contracted for. At the end of that time, she, like anybody else, will want the money back, but if you cannot get a mortgage from any other source, I would suspect that, using Colleen's example of the mother, you would be going to her on bended knees at the moment and saying, "Look, I'm going to lose this building unless you continue that mortgage from me."
What this does is disallow the ability to continue that on commercial terms. If you have to continue at maybe some favourable rate -- I mean, she has given you a break for five years -- this is precisely the time that you should not be doing this sort of thing, because it further complicates the market.
Hon Mr Cooke: Obviously the intention of this section was to try to avoid having non-arm's-length mortgages, where the rates would be higher and somebody was attempting to pass through those costs. That is what we are trying to avoid.
I understand the point you are making and I am advised that we could probably resolve the problem, because we do have some controls in the regulations of what the interest is. We could use the regulations to do that and we could probably resolve the concern that you have by dropping in our amendment that we are discussing now, paragraphs 100e(2)(c)(ii) and (iii).
Mr Turnbull: I am sorry, minister, I do not have it in front of me at this point.
Hon Mr Cooke: It reads: "(ii) the renewal or refinancing is made between parties dealing at arm's length, and
"(iii) the mortgage or loan was made between parties dealing at arm's length or was entered into before the 29 November, 1990."
Mr Turnbull: Do you think we could have just a short break to consider that and get some advice? This is tremendously important.
Hon Mr Cooke: That is what we have legal counsel here for, to offer you advice. Legal counsel is not here from the Ministry of Housing. Legal counsel is here for the committee.
Ms Poole: Could I just have a point of clarification? From what the minister just said, is the minister suggesting that he would be willing to withdraw paragraphs (c)(ii) and (iii) and then make provisions in the regulations, or --
Hon Mr Cooke: We already have the power in the regulations so we would be okay there.
Ms Poole: So you are saying that you would be willing then to delete (c)(ii) and (iii) from your amendment.
Hon Mr Cooke: Correct.
Ms Poole: Is that correct?
Ms Parrish: We can cap for interest rate change at the CMHC average. That is the usual test we use, the CMHC average, because that is the most authoritative source.
Mr Mahoney: I am not sure that I am grasping the first amendment. You are saying that, "the mortgage or loan and the renewal or refinancing both relate to the landlord's acquisition or construction of the...complex." I understand what you are saying in this amendment, and we talked about this in the green paper the other day, Colleen. We talked about whether or not, when the term of the mortgage expires and you go back to the market, whether it is mom or whether it is the trust company, you go back to the marketplace to get your mortgage renewed and it is at an increased rate. I understood that the purpose of what you were doing was to allow -- to use your example, going from 10% to 13% -- that 3% increase to be part of the formula that would allow for a rent increase. Is that correct?
Ms Parrish: Correct.
Mr Mahoney: Then I have some trouble understanding the wording of this where you say that it must be arising from changes where it has to do with the acquisition or construction.
Ms Parrish: That is essentially to determine what the principal is. This section only allows you to say, "Take the principal that you had at the time of acquisition or construction and tell us what the interest rate change is."
Mr Mahoney: So you have a $100,000 mortgage on the building and the term expires. What you are saying is, "You can't increase that $100,000 to $200,000 and pass those costs through."
Ms Parrish: That is right.
Mr Mahoney: You can pass through the costs on the $100,000.
Ms Parrish: Yes.
Mr Mahoney: Then is this a negative? What has that got to do with the acquisition or construction? Are you saying they cannot get the increase for acquisition or construction, they can only get it to renew the face amount of the mortgage?
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Ms Parrish: Yes. The issue you are asking is whether or not, for example, I can completely redo the debt instrument. I had a mortgage at $100,000. The property appreciates and I decide to remortgage at 75% loan-to-value, which happens to be $400,000. This provision does not allow me to get recognition for that additional $300,000. All it does is say, "You renew or refinance" -- in the sense that you are going to a different lender -- "that $100,000 and the interest rate change associated with that is 3% and that is what is recognized by this section."
Mr Mahoney: I guess it is the legalese I always have trouble with. When you read how it gets put into words, with respect, by the counsel, it sometimes -- but that is what they are telling us, so I will accept that.
What is the significance, Minister, of 29 November?
Hon Mr Cooke: The legalese throws me out too. The 29th is the day after we introduced the bill and I am going to let Colleen explain the impact that has.
Ms Parrish: It is simply the day after the bill was introduced, because this is an anti-avoidance principle, essentially, and there is no point in having an anti-avoidance principle before anybody would know they are supposed to avoid it.
Mr Mahoney: So the day after the bill is introduced is an appropriate day for this but not for other things in the bill? You are not being retroactive in this section of the bill, you are trying to be fair here, unlike the other sections?
Ms Parrish: I do not think I can answer that question.
Mr Mahoney: I was not asking you, Colleen.
Ms Poole: I do not think you should answer that question, Colleen.
The Chair: Mrs Poole?
Ms Poole: Under the RRRA right now, the provision is that a landlord cannot have cost-through for the interest rates if it is for more than 85% of the original acquisition cost. Is that not already in the RRRA right now?
Ms Parrish: Yes. It is in the regulations and we are moving down to 75%, I think. Yes.
Ms Poole: Oh, so there is going to be a move from 85% to 75% but that is in the regulations.
Ms Parrish: That is in the regulations, along with the CMHC cap or the market cap. And it is in the regulations under the RRRA and it is in Bill 4 in a later section. It is in subsection 100e(6) of Bill 4. It says you cannot have a total principal amount in excess of 75% of the acquisition or construction cost, and you have to have at least a 25-year amortization.
Ms Poole: So it would probably be appropriate that we comment on the 75% in another section then.
It appears to me that all you are doing here is ensuring that a landlord could not pass on to the tenants any financing rate changes which were over and above what he or she originally had on the building, and that in the regulations you will cap it now at CMHC average.
Ms Parrish: Yes.
Mr Duignan: Just for clarification, this basically is recognizing costs arising from changes in the interest rates. That includes both increases and decreases, and the decreases will be passed on?
Ms Parrish: It does reflect decreases, but there is always a problem in the sense that there has to be an application and landlords are more likely to apply for increases than decreases. But if they apply for something else and there is a decrease, yes, it gets picked up.
Ms Harrington: Since I put this amendment forward and the minister feels that (ii) and (iii) are not appropriate at this time --
The Chair: You want to withdraw the original amendment and propose a new one?
Ms Harrington: I would withdraw just paragraphs (ii) and (iii).
The Chair: Okay, so the original amendment is withdrawn.
Hon Mr Cooke: No, just paragraphs (ii) and (iii) are dropped.
The Chair: Fine, paragraphs (ii) and (iii) of the original amendment are withdrawn.
Ms Poole: We could treat that as a friendly amendment.
Mr Mahoney: Mr Chair, could I ask legal counsel just to confirm, just so that I understand -- I do not think this would happen, but I would hate for someone to come back at me in the Legislature and say I voted for something that I did not want to vote for. I mean, I am sure it would not happen.
It does not read the way I am being told it reads in my English, but do I understand that this amendment to 100e(2)(c)(i), which will be the only one that stands because (ii) and (iii) are being removed, then says basically that a landlord can pass on the increased financing costs of the face amount of the mortgage that is on the building on renewal date? That is basically all it says?
Ms Baldwin: That is my understanding. That is how I read it.
Mr Mahoney: Great. I do not know how you read that, but that is fine.
The Chair: Well, it is in the records anyway. That is how it is in the records.
Mr Mahoney: Now it is in the record as something I understand.
The Chair: Everybody is on the hook now.
Mr Mahoney: Not being a rocket scientist like Mr Owens.
The Chair: Very good.
Hon Mr Cooke: This is why we need a simpler permanent piece of legislation.
Mr Mahoney: Then why do we not just get rid of this?
Hon Mr Cooke: Because we have to have something while we develop it, do we not?
Ms Poole: You just wait until the lawyers get hold of your simpler, easier, kinder, gentle system, Minister, and I defy them to come up with something that is legally binding that does not confuse us all.
Hon Mr Cooke: Or you start amending it.
The Chair: Mr Turnbull.
Mr Turnbull: I just address this to legal counsel. Because of the way it is worded, frankly I am perplexed and I just need clarification.
If you were to buy -- let's say an original purchase of a building; and you put on a package of mortgaging, which may be a first and second mortgage, and let us hypothetically say this building has been in the ownership of somebody for 20 years, the new buyer, who is obviously buying it at a higher price than the original owner had it for, he would not be able to put on mortgaging --
Mr Mahoney: Not after Bill 4.
Mr Turnbull: -- as a result of this clause? He would not be able to pass through the cost of the additional mortgaging on that building?
Ms Hunter: I believe the answer to that question is that we are talking about an acquisition and a renewal by the same landlord.
Mr Turnbull: Okay. I am sorry, maybe I am being very slow on this, but I want to make sure. This is a very, very important clause.
Mr Tilson: One or the other; just translate it.
Mr Turnbull: Is it strictly relating to renewals of mortgages by the same landlord? It does not apply to an acquisition?
Ms Hunter: It is talking about an acquisition by a landlord and a renewal or a refinancing by the same landlord, as I understand it.
Mr Turnbull: Let us just step by step take the first acquisition. If you buy a building, and we will say it is worth $1 million, and you put on 75% financing, which is now contemplated under Bill 4 as opposed to 85%, to the extent that the original owner of that building may have built it for $300,000, 20 years ago -- I am pulling numbers out of the air -- the old landlord who had it at $300,000 maybe had paid his mortgage down to $150,000. With the acquisition at $1 million, are you saying that with this legislation you would not be allowed to pass through the cost of financing at 75% of the $1 million?
Ms Hunter: As I understand it, what this legislation does is look at the experience of the landlord who is acquiring it, the second landlord in your illustration. The renewal by that landlord and the financial experience of the previous landlord 20 years before is irrelevant to what we are dealing with here.
Mr Turnbull: I am not sure that I understand the expression "the experience of the landlord." If he is making an acquisition, he has no experience of this transaction.
Ms Hunter: You are looking at the transaction, the acquisition, as I understand it, by the landlord and the renewal by the same landlord.
Mr Turnbull: Wait a minute. Let us separate out those two transactions: One is acquisition and another one is a subsequent renewal of the mortgage. For simplicity, we will use a five-year span between the acquisition and the renewal.
In the first case, with the acquisition, does this allow, using my example, the new landlord on acquisition to be able to pass through the cost of financing at 75% of the acquisition price?
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Hon Mr Cooke: You see, this is one of the things that we are trying to control. The purpose of this is to flow-through the costs of renewing a mortgage and the change in interest rates if they go up, but the purpose of this bill is also to avoid the sale and flip of buildings and the increased financing that results in it. The only thing that we are trying to accomplish is that, if interest rates go up for the landlord, then those changes in interest rates can pass through, but not increased amounts of borrowing in order to facilitate a sale.
Mr Turnbull: Okay, but let's take out this word "flip." If the person is acquiring it as a first sale after 20 years, it is by any definition that we have received here, not a flip.
Hon Mr Cooke: You are talking about economic loss, and we are not suggesting in the temporary legislation that we are going to have provisions for that type of pass-through.
Mr Turnbull: Okay. So my understanding is correct when I say that in the acquisition of a building during the two-year term of Bill 4 there will be no facility for the person acquiring this building after 20 years of the previous ownership, to be able to reflect the cost of financing other than the original financing which, in my example, I said was down to $150,000 with respect to the original owner and the new acquisition at $1 million. Is that correct?
Hon Mr Cooke: You explain it in one way; I explain it in a different way. My different way of explaining it is that this legislation is going to stop repeated sales of buildings, which has been a problem, and the matter is now referred to the consultation process to see how economic loss and the other related issues will be dealt with.
Mr Turnbull: Minister, with due respect, we seem to be missing each other in this dialogue. I am asking you a question and I just want a simple answer to my question. I understand that your intention may be to stop flipping. We are not talking about flipping in my example. We are talking about the acquisition during the period of this moratorium of a building which has been in the previous ownership for 20 years. Are we talking about disallowing the ability to finance the difference between the existing $150,000 mortgage and 75% of $1 million, which would be $750,000? Am I understanding that correctly?
Hon Mr Cooke: Some of the language and the way that you describe it might be -- but essentially you have the thrust of it.
Mr Turnbull: Good. Now, my second question is, if we have a building which was acquired some years ago, and the mortgaging comes up, are you suggesting that by the deletions of (ii) and (iii) from this clause we will still be able to allow the replacement of existing mortgaging? I am not talking about increasing mortgaging, but to replace the mortgaging with something which is at market rate as determined by CMHC.
Hon Mr Cooke: Correct.
Mr Mahoney: In other words, not arm's-length.
Mr Turnbull: Even though it is not arm's-length?
Hon Mr Cooke: Correct.
Mr Tilson: I guess my question to the legislative counsel is -- because the last thing that you want to do as counsel is to draft something up that is in the courts because people do not understand what it means. Having heard comments from both the Liberals and the Conservatives as to what this means, and the minister, there has been some sparring going on here, not philosophically, but what does it mean, what does the clause mean? Having heard that, do you think that there is any way that you could take it back and reword it -- and I am saying this with all due respect to you -- could you take this back and reword this in a manner that is perhaps a little bit clearer to all parties as to what the meaning is? Because I would submit that this will end up before the courts. Someone will be saying it means one thing and someone will be saying it means something else. The very fact that we are having committee members raising those issues I think illustrates that.
Hon Mr Cooke: This is not an unusual discussion in a committee dealing with clause-by-clause of the legislation.
Ms Baldwin: We are happy to look it over during lunch, if the committee wishes us to do so.
Mr Tilson: I would. Otherwise I am going to vote against it, because I do not know what it means.
The Chair: I am waiting to hear a consensus from the committee. Minister?
Hon Mr Cooke: If you want to rework the legislation, I do not have any particular objection, except that this is the way, unless legislation is being drafted in plain English --
Mr Tilson: That is what I am asking be done.
Hon Mr Cooke: But you are not going to do one section of the bill in this way. I mean, this is one of the goals that we are going to try to accomplish with the permanent legislation, but there has not been a piece of legislation -- not one in Ontario's history so far -- in plain English. Hopefully there will be more, but it has only been done once. You are not going to do one section of the bill in one particular way and all the rest of the bill in normal legalese.
Mr Tilson: It is not a matter of changing the legalese. I am simply saying, let's put it so it is quite clear, so that we all know what it means.
The Chair: Why do we not then have legislative counsel take a look at this over the lunch-hour? We have the original draft with the two deletions. We will take a look at whatever legislative counsel brings back to us. We can compare the two.
Mr Duignan: I do not think there was consensus to do that, was there? We would like to vote.
The Chair: I was trying to help the committee, because I did not see a consensus. I was making an offer. If my offer is rejected, we will have a vote then, I guess.
Ms Poole: I am also having trouble understanding this. Am I correct when I say that this clause is to prevent two situations from happening? The first is where a landlord, say, has a mortgage of $200,000 left on his building and he wants to increase it to $500,000 and use the other $300,000 for something else and then pass on the cost of those interest changes to the tenants. That is the one situation. The second is where a purchaser acquires a building and pays an overinflated price for it and the transaction probably may not be at arm's length, and that is deemed to be a flip. Is that the general purpose of treating those two instances?
Hon Mr Cooke: Those are some of the instances, yes.
Ms Poole: Okay, I have no problem in either of those cases. Maybe the point Mr Turnbull was making -- I would say that after 28 November 1990 if there was an investor purchasing a building, then he had notice that the government was bringing in this legislation and really should have taken a serious second thought whether he wanted to get into the rental business. So I am not sure I have a lot of sympathy for the person who, knowing the government intended to change the legislation, did not look at the ramifications before he went ahead and purchased a building at possibly inflated prices. I do not know. I share my colleagues' confusion about this.
The Chair: Were you asking Mr Turnbull a question?
Ms Poole: Yes, that is my question. Do you think an investor would do it anyway?
Mr Turnbull: Essentially, you are quite right that any informed buyer would have to be somewhat misguided to buy an apartment building under the present regime, because if you have a building which was originally constructed for $10,000 a suite -- and there are many examples of that -- to the extent that you bought that building, if it had been in the same ownership and no major work had been done to it, we know that it would be totally impossible to pass through any financing costs. So you are quite right. During the course of this moratorium it is quite clear that the NDP has decided it wants totally to stop any transactions, but I was seeking clarification that I understood what was involved.
Mr Mahoney: It seems the more we talk about this, the more confusing it gets, for some reason. I read the government motion page and I accept the fact that we are not dealing with the arm's-lengths issue any more, so mom can provide the mortgage and we will use -- I think you said, Colleen -- the CMHC guideline for interest rate, so that is fair.
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Ms Parrish: Yes.
Mr Mahoney: But the explanation of this says, "This amendment clarifies the intention that in order to qualify for consideration the financing instrument, whether a mortgage/loan or renewal/refinancing, must relate to the landlord's acquisition or construction of the complex." Am I to take it that it means you will only allow for -- and that is not what I am hearing -- or they will only get consideration for pass-through if it is a new purchase? I mean, that is totally contrary to what your intention is.
If a person goes in and buys a building and there are 100 suites and he looks at that building and says there is $1,000 a month in rent on the building, therefore the value of that property, based on rental income, is X amount of dollars, that is what he is going to pay. If they decide to pay $2 million more, I agree that you are attempting to eliminate that $2 million, which in essence is profit to the seller, from showing up on the rental bill of the tenants. That is fine. I do not see how this says that, or even how the explanation allows for that to happen. So if you go in and buy a building and there is a $100,000 mortgage on the building and you buy it for $1 million, there is $900,000 that has got to come from somewhere, and it either comes from the investor or he puts a mortgage on, as in the example of $750,000; are you saying then that when that new $750,000 mortgage comes up for renewal in five years' time, if it is a five-year term, he can pass on the increase in the interest rates at that time?
Ms Parrish: Yes.
Mr Mahoney: You are? So in essence you are in fact allowing for the financing costs upon renewal of the mortgage to be passed on to the tenants.
Ms Parrish: Only the interest rate change. Let's take the following example. I will take this one building and take it through a number of examples. You have the original landlord. She has a mortgage of $1 million. It comes up for renewal and she had a mortgage at 10% and she refinances with a new lender at 12.5%. What you pass through here is 2.5%. She then puts her building into the marketplace and it is purchased by a new landlord. That landlord pays more money and that landlord goes out and he gets a mortgage of $2 million. The difference in financing is financial loss, or economic loss, depending on the age of the building, and that is not permitted in Bill 4. However, our second landlord, he has got this $2-million mortgage. Three years later he renews his mortgage. He has got his mortgage at 12.25%; he renews at 13%. What he passes through is that 0.75%.
Mr Mahoney: Of the total new purchase price or mortgage amount that is on the building?
The Chair: On the entire $2 million or on the original $1 million? That, I believe, is the question.
Mr Mahoney: That is the question.
Ms Parrish: Yes, that is the landlord's acquisition cost.
The Chair: It would be on the entire $2 million if it is on the landlord's acquisition cost.
Ms Poole: But what about his original mortgage, though, if there is a new acquisition for $2 million?
Mr Mahoney: It is the total amount.
Ms Parrish: That landlord's acquisition cost, his mortgage acquisition cost, $2 million.
Mr Mahoney: You see, that is why I think that it is confusing. What we are doing here is we are putting together the two issues. With the one issue of a simple renewal, there is no sale involved here, the term of the mortgage has expired and it is time to renew that term. The increased cost in interest, it is absolutely fair and justifiable. It is the same as a home owner having his mortgage rates go up. They have to pick up that increased cost. So those costs can be passed on. The confusion that is being created is, in an attempt to eliminate flips, you are dealing with a purchase of a building and allowing for increased interest costs on the entire new purchase amount to be passed through to the tenants at the time of renewal of the new mortgage, which could be substantial. I am sure there are buildings around that have been held for 20 years that are free and clear. There is no mortgage on it, so the new purchaser comes in and buys it for $2 million and puts $1.5 million in mortgage financing on and takes a one-year term on the mortgage. The term expires in one year and they then get to pass on what could potentially be a substantial increase in the rents.
Take a look at how interest rates have gone in this country. Let's say we have an exorbitant rise in interest rates, of 4% or 5%. You could be passing on to the tenants, who are not responsible for this any more than the landlord is, a rent increase of 4% or 5% of $1 million, $1.5 million, $2 million in their rent. I do not know. I do not think it is the intent of the government to do that and yet it seems to me this amendment is in fact not only allowing that but perhaps encouraging it.
You have at least eliminated any attempts to artificially inflate the interest rates. Even though you are allowing non-arm's-length to take place, it has got to be at the justifiable rent increase based on the CMHC formula. You have eliminated that aspect with this amendment. I think that is clear. You deal with the increase in the interest rates on the face amount of the mortgage. I think that is clear and that is fair. What you do not deal with, and where you create a grey area, is in a substantially increased mortgage on a property and a substantial increase in interest rates. Seriously, I think it is contrary to what you want to do.
Hon Mr Cooke: This is not an area that I claim to be an expert on. That is why we have experts in the ministry. But you are correct, this is not either a perfect solution from our point of view or anybody else's, and that is why this is, again, one of the issues that is dealt with in the consultation document. There are some real difficulties apparently in trying to deal with it in an absolute way. That is why we have some protection in here, but this does not offer entire protection against even what I would call "flips." It does not offer that kind of total protection because apparently it is impossible to do it in trying to amend Bill 51.
Mr Mahoney: Why not, Minister, if you accept the fact that it is not a good amendment and that it does not solve the problem --
Hon Mr Cooke: If you want to have a serious discussion --
Mr Mahoney: I am having a serious discussion.
Hon Mr Cooke: Then do not put words in my mouth.
Mr Mahoney: You said that it does not solve the problem.
Hon Mr Cooke: No. I said that it is not a perfect solution; you are correct, but unfortunately there is not a perfect solution in this area of Bill 51 in attempting to amend it.
Mr Mahoney: Why could you not have an amendment that deals with the specifics of renewing an existing mortgage on a building and the interest rate, okay? So you deal with renewing the $100,000 mortgage at a 13% interest rate when it was at 10%. You deal with that 3% component. Boom, that is one amendment. And then have a separate amendment, if you wish, that deals with perhaps a minister's discretion to approve the increased financing costs of a renewal of a new mortgage that is based on the acquisition. They would not be able to renew it on acquisition but they would be able to renew it after a certain period of time when the mortgage comes due. You might even want to say that it should be a minimum of a three-year term. I do not know if you want to get into that, that kind of restrictiveness. I mean, you can take open mortgages. You could have a mortgage that is open. Does it address that, that the mortgage rate could be fluctuating? Or you could have a six-month mortgage after a purchase and the mortgage rates go up, and in six months' time you are going to have tenant groups coming in to your government screaming that they are getting this huge rent increase after six months of a new purchaser coming in.
Maybe we should take the suggestion that was made, to ask legal counsel to rework the wording and at least break it into two. I am very supportive of allowing the increases for renewal of the face value of the existing mortgage, whether it is arm's-length or not, and I think we all agree on that. I think what we are having some difficulty with is if it is intended to eliminate a flip, it does not totally do that. I think you agree it does not totally do that, and there should be some way of putting wording together, whether it is in legalese or straight everyday Mississauga English, I like to refer to it.
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Hon Mr Cooke: That will hold up in the courts.
Mr Mahoney: That will hold, yes. Hazel taught me how to speak.
Ms Poole: Now we really will not understand it.
Mr Mahoney: However it is worded, there should be some way of splitting those two issues, and we would like to support something based on that, but I am having difficulty in voting for this, simply because of the confusion.
Hon Mr Cooke: So you want something that has a section that says mortgage interest rate change on the existing mortgage is fine, that is pass-through, and that is certainly the intent. And then you want another section that says --
Mr Mahoney: Deals with a sale or an acquisition --
Hon Mr Cooke: That would not be passed through. I am not quite --
Ms Poole: Two different scenarios: One is an existing mortgage which is being renewed and the second one is the acquisition of a building and what the terms are on acquisition and second on renewal, because we could actually have a building that was purchased on 1 December and would be caught under this amendment and have a renewal period of one year and on 1 December 1990 be putting through a renewal. So it would be impacted in two ways and I think what we want to prevent is a landlord taking advantage of the second part when they renew and passing that --
Hon Mr Cooke: So your basic concern is that this does not go far enough or does not add --
Ms Poole: Well, it is confusing, because it is dealing with two problems and we want to make sure that the flips you are talking about are truly prevented.
Mr Mahoney: You see, if I could carry on --
Ms Poole: Sorry about that.
Mr Mahoney: It is okay. The difficulty is that there may be some justification -- I guess I use the word at the minister's discretion -- at some point. What I think is happening here in an attempt --
The Chair: Mr Mahoney, can I ask a question?
Mr Mahoney: Sure.
The Chair: If I were to go out and buy a duplex for $300,000 and the duplex was mortgage-free, and I put $100,000 down of my own savings, which would leave me to go to a financial institution to borrow the remaining $200,000, would the interest on the $200,000 remaining be a pass-through cost?
Mr Mahoney: No, the interest on that I do not believe would. What we are talking about is the increase in the interest rate at time of renewal of that $200,000. If it is a reasonable time period, I do not know that I have -- I want to think this through over lunch, but I think what is happening is that because we are tying the two issues together --
The Chair: With all due respect to the committee, I think we are using very big figures and I believe smaller figures are more applicable to the people who appeared, or a lot of the people who appeared before the committee, like the $200,000, $300,000, $400,000 duplex.
Mr Mahoney: Well, I was using $100,000 as a mortgage. Someone else has suggested we get into millions.
My concern is that I support the first part of the thing. I am not sure about the second part. I want to think about it. I would like to see some wording that clearly defines it. There comes a point when a new purchase should no longer be considered a flip. We support that you do not just artificially inflate the price and pass on the interest costs to the tenants; I do not think any party has an argument, that should be stopped, but there comes a point where a new acquisition is no longer considered new and indeed there may well be justification for the increase in the interest rate on your $200,000 mortgage to be passed on at some point.
Hon Mr Cooke: That happens out of this.
Mr Mahoney: But it could happen right off the bat under this. Well, sure it could have. The term of the mortgage is a six-month mortgage and it comes due in six months and there is a substantial rent increase. What do you do?
Hon Mr Cooke: If the mortgage on the building for the original owner was $100,000 and the purchaser bought it for $200,000, and then the year came up and the mortgage was renewed, the only thing they would get would be the difference from, say, 10% to 12%, so they would get the 2%. They would not be getting that 10% on the increased value of the mortgage.
Mr Mahoney: Okay. I see what you are saying and you may have me on that. I think they should be split into two separate motions, one dealing with the face value and the renewal of an existing mortgage, and the other dealing with the acquisition issue. If you would be prepared to consider doing that, I think you might find a better understanding, not only by members of this committee, who have been grappling with understanding this issue for over an hour, but with the people, the public, the landlords and the tenants who are going to have to try to understand the issue.
Mr Turnbull: Mr Chair, perhaps, because of the degree of confusion that exists, I would suggest that this afternoon a chalkboard be made available so that I could put the examples on the board. It is an area that I do have some expertise in. It seems that we are kicking these about and we jump from one example to another and it would be appropriate if we were to resolve that.
The Chair: I think, unless I am told otherwise, and I wait to hear from the minister and other members of the committee, there is a consensus to at least give legislative counsel an opportunity to reword paragraph 100e(2)(c)(i) and then have the two sections looked at simultaneously to see if there is agreement over one or the other.
Mr Turnbull: Mr Chair, I recognize you were consulting with the minister while I was speaking. Since there is so much confusion I would suggest that a white board be made available this afternoon. It is an area that I have some expertise in and I think it would be useful to all of this committee if we were talking about one consistent model, just to use as an example, because we have batted around several different examples with different numbers. We will use a very nice, smooth number so that it is very easy to understand and so that we take all of the different examples of transactions, and then there could be no misunderstanding.
The Chair: I have no trouble with that. We will ask staff to get a board in and we will go through a model. What does the committee want the Chair to do with the rewording of this section?
Mr Mahoney: I have requested that it be split into two: one dealing with the renewal of existing face-value mortgages and the increase in the interest rates at the time of the renewal, and the other dealing with acquisition.
Hon Mr Cooke: There will be nothing wrong with legislative counsel and representatives from the ministry taking a look at it to see if there is a solution, but they are not going to say that there are going to be two sections until people from legislative counsel get a look at it.
Mr Mahoney: That is fine.
Hon Mr Cooke: It may be no solution.
Mr Mahoney: If they come back and say they cannot put it into sections, I will listen to the reasons why.
The Chair: Thank you. This section of the committee's work is going to adjourn and we will reconvene --
Mr Tilson: Chalkboard this afternoon, Mr Chair, or --
The Chair: I have asked that a chalkboard or a whiteboard be brought in.
Mr Tilson: Thank you.
The Chair: Staff will try to accommodate us as best they can. I understand that the committee has agreed to sit through the lunch hour to discuss another matter, so we will adjourn our discussions on the clause-by-clause of Bill 4 --
Mr Abel: Mr Chair, I would like to move for a 15-minute recess.
The Chair: Mr Abel has moved for a 15-minute recess. Is there consensus?
Mr Mahoney: Just before you recess, Mr Chair, the reason that we agreed to extend through this lunch hour was to question the officials from the ministry on the green paper. We all know it is difficult with schedules and everything else, and I am not going to be able to be here for at least the first hour. I am disappointed, but I just cannot be, and would like further opportunity. I just put that out, because I think there are a lot of questions on that green paper. Maybe that can start whenever we get to the green paper, and that is fine; the officials could be here at that point.
Hon Mr Cooke: Does anyone have any indication of when we are going to get to the green paper? I gather that your intention is to continue with Bill 4 next week.
Mr Mahoney: Our intention is to ensure that we get clarification on behalf of the people of the province. Unlike you or the government, we have not put any deadlines on this. We think this is extremely important. You know we have a lot of concerns and just the last hour clearly shows that there is a lot of confusion around some of the amendments put forward by the government.
The Chair: The committee stands adjourned until 12:30
The committee recessed at 1211.
AFTERNOON SITTING
The committee resumed at 1255 in room 151.
RENT CONTROL
The Chair: Do you wish to have Hansard for this?
Ms Poole: Well, Hansard is here.
The Chair: All right, we will have Hansard for this section of the committee. It is going to be a free and open committee. Just kind of enter the debate as you wish.
Ms Poole: I have a number of questions for the ministry staff and I thank them for giving up their lunch hour to be with us today.
I would like to ask the ministry to turn to page 12 of the long-term consultation document, which considers the rent increase guideline. According to the ministry, they have outlined four different options.
One of those options is the choice of retaining the current system. The ministry has made the statement, though, "The system, however, has been criticized as too complex and not well understood by tenants."
I have looked through the other approaches that have been suggested and I have looked at the preferred approach for consultation suggested by the ministry on page 14, and quite frankly I do not see how this is going to be any simpler for tenants to understand. Most tenants and landlords that I know of do not bother themselves with how the formula was arrived at. All they are concerned about is: "Is it fair? Does it offer me as a tenant protection by ensuring that the landlord can't get an excessive rate increase?" And from a landlord's point of view, they say, "Is it fair in recognizing the costs that I have that should be passed through as a regular course of events?"
I really do not see how a tenant or a landlord is going to comprehend your -- they could not comprehend it, but I do not see where your option has any advantage as far as simplicity or comprehensibility are concerned.
Ms Parrish: I think you are right that in this area there is a balance between other good things, such as the good things that the averaging does and the BOCI does, and simplicity. In a number of areas we put forward options and we say they are the preferred options even though there are some downsides to them.
The one thing I would say is that there are two things that we have not finalized or foreclosed in terms of the rent control guideline at all. That is the base, the 2% base, which is an issue that may be related to capital or other issues.
In terms of BOCI, I think you are right that by and large the guideline, whoever it gets to, and the idea that it is based on inflationary building increases, although a lot of people do not understand how it actually works, most people sort of think that is a fair concept. The preferred approach, which people may not in the end agree with, essentially says, "Well, there is some complexity to it; on the other hand it has a lot of advantages."
So the truth is, the preferred option is quite a bit like the current option. It may have a difference in the base.
The other thing -- and we have already been discussing this a bit with legislative counsel -- is that instead of having all these things in the legislation called RCCI and BOCI and all that, the residential complex cost index and the building operating cost index, maybe we should call it what people call it, which is the guideline. So you just use nomenclature in the statute which is the same as what people use in the street, "This is the rent control guideline," instead of having all the sort of complex wording.
You are quite right, this is probably not a mega change area, because there are a lot of very attractive things about the current system, although the base is still initially open to debate. It is really a tradeoff between simplicity and other good things, such as the compression value of the averaging and all that.
Ms Poole: I certainly commend the initiative to explain it in real words in any legislation that you might put forward. I think that would be a very good improvement, but I would not want to get too hung up on making it simplistic, because I can tell you, with the thousands and thousands of tenants and the number of landlords that I have dealt with in the last five years, never once has anybody said to me, "This guideline is too complex, I really don't understand it." What they look at is the bottom line and, "Does it treat us fairly?" I have never even had any tenant or landlord come to me and say, "I haven't been treated fairly by the guideline." So I would hesitate to throw the baby out with the bathwater when I think that is one area of our rent review legislation that did work extremely well. And I think whatever system you want, you want to ensure that it recognizes legitimate costs and changes in costs and in maintaining the building, and that it be fair from the standpoint of both parties.
Maybe now we could go over to the capital expenditures section, which I believe starts on page 25. The first thing is that the ministry has an acknowledgement here about the aging rental stock, which I think is very important and I believe has always been a recognition by the ministry, whether under the previous government or under this one. So we start with the basic premise that capital expenditures are necessary, and not to get into the luxury/necessary argument, I am just saying that some capital expenditures, whether they be repairs, renovations or replacements, are going to be necessary to maintain that building in a good state and to make it livable for the tenants.
What we are really going to be focusing on is who is going to pay for it. The question is, do we need capital expenditures? I think we have all determined that, but who is going to pay?
You have listed, I think, five different scenarios, the last one of which is government programs, which I am not counting as an option per se.
I would like to talk about the reserve funds. This is an area I know the minister is quite fond of talking about, the reserve funds, but I also believe, and you can correct me if I am wrong, that he has reservations about how this could actually work.
My concern is that although you have spent two pages talking about some of the problems and some of the scenarios under reserve funds, there really is not sufficient evidence in this paper for us to make any kind of informed decision, and I say this not as a criticism, because a lot of us have had ides about a reserve fund for many years. I uncovered a news article from the Canadian Jewish News in 1985 where I had put forth the idea of a reserve fund similar to what they had under the Condominium Act. So I do not mean to criticize the inclusion, I am just saying since then I have had an opportunity to find there are many problematic areas to it.
Has the ministry done extensive research at this stage about the Condominium Act and the reserve funds required and an analysis of how that has worked as far as the assessments that are required by the condominium owners who are participating are concerned, whether it is a common course of events to have a special assessment levy because the amount they pay into the fund is not sufficient? Those are the types of questions that may be alluded to in this section, but we do not really go into it in any particular depth. I have a real problem making a direct comparison to reserve funds under the Condominium Act and in our current scenario.
I believe you have mentioned one of my concerns, which is that the rental housing stock we are dealing with is aged stock. We are not starting with a new building. Under the Condominium Act I think in virtually every case you started with a new building, so that right from day one the participants were putting money into a reserve fund year by year and if it was not 15 or 20 years before a major capital repair like a new roof was necessary, there was an extensive period where that fund could be built up. So that is the first major difference I see. We have repairs that need to be done today, not 15, 20 years from now.
The second major concern I have is that we do not have any statistics showing what participants in the condominium reserve fund pay in on average per year, and I know that might be difficult to determine, but at least a range of what they pay into the reserve fund; and second, how often are there special assessments because the reserve fund, when all is said and done, did not have enough money to do a major capital repair such as underground parking garage reconstruction?
I wondered if you could perhaps take as much time as you like, because I think this is a very important area, to talk about the reserve fund and how you could envisage that it would work. I know you have put a number of options here. From your research into it so far and your brainstorming at the ministry, have you come up with any way, any preferred model or option, if you like, that you could see the reserve fund working?
Ms Parrish: We have done a lot of work on the reserve fund idea, and one of the problems we have in obtaining information is that we can look at the condominium example, but there are relatively few 20-year-old condominiums because condominiums are actually a relatively recent concept.
Ms Poole: A new creature.
Ms Parrish: The other thing, of course, about condominiums is, the way the condominium requirements work is that when you build a condominium there is a sinking fund in which the builder-developer has to put money in, and then there is money that comes in from I guess what they call the common fees or common area fees, and there is a statutory minimum that you have to put in, which I think used to be five. There has been a recent change, I understand.
Ms Poole: Five --
Ms Parrish: It is up to 10. It used to be 5% of your common fees. Condominiums have this common fee that you pay that pays for a number of things and it is $500 a month or whatever, and if it was 5% you would have to put 5% of that aside into your condominium reserve fund for repairs. That is the requirement of the statute.
In addition, there can be a special levy. I am not aware of any statistics that we have from the Ministry of Consumer and Commercial Relations on how frequent the special levy is, but we will inquire as to whether they maintain statistics on that. Since you would not have to report that, I guess they would only get it through some sort of survey. So I will inquire.
But one of the problems we have had in terms of saying how a reserve fund would work for rental buildings is that it is very -- for example, to say, "Do condominiums have enough money in their reserve fund," very few condominiums have come up into the major repair period for their building, so it is hard to say whether or not that amount of money that is being put aside is enough and we probably will not know for a while. And I think the fact that you do not have in rental buildings an initial pot of money to sort of get you going is problematic, and that is why in the paper we look at two kinds of reserve funds, one being building-specific and one being province-wide, which could even out the age problem for rental buildings.
I do not know if my colleagues want to add anything to that discussion about the relationship between reserve funds and condominiums and rental stock.
Ms Beaumont: Apart from the age of the stock, there are some other differences generally in condominium stock and rental stock. We have many small rental buildings, and one of the problems with rental buildings is that when you have to make a major investment in small rental buildings, such as replacing the roof, and you only have a few units within the building, that can be a very significant expense for a reserve fund model to bear.
There has been work in the Ministry of Consumer and Commercial Relations on the Condominium Act with the idea of leading to some changes to that act, and that work has been ongoing for some while. I do know that one of the conclusions they had arrived at in doing that work was that the 5% was not enough, and also that it was very difficult to have a standard flat rate across all kinds of buildings, because even within the condominium stock there are distinct differences. You have small blocks with row houses and then you have the big tower.
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Ms Poole: I think you have homed in on a couple of my concerns, and I agree with you about the fact that condominiums are relatively new creatures so we do not have a lot of information to work with. It is only anecdotal, but I have been told by a number of people that the condominium reserve funds have not been sufficient in cases that they are aware of, so that when there has been a major expenditure the fund is short and there is a special assessment. If you can get anything in that regard from the Ministry of Consumer and Commercial Relations, it would be very helpful.
The other concern Ms Beaumont touched on, which is it depends on the size of the building, among other things: for instance, I just put out a scenario here for a building of 20 units. Say the average rent for those 20 units -- say they all paid the same rent for simplicity -- is $500 a month. That is income for the landlord of $10,000 a month, so 1% of that would be $100 a month. Math was never my strong suit, so please feel free to correct me anywhere along the way, but I would calculate that that would be $100 a month that the landlord could set aside, times 12 months is $1,200 for the entire building to put into some sort of reserve fund. I am just going on the 1% amount that was mentioned, but a 1% fund, you have said, would not cover even the current level of repairs.
Ms Beaumont: Yes.
Ms Poole: Certainly if there was a reserve fund within the building where the landlord was required to put 1% in, it would not touch it. So say you change that to 5%, and my calculation is that is $6,000. How many years is it going to take a landlord to put aside enough money to pay for just a roof, let alone plumbing, electrical, corrosion of any cement, the myriad of things that a landlord might need to replace or repair? I cannot see realistically how it can work unless there is a major infusion of funds by the provincial government. So that is the problem I have and I wondered if it would be possible for us to have something develop which is more comprehensive than the two-page summary you have given us in the consultation document.
I know that, for instance, the Federation of Metro Tenants' Associations is quite keen on the idea of a reserve fund and the concept it is working with is that the tenant would not pay any portion into that reserve fund, it would all come from these massive profits that we all know every landlord makes, which is fine for landlords who do make massive profits, but I think we have heard enough testimony that not every landlord is in that position, that we might want to be somewhat careful before rushing wholeheartedly into that.
Colleen, you mentioned that your ministry has been delving into this quite extensively. Do you have any research documentation, any backup information on the reserve fund aspect that you could share with us, maybe not at this given moment, so that we can help make a much more informed decision?
Ms Parrish: We do not really have anything off the shelf. We have a number of different things that have dealt with different areas. One of the things that we are developing and I would be glad to share with the committee is just sort of a bibliography of all the reports that exist on all of these issues, reports that deal with things like repairs, capital repair and so on.
The problem is that there really are not a lot of precedents in this area. The only precedent is the condominium precedent, which is a recent precedent and applies to certain kinds of buildings, as Anne said, which probably is not a very useful precedent for the basement apartment. There are also some precedents now developing in the non-profit sector and the co-operative sector where they have a reserve fund concept as well. But again you are dealing with new buildings.
The precedent to sort of go through a process of saying how well does this system work or that system work, is not there, so all we can do is go through a process of intuitively testing the concept, looking at how much money is needed, how it would work, how it would work from an administrative viewpoint. In other words, it is a bit of trailblazer here, and that is why this area has been put forward to obtain the views of the public as to whether or not they think that some of the upsides are worth pursuing some of the downsides.
There is no doubt, for example, that individual reserve funds in particular will require considerable oversight by someone to ensure that the trust funds are there.
One of the other things we have also done is that I have requested an outside tax opinion as to all of the tax implications related to reserve funds of any kind, because also one of the issues that has been raised about reserve funds in the past is the tax consequence for the landlord. If the landlord receives this money, it is taxed as revenue in the landlord's hands. They have to put it aside. It does make it more difficult in some ways, because you have to reserve with taxed income. There is also the issue of the tax status of the trust and the tax status if you take the money out and so on. So I am sure that when we get that we would be -- you know, it is theoretical. This would not be an opinion that was in contemplation of any litigation, it is just a tax opinion, but there are a lot of complexities in that area.
So we do not really have anything off the shelf because the reality is we have nothing to benchmark. We are meeting with anybody who wants to talk to us about this area, including Metro tenants, to see whether or not they have been able to identify areas for us to explore as a ministry.
Ms Poole: The federation is certainly one of the witnesses that we have asked to come to present their comments on the long term, so we will look forward to any information they can share. The tax implication is one that I believe you are perfectly correct on, and my understanding is that right now under the federal income tax laws condominiums do have an exemption for their reserve funds. So it is treated differently in that we would require some sort of similar exemption were rental properties in Ontario to go through the same thing, but again that is second hand, so I would not take it as gospel.
Ms Beaumont: This is the kind of information we would expect to get from this tax opinion.
Ms Parrish: The taxation of trusts is quite a complex area and it is possible that the income in the trust itself is not taxable in the same way as these educational trusts for your kids are not, but the revenue going in would be taxed. Anyway, I am not a tax expert and I think that our job at the ministry is to try to get someone who is a noted tax expert. We have asked for that and we hope that we will be able to get that information very soon.
Ms Poole: To the best of your knowledge, is there any jurisdiction within or without Canada that has a reserve fund concept operating as its basic premise for dealing with capital repairs?
Ms Richardson: Not for rental buildings.
Ms Poole: So this is true and untried ground, then, true? No, this is --
Mr Mahoney: Truly.
Ms Poole: Truly. Thank you. If you see what I am like now, wait until 5 o'clock, I will be a -- I will not say what I will be.
By the way, Mr Turnbull, I do not think you were here when we started, but the Chair said that this is kind of informal, so if anybody has questions, please feel free to jump right in.
Mr Turnbull: Good. Thanks. Obviously in a discussion about this capital cost pool, this reserve fund, it begs a question as to how -- let us assume for the moment that in some manner or means a degree or all of this money were to be raised from the tenants. The minister himself suggested two possible models down in Windsor. He suggested 2% fixed per year added on top of the guidelines, on all buildings, or alternatively, say, a maximum of 5%, but by application in terms of the capital amount that you would imagine you could get. If you built it up in that way, and let's assume then that it is coming from the tenants, are the tenants well served by paying that money in advance of expenditures, as compared with the present method where you go out and you raise the money and you amortize it?
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It seems to me you are doing the same thing. You are doing the repair, but rather than asking the tenants for the money in advance to build up a fund, you are funding it as you are going along. Obviously, the greatest problem we run into is where you get a large clump of very expensive repairs all occurring at the same time, which would tend to increase the amount of money that you would have to go to the tenants for, and to the extent that it is probably more likely that you are going to have large expenditures in all buildings that have had very little work done; yes, the largest increases are there. But you can also use the other argument that they have the lowest rents. So I just ask you to reflect on that.
Ms Richardson: I think it is quite true that the way the current system has worked it is sort of after the fact. You have to spend the money first before it passed through into the rents.
If you add more money into the guideline, or if it is a reserve fund, what will be required is in effect greater enforcement or greater policing that that money is being spent on capital expenditures. I think that is probably what everyone would expect, that if that money is there and available for capital expenditures, it is being spent on capital expenditures. That definitely is one of the concerns.
Mr Turnbull: And as I say, the whole question of the fact that by raising it after the fact you are amortizing it. It is not if it is all raised in one fell swoop, it is an amortization based upon the expected life of whatever you have done. I do not know if you have got any indication as to the lifespan, the amortization period that you assigned under Bill 51 under the regs, whether it was an appropriate number or whether you would have preferred to have fine-tuned it if Bill 51 had continued.
Ms Beaumont: As you are probably aware, there were some revisions to the regulations last year dealing with the capital area and one of the things that we have been engaged on in the ministry and consultation with outside interest groups and with an outside consultant during the summer was looking at those amortization periods to fine-tune some of them, to confirm some of them and to add in other features that have not been contemplated in the original regs, and that work was not completed during that time frame.
Mr Turnbull: Obviously, if you raise an equal amount -- let's say we went with the 2% model to be added to the guidelines. What we do is we increase those buildings which have already had all kinds of repairs done to them and perhaps essentially they have been brought up to modern standards, and it seems unfair to penalize those tenants who have already paid for it.
I will digress just for the moment, just because it sort of relates a little bit. One of the problems with market value reassessment, which could rear its head as being a major problem in Metro Toronto, is any buildings which were built prior to 1971 have had their assessment base frozen and under market value reassessment they will be reassessed. Those buildings which have had a substantial amount of renovations done to them so far and their income is significantly higher than, say, an identical building which has had no work done to it and has not been sold or even flipped, because you base assessment on a rental property on the income, those properties which are already paying the highest rents because all of the costs have been flowed through to them will end up paying the highest amount of taxes. And this is one of the basic problems we get when we use a shotgun approach to anything. It seems to apply very much to the cost area, the idea of adding capital cost across the board. Could you reflect on that?
Ms Beaumont: I think in the variety of approaches you are really talking two fundamentally -- I am not talking now about the government programs one, let's leave that to one side; but the others, which are all variations on the theme of the tenant pays in one way or the other -- you are really talking two alternative systems, basically. One is where the tenants pay through rents in one way or another for specific work that has been done, or where you have had a base of funds built up in one way or another in anticipation of needed work. The first approach can be very specific to what is being spent, the second is anticipating, but over the lifespan of a building, moneys are going to be spent.
But then you get into the problems that have been raised earlier on, the fact that these buildings do exist and require different amounts of money spent on them, have had different amounts of money spent on them.
Mr Turnbull: So it goes back to the fact that we should not have a shotgun approach, number one.
Ms Richardson: Perhaps one of the pros or the plus sides of increasing the guideline is that indeed it is simple. That is also one of the overall principles. If that indeed were how we were going to deal with capital expenditures, then there would not be the need for separate rules and regulations for passing through individual costs, etc. So you have to balance a number of competing interests in that.
Mr Turnbull: I would be extremely nervous about that. I happen to have one particular complex that I am thinking of in my constituency. They have gone through all of the rent increases that are known to man and they are paying very, very high rents. As a matter of fact, they have got a very large vacancy rate as a result of this. It would seem totally unreasonable that they would have to pay further increases when in essence they have already paid for these things. If you believe that rent controls ought to protect tenants, I do not believe you achieve that end when you have the double whammy of people who have already had the repairs done.
Ms Beaumont: Well, these are the kind of comments and the kind of different views that we wanted to elicit through a consultation, obviously.
Mr Turnbull: Yes.
Ms Parrish: Sometimes you do hear people saying that if you did bring in reserve funds or if you did bring in guideline increases across the board which hit everybody indiscriminately, you could develop some sort of rule that said, "Yes, but it wouldn't apply to certain kinds of buildings," for example, the kind of building you spoke of. On the one level you are bringing in a new system because it is simpler, and then on the other side, in order to be more fair to a certain group, you are creating all this set of added --
Mr Turnbull: Complexity. Yes.
Ms Parrish: So the problem is always very much between being simple and sometimes being fair. Trying to develop a system that everyone will say is fair often results in these sort of very elaborate rules which people cannot understand, and then at some level you can sometimes have such an accretion of fairness rules that you have no justice.
Mr Turnbull: I know some of you were here, were you all here the other night when Mr Thom spoke to us?
Ms Parrish: Unfortunately, I had to go to another meeting, but I think my colleague was here.
Ms Beaumont: I was here.
Ms Parrish: Did he say something like that? It would not surprise me if he did.
Mr Turnbull: I do not think he said anything that was surprising, but Mr Thom is a wonderfully erudite person who spoke for one hour without any notes without being at all repetitious and kept his flow of train of thought, and ultimately his conclusions -- which of course you can read in the Thom report -- are that he believes that, rather than this huge complexity that we have got at the moment which is leading to great problems, he would allow rents to rise to market levels and he would cushion the bottom 33%, and then he would control rents once they were all at market rate and he would not allow any pass-through of expenses with respect to financing or renovations or anything.
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I realize that we have the green paper, it is a discussion paper, but precisely because it is a discussion paper and we are talking about capital costs, have you considered this and actively discussed this with the minister, the merits of that perhaps, shielding the bottom 33% from the cost of housing and getting rid of all of this complexity, then rising to market rates and then fixing it, and let the landlord be mandated through maybe tougher controls to make sure he has to repair the building and keep it in good shape?
Ms Beaumont: I think the minister is aware. Certainly his staff, and I suspect the minister himself, have read the Thom report, or certainly extracts of the Thom report, and he has had representations made to him by the Fair Rental Policy Organization of Ontario, among others, about proposals for a shelter allowance system, which is essentially what you are talking about --
Mr Turnbull: Yes, that is right.
Ms Beaumont: -- a shelter allowance system as opposed to a rent control system. But the concern with that is, how do you control the costs of a shelter allowance program and are you in any way addressing the maintenance of a stock of affordable supply in a market situation which is not an ideally functioning market? We do not have market rents. The market system is distorted by low vacancy rates, by a whole range of factors ranging from tax provisions through government programs, through municipal restrictions on building, and on and on and on. So you do not have a perfectly functioning market, which is really what Stuart Thom talks about in his report.
Mr Turnbull: This whole business of a reserve fund troubles me, because what happens is people start paying for it ahead of time. Government does not operate that way. I mean, we do not have a reserve fund to put a new roof on Queen's Park -- unfortunately, maybe, because we know it is going to cost a lot of money -- but it is an unnecessary burden on the people paying for such a system if you do that. Those are really my comments. I just wanted to draw you out.
Mr Mahoney: I did not want to deal with the reserve fund, but I must tell you that I think it was 1978 when we on the city of Mississauga council set up reserve funds for everything from vehicle replacement to roof repair, to putting concrete under ice surfaces, to building our city hall, which was built and paid for the day we moved in thanks to reserve funding, to that philosophy. In a general sense, it makes an awful lot of sense. I would love to be able to do it at home; I cannot. I think that is probably true of a lot of us. Anyway, I think that is a good avenue to go towards.
There are difficulties in administering it. We always had great dangers, both at the region and the city. We would have a water rate stabilization fund, for example, to keep our increases in water rates down. There was always a great temptation politically to take money out of there so that you would not have to increase the mill rate too much. When you do that, of course, then you lose the flexibility that the reserve fund was established for.
I would just be a little concerned about the bureaucracy that might be required to administer something like that and a process that might have to be in place. It could be very difficult. However, it does work in the case of condominiums, and certainly many municipal governments have adopted that position.
My questions come around page 24 of your report, when you say there should be no increase above the guideline. First of all, I must assume that the conversation on Bill 4 this morning has led to a revisiting of the issue of whether or not interest rate changes would be allowed in the calculation, because in Bill 4 the amendments that we were dealing with, with Colleen this morning, say that interest rate change will be allowed, and yet this document says it will not.
We spent some considerable time the other day talking about the justification of that. I would not want you to say that it was my idea, but are you now suggesting that you are revisiting that issue and are you going to delete interest rate changes from this section?
Ms Parrish: In the paper we are revisiting everything, but I think the last time we discussed the issue of interest rate change I did point out that Bill 4 does permit interest rate changes and that the preferred option currently stated in this paper for discussion is that interest rate changes not be permitted. One of the reasonings behind that is that there is significant complexity related to interest rate changes and when you do not permit financial loss, economic loss and hardship relief, you have to have a fairly complicated system in order to make sure that nothing that used to be financial loss gets passed through the system.
In the temporary legislation the thought was to permit these renewals of mortgages, because it is really a temporary piece of legislation. When they looked at the entire package, the thought was that that issue might be revisited because we are also looking at things like capital repairs and so on.
I think that the discussion we had this morning shows how very difficult it is to deal with interest rate issues. I think you have to have a lot of rules to deal with potential abuses, with non-arm's-length transactions, with how the capital underlying the transaction works and so on. That was some of the thinking that was behind this.
Mr Mahoney: It is a funny scenario to have a government green paper not after Bill 4 has been passed but sort of right in the middle of the debate on Bill 4 and to be agreeing in Bill 4 that interest rate changes are justifiable, particularly for simple renewals of mortgages, not for refinancing or for expansion or capital improvements but simply for increasing the face amount of the mortgage due to increase in the interest on the face amount of the mortgage on a renewal. To suggest on one hand, in Bill 4, that we should do that and then put out a paper, I almost wonder if the government is simply attempting to throw up a smokescreen here, to get everybody to debate an issue that really does not need to be debated a whole lot.
While there are complications if you are going to allow for interest rate increases, the concern this morning was the mixing up of the issues: the government on the one hand says that, "You cannot pass on financing costs related to acquisition" and then on the other hand says, "except for the financing costs related to acquisition that represents the interest increase based on the renewal of the mortgage that was put on the property at the time of acquisition." I mean, this is really doublespeak, it seems to me.
So, I do not know, if we are going to allow for interest rate changes to be part of the equation in Bill 4, I have a lot of difficulty understanding why it would be a preferred exclusion in the green paper if not other than to send people like me and others into a tizzy, to spend hours discussing it. Why can we not just settle it?
Ms Beaumont: It is a discussion paper.
Mr Mahoney: But we are discussing it on Bill 4 and coming to an agreement. Even the minister is agreeing. I am even finding myself agreeing with the minister, unbelievably, on that issue. Anyway, how do you define hardship relief under that section? I looked for some form of definition in the paper and I could not find it.
Ms Parrish: Our specialist on hardship will help.
Mr Mahoney: I have got to tell you, I am a specialist on hardship.
Ms Richardson: This actually is, once again, a rent review jargon term and it has been part of the whole rent review system, certainly under the RTA, the Residential Tenancies Act, and the Residential Rent Regulation Act. What it is, is a provision that once a landlord is at the break-even point, where revenues and costs are matching, that landlord could be eligible for hardship relief, which is equal to 2% of costs. That, in effect, would be a profit amount of up to 2% of costs. This particular provision has been available for the pre-1976 buildings, going right back through the past two pieces of legislation. The post-1975 buildings, the newer ones, are eligible for the economic loss provision, which to date in most cases allows a 10% rate of return on a defined equity. So there are different rules available for the post-1975. The concept here, hardship relief, really harks back to those previous two pieces of legislation and how it was dealt with at that time.
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Mr Mahoney: The issue of equalization: We have a building where, for whatever reason, tenant A is paying $400 a month and tenant B is paying $700 a month. I mean, this is very much the issue of section 63, is it not, in taxation? I guess there is apparent discrimination there. I understand the difficulty of telling someone on a Monday morning, "Your rent's going up $300 a month because Mrs Jones is paying more than you are and this isn't fair," but should there be any attempt to bring fairness? If you are really controlling rents in the strictest sense of the words "rent control," you are allowing for these disparities to exist, and they do exist all over, some of them due to simple tenancy time, whatever the reason might be. What was the discussion or the thinking about not addressing and simply excluding equalization from any equation?
Ms Parrish: There are a number of things about equalization. In theory, equalization should be revenue-neutral. In that sense, except for these sorts of aggravation factors for the landlord, that he has to adjust all these rents, it should make no difference.
The problem is, it is not revenue-neutral if you do not actually know what the legal rents are. So in some cases the argument is that where you have the two, one at $500 and one at $700, the one at $700 may have an illegal component in it. It is just that nobody knows and therefore the argument is often made that this is a way of bringing up the other rent, which may be the legal rent, to a higher level. That is the one argument and that probably could be fixed if you had good enough information in the system and it was accessible to everyone.
The other argument is really, I guess, just the fact that it is the "We made a deal" approach, which is: "When I rented the apartment you said to me it was $600. You didn't say to me it was $600 if Dana's apartment is $600 but it is $650 if her apartment is $700." So there is the argument about what people knew when they took on the apartment.
The other thing, and this is very anecdotal, is that there is often a suggestion that landlords will often not take increases or whatever over time because they have an elderly tenant. They wish to help them out, or just that it is a long-standing tenant who has maintained his unit well, and then they say: "Why should I give the same consideration to some new tenant? That person hasn't necessarily given me the sort of customer loyalty that this other person has." So there are some arguments there that what tends to happen is the long-term tenants have lower rents and their rents are pushed up by new tenants.
I guess that is easy to accept when it is the yuppie couple with lots of money and the elderly lady without very much money, but often it is quite the other way around. The established tenant may be fairly well off and the new tenants may be a new family to Canada, a single mum with a young child who need a good place to live too.
Mr Mahoney: The yuppies are now puppies, right? They are poor.
Ms Parrish: Since I am in that generation, I guess I will immediately agree with that.
It is a very difficult issue to deal with. If I can put it this way, it is not really an ideological issue, it is very much an issue as to the practicality and the fairness and how people feel about it. A lot of people feel quite strongly that the concept I gave you, which is the deal concept, is very difficult to accept: "I took this on and this was the rent, and all of a sudden Dana complains about her rent and my rent goes up."
Mr Mahoney: Do you have a supplementary?
Ms Poole: Yes.
Mr Mahoney: Because I have another follow-up, too.
Ms Poole: Thank you, Steve.
I can buy your argument, "a deal is a deal" concept. That to me makes a lot of sense. The difficulty with the revenue-neutral argument that you put forward does not hold as much water, from my viewpoint. For instance, what you are basically saying is that it could legalize an illegal rent and therefore that it is not really revenue-neutral to the landlord, but I would submit to you that in those cases the landlord, if he is submitting an illegal rent, is going to be getting that revenue regardless of whether there is equalization, so it is not going to affect his or her income or revenue one iota. There is no advantage or disadvantage to the landlord other than, I suppose, for simplicity.
But on the other hand -- it is a difficult issue, I agree with you -- there are tenants who feel it most unfair that they are paying over $200 more for their unit than another tenant in the building with an identical unit, and the approach taken in the RRRA was that it be phased in and -- correct me if I am wrong on any of this, but this is my experience -- that it was phased in so there would not be a particular hardship of a lump sum, where suddenly a tenant who had been equalized would be severely disadvantaged. I do have a problem in that it was kind of thrown out automatically, even though you have said that you are willing to reconsider and you will be reconsidering. It does make a mindset right from the beginning, that the ministry has decided this is not a good idea to have in the long-term legislation. Anyway, that is my comment. I think you had more.
Mr Mahoney: Yes. Part of the difficulty with that issue is that it very much is like market value assessment, in that --
Ms Poole: Oh, no.
Mr Mahoney: Oh, it is; it is exactly the same issue as market --
Ms Poole: And I am totally opposed to the way you feel.
Mr Mahoney: I know you are, and that is why I was curious --
Mr Turnbull: I am with you.
Ms Poole: You are outvoted.
Mr Mahoney: But market value reassessment is absolutely fair. We were the largest municipality in the country to go through it, actually, and I happened to sit on council when it happened.
Ms Poole: Point of order, Mr Chair: Surely you do not agree with this?
The Chair: I want to say that on that point Mr Mahoney is absolutely correct.
Mr Mahoney: Yes.
Ms Poole: Mr Chair, market value assessment has nothing to do with the discussion paper and I would ask you to rule Mr Mahoney out of order.
Mr Mahoney: It is the exact same issue because --
Ms Poole: In addition to being wrong.
Mr Turnbull: I second that, Mr Chair.
Mr Mahoney: -- the one tenant who is paying $500 --
Ms Poole: Mr Chairman --
Mr Mahoney: Our party is coming apart, you can see that.
Ms Poole: You do this to me, Steve.
Mr Mahoney: The one tenant is paying $500 and the other one is paying $700. If it is revenue-neutral, they should each be paying $600, all things being equal, based on the fact that it is the same apartment, one bedroom, no perks, etc. That is the fairness and equity of section 63.
Do not misunderstand me, I am not attacking you, you are putting out a discussion paper, but if the government is to say that, "We can't deal with equalization because we have to let the marketplace do its job," in that you signed a 10-year lease and therefore you've got a rent of X, I signed a five-year lease and therefore I paid a little more, whatever it happens to be. I decided to broadloom the apartment with a certain quality broadloom, so I negotiated a lease that allows me to write off the cost of that over the term of the lease perhaps; therefore my base rent is lower. There are all kinds of deals that can be made between a tenant and a landlord. So on the one hand we are saying let's let the marketplace do its job and on the other hand we are choking the life out of it. It is a real contradiction of terms.
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The catch-up for below-market rents is another one that is very interesting. What would your definition -- I am throwing it at the royal "you" -- of market rents be?
Ms Richardson: In the previous legislation, in the Residential Rent Regulation Act, when this concept was introduced but not proclaimed, they called it "chronically depressed rents," and one of the tests in that provision was to look at similar accommodation in the neighbourhood. That in itself is also very difficult to establish. I mean, how big is that community? How big is the neighbourhood that you are looking at? So it is not an easy issue, and it depends on the age of the building, the kinds of amenities that would be provided. To draw market rents as far as what would be an appropriate market rent for an individual unit is concerned is a very difficult thing to find.
Mr Mahoney: The problem that many communities face is, they can see what their legal rent level is, and we have met landlords around the province who have said to us, "I was given approval under the RRRA to increase my rent to recover these costs but my tenants can't pay the increase, so the approval's sitting in my drawer gathering dust." So the difficulty, again, of the market rent is, I am not even sure whether or not there should be an attempt to stabilize or crystallize or equalize or catch up or any of that kind of stuff. Being very much a supporter of the free market wherever possible, I do not know where that particular one is going to fall down.
One final question, if I might -- I think Mr Brown has a question he wants to put -- has to do with the statement on page 30: "Funding for a province-wide reserve fund could be created by infusion of government resources, a tax on building revenues or required contribution from rent." I am assuming you are talking about all three of those: the government putting in some tax money, then raising additional funds by taxing building revenues. I guess that would be in lieu of requiring a contribution from rents. Are you talking about a landlord tax? Is that what we are talking about here? Or a tenant tax?
Ms Beaumont: What we are talking about could be any one or all of those, and it could be a tax on building revenues as a landlord tax, contribution from rents as a tenant tax. So we are talking a variety of methods of finding that money.
Mr Mahoney: And we are talking about some intervenor funding somewhere in here that I noticed the other day. What was that for?
Ms Beaumont: This is for landlord and tenant --
Mr Mahoney: Dispute settlements? The government is going to pay for that? We are going to give work for the lawyers?
Ms Beaumont: Colleen is a lawyer. I think you should answer.
Ms Parrish: Certainly I am in favour of more work for lawyers, but I do not think that was exactly the concept. I mean, the concept of intervenor funding is a concept that is out there. We have not put it forward. What we have said is that we could have a system like they have under the Workers' Compensation Board.
Mr Mahoney: God forbid.
Ms Parrish: WCB as a board has these advisers, these two advisers, the workers' adviser and the employers' adviser. We put that forward as an option. We do not say that it is a preferred option, but we say it is an option.
What we say is that we would rather fund directly landlord and tenant organizations to give advice to, for example, small landlord groups. We already do that now. We give money now to small landlord groups, and actually they have training courses -- you know, how to fill in these forms, how the system works, etc -- and we have the same for tenants.
I do not know if I will get myself into trouble for saying this, but by and large people think that the government is not a bad source of straight information, straight education, but when they want someone to sort of be on their side, so to speak, they do not want a sort of me, because they are always going to perceive that I have some interest other than their interest, which is true. I have the government's interest as well. So the idea was that we looked at the possibility of having these advisers, and on balance we probably think it would not work that well, but we will wait and see what people say.
Mr Mahoney: Have you submitted this document to AMO?
Ms Parrish: To?
Mr Mahoney: AMO, the Association of Municipalities of Ontario. They have got it?
Ms Richardson: Actually, we have sent it to all municipalities as well.
Mr Mahoney: Okay. Are we talking about some structure that will facilitate their input, other than just mailing it to them? Are we going to have any kind of a working group or a discussion group or are we inviting them in here? I mean, there are 850-plus municipalities in the association, so they do have a voice.
Ms Beaumont: No, the plan is that there would be a series of invitational meetings to major groups, AMO obviously being one of the more significant of the major groups. So that certainly is planned, that there would be discussions between them and the minister.
Mr Mahoney: One final question. I have others, but I know we are running out of time. Do you see any merit in breaking such long-term legislation as this down on a regional basis where what we do for the Metropolitan Toronto, GTA communities might be substantially different than what we do for northern Ontario, southwestern Ontario, eastern Ontario?
Ms Beaumont: It is one of the things we have considered in looking at perhaps different ways of including or excluding people from a system, different levels of a guideline and so on. The problem becomes, though, when you look at the range of ways in which people have suggested breaking it down, you really build up the complexity of the system.
Some have suggested that there is a crying need for rent control systems in the major metropolitan areas, a lesser need in rural Ontario, but then in the next week you will hear from tenants living in a situation in rural Ontario where they have major problems (a) in finding affordable accommodation and (b) in being able to stay in it once they are there. So you have a greater concentration of problems, certainly, in the metropolitan area, but you have problems in other parts of the province as well.
There have been proposals made over time for confirming a rent regulation system to existing buildings, excluding new buildings, excluding buildings from rent control for the first X number of years after construction, excluding buildings on the basis of if the landlord provides a new unit we will exclude a unit from your stock, excluding areas when the vacancy rate reaches a certain level, but vacancy rates go up and down. If you have got migration into an area the vacancy rate is going to go down, and then a factory closes and the vacancy rate goes up. How do you ever keep track of it? The complexity becomes a problem.
Mr Mahoney: We do it for a lot of issues. I mean, we do it for licence plate stickers and various other things. I think we have a tendency to make things more complex than we need to. I am sorry. Mike Brown.
Mr Brown: Thanks, Steve Mahoney. I just have one question, and it regards section 3 on page 5, the "Basis for Rent Control Reform." It strikes me that these principles do not really address all of the problem. I am just wondering how you rationalize that.
To me, the issue is about fair pricing as a goal that we would like to see in the rental market, we would like to address availability and we would like to address maintenance. Looking through, I would think that has maybe boiled it down a little bit too fine, but those are the basic goals, and how we get there is what you have described after that.
But I am particularly concerned with availability. Nowhere in here does it talk about rent control in relationship to creating investment in the industry, therefore having more units, therefore having more choice for tenants, therefore, hopefully, improving the lot of tenants because they can choose more freely where they live. I just wonder why the issue does not appear to be addressed anywhere.
Ms Beaumont: I believe that a variation on that question was raised with the minister on Monday when he presented the paper to the committee, and what he was indicating at that time is that what the paper is dealing with is proposals for rent regulation and the questions of supply are going to be dealt with separately.
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Mr Brown: Well, I realize you are the bureaucrats, not -- I just have amazing trouble. Obviously rent controls impact directly on investment and therefore on how many units come on stream, etc. I would have thought the paper may have come in here and said by 1995 we want to create 22,000 new private units in the province of Ontario, or whatever number; define the goals and then we can find out how we are going to get there. There appear to be no goals.
Ms Beaumont: I think, Mr Brown, rent regulation in itself is not alone going to be either an incentive or a disincentive to the production of rental housing. It is a whole raft of things that affect decisions people make about whether to build new rental stock: cost of construction, cost of land, tax provisions.
Mr Brown: Granted, all those things impact, and I am not suggesting that only rent control has to do with that, but rent control is a component. You cannot take this and forget about it either. I think I am talking to the wrong people, but it bothers me that this information is not put out in the discussion paper, because I think it precludes an important part of the discussion that needs to take place in Ontario.
Ms Poole: I had yet one more question on the capital expenditure side. As you can tell, this is one that I have quite a keen interest in and have for many years. I think the minister, when he told me several weeks ago that he thought I would like the consultation paper, maybe was referring to the fact that some of the provisions under the options under capital expenditures are my own words coming back to me, so he would very much like me to agree with those words in a continuing saga.
I would like to explore the cost pass-through rents, and as you know, the amendment I have tabled with this committee deals with a cost pass-through for necessary repairs, with a cap, making provisions in the cases where there is ongoing deliberate neglect and also providing the minister with the authority to regard the quality of the repair or replacement. Under the options considered, option (a) has a variation of this.
The Chair: We have got to get back to clause-by-clause. Our time is very limited.
Ms Poole: Can I ask my question?
The Chair: Very quickly.
Ms Poole: That is obviously something I would prefer, particularly if you had it in conjunction with a reserve fund but for when the reserve fund was not sufficient to go into the cost pass-through system.
However, one option that I did not see would support the theory that major repairs should be paid for through rents and that a prudent landlord would have been setting aside money throughout the years out of the profits from the rents to pay for major capital repairs. It is not a theory I particularly agree with, but it is a theory that has been advanced.
Is this an option of simply saying capital repairs are in the purview of the landlord, both in determining whether they are necessary and should be done and in paying for them?
Ms Beaumont: It is an option. It is a variation of the option of guideline, because what you are really saying is that you would have the current system, which has 1% in the guideline for capital and that is what you would have. So it is there conceptually; the option under which it would fit is the guideline amount and it would just stay there. You would not pick up the other restrictions. We talk about a lot of possible restrictions or limitations necessary, tenant consent, capping, etc. You simply would not have any of those.
Ms Poole: I should clarify that the option I am talking about that some tenants have proposed to me --
The Chair: Our time has expired for --
Ms Poole: Can I just finish my statement, my sentence?
The Chair: Well, that was --
Ms Poole: Just my sentence. One sentence.
Mr Tilson: How long is your sentence?
Ms Poole: Very short. I just want to clarify that the tenants who have made this proposal to me have not been talking about making an increase added on to the guideline, they have been saying that the existing rents should pay for it and there should be no increase whatsoever.
RESIDENTIAL RENT REGULATION AMENDMENT ACT, 1990
Resuming consideration of Bill 4, An Act to amend the Residential Rent Regulation Act, 1986.
The Chair: Thank you. The standing committee on general government is called to order for the purposes of continuing our clause-by-clause discussion of Bill 4, An Act to amend the Residential Rent Regulation Act, 1986.
Before we adjourned shortly before 12 noon today, the committee was discussing an amendment to clause 100e(2)(c) and a government motion had been tabled, which was paragraphs 100e(2)(c)(i)(ii) and (iii). It was agreed during discussions that (ii) and (iii) of that initial government motion would be deleted. Further, it was agreed to by the committee that legislative counsel would do a redraft of that government motion and we would consider both simultaneously, as best we could, and then decide on which one the government was going to put forward. I believe that is what we agreed to, generally speaking. Given that, the clerk has distributed the rewrite and I think it would be appropriate to read it into the record for all of us to know what we are discussing.
Ms Harrington moved that clause 100e(2)(c) of the act, as set out in section 8 of the bill, be struck out and the following substituted:
"(c) any increase or decrease of costs arising from changes in interest rate that occur when the landlord renews or refinances a mortgage or loan if,
"(i) that landlord entered into or assumed the mortgage or loan;
"(ii) the mortgage or loan related to the acquisition or construction of the residential complex; and
"(iii) the renewal or refinancing relates to the acquisition or construction of the residential complex."
Now, it is technically correct that we have one motion on the floor, which received a friendly amendment, and that was to delete two sections. It is technically correct that that motion is on the floor, and it is also a reality that we are discussing another amendment. We can do this with the full consensus of the committee. I believe we have that and we are going to proceed.
Ms Poole: It might be helpful to the committee if I relay the import of a conversation that was held informally among a few members with ministry staff during the break when we were trying to determine the cause of the confusion on this.
I believe that the confusion was created when the minister and I were discussing things such as flipping, financial loss and other provisions. It has been clarified, certainly to my satisfaction, that this clause has nothing to do with financial loss or flipping or anything else, it is simply and unequivocally only to deal with the interest rates on mortgages. So that has certainly clarified a number of the concerns I have on this particular provision, both in the earlier wording and in the new wording. It does not deal with what I thought it was dealing with at all, so I do not know if this --
Hon Mr Cooke: Who was most confused, you or I or both of us?
Ms Parrish: It was me.
Ms Poole: Let's be kind to both of us and say the minister and I were equally confused and compounded the situation.
Mr Mahoney: Not to add to the confusion, I think I like the new wording, but I want to go through it if I can.
"Any increase or decrease of costs arising from changes in interest rate" -- we agree with that -- on the renewal or refinancing, and the refinancing could only be done because it had to be renewed, obviously; the term has expired. In other words, he is not refinancing and increasing the amount of the mortgage. We agreed on that. Right?
If the "landlord entered into or assumed the mortgage or loan." That means that it was perhaps the original mortgage at the time that landlord became the landlord? Is that what --
Ms Beaumont: I think it might be more appropriate for the ministry people to respond to that.
Mr Mahoney: Except that you wrote it.
Ms Beaumont: If there is a question on drafting that you have after they have responded to that, I would be happy to answer it for you.
Ms Poole: Let the record show that Colleen looks very happy about this.
Mr Mahoney: I think she should refer to legislative counsel.
Ms Parrish: There are two things there. One is you assume the mortgage, so that one situation is covered, but it could also be that the landlord entered into the mortgage in the first instance.
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Mr Mahoney: It could have been a brand-new mortgage that he put on the property.
Ms Parrish: That is correct. It could be assumed or new.
Mr Mahoney: "The mortgage or loan related to the acquisition or construction of the residential complex." What else would it relate to? We are talking about a mortgage that is being renewed.
Are you saying then that if the landlord put a mortgage on the property to build a swimming pool, an existing building and he wanted to build a swimming pool or a rec centre and he put a mortgage on the property, that would not qualify under this?
Ms Parrish: No, I think all that this is trying to do is to avoid the situation in which what you are dealing with is renewal of corporate debt. One way you can have debt is to have debt on the property, and that is what we recognize, but you could also have -- I could be a holding corporation and what I have is a debenture issue and my debenture issue goes to the market and so on and so forth. All this is trying to do is to say --
Mr Mahoney: So you are just trying to relate it to the hard costs?
Ms Parrish: -- the whole is related to this building, in essence.
Mr Mahoney: To the hard costs?
Ms Parrish: As opposed to the financing structure of the corporation or whatever it might be that is out there.
Mr Mahoney: And "the renewal or refinancing relates to the acquisition," so we are talking about a new acquisition in that case.
Ms Parrish: The acquisition by the landlord.
Mr Mahoney: He buys the building, the mortgage that he uses in part to pay for the building, when it comes up for renewal the interest rates are covered, or the increase in the interest rate, and all of those costs can then be passed on in the form of rent increases?
Ms Parrish: The change.
Mr Mahoney: Right. I think I understand it.
Ms Parrish: Perhaps Hansard could record that Colleen Parrish looks happy.
Mr Mahoney: Except that Mr Turnbull has not spoken yet, and he may confuse the whole thing.
Hon Mr Cooke: These things are always temporary.
Mr Mahoney: That is right. Saying I think I understand it is not a commitment.
Mr Turnbull: We will try to keep you happy.
Okay, so we know that we can now under this structure replace an existing mortgage, as long as it relates to the complex, not some corporate refinancing structure. I understand that and I agree with that. This is obviously with respect to existing properties which are owned. And I understand that the minister's objective in this is to prevent what he calls flipping, and I have no problem with the idea of preventing flipping, because it is unreasonable that tenants should bear the cost of a flip. But I am concerned about the fact that we could potentially be creating two classes of building.
I think I will wait until the minister's attention is back.
If we had a building which was 30 years old and the mortgage was paid off and an old couple wished to sell this during the period of the moratorium, I believe that an identical property which had a reasonable amount of mortgaging on it might be saleable, albeit at a reduced rate as a result of this bill, but the property which has no financing on it whatsoever you would not allow the financing of that, other than that the new landlord would have to assume all of the cost of financing on him. Is that correct?
Ms Parrish: All this amendment deals with is the change. What I think you are talking about is the capital amount, which is financial loss or economic loss, and this bill -- not this section, but this bill -- does not allow financial loss or economic loss, which would be the capital appreciation. This particular section, it is true, does not deal with the problem you have addressed. Neither does it hurt the problem. It only deals with interest rate change and in the current RRRA there is a very similar section that deals with interest rate change.
Mr Turnbull: Okay, so long as we understand.
Ms Parrish: There are other sections which deal with financial loss and it is true that those are not brought forward into Bill 4.
Mr Turnbull: Under paragraph 100e(2)(c)(ii) it says, "the mortgage or loan related to the acquisition or construction of a residential complex." We are talking about an acquisition which occurred before the point of renewal. Is that what I understand from this?
Ms Parrish: The acquisition which occurred before what? I am sorry.
Mr Turnbull: If somebody has bought a building, and looking at (c)(ii) it contemplates an acquisition, is that an acquisition that occurred at some earlier date?
Ms Parrish: Yes.
Mr Turnbull: Okay, this clause cannot in any way be related to a new acquisition?
Ms Parrish: No. You have to have an interest rate change. It could occur in a fairly short period of time, but you have to have the change, so it does not relate to the initial cost which a purchaser may pick up on acquiring a property.
Mr Turnbull: Okay, I think you can stay happy, Colleen, in that case.
Ms Parrish: Thank you so much.
The Chair: Any further discussion?
Ms Poole: As I indicated, this new wording certainly satisfies me and I believe from Mr Mahoney's comments that it satisfies him as well and it is our intention as a caucus to support this amendment.
The Chair: Okay, that would entail the withdrawal of the original amendment and --
Ms Harrington: I would like to withdraw my amendment to the original amendment and put forward the further one that we have in front of us.
The Chair: Okay, any discussion on Mrs Harrington's motion? All in favour?
Motion agreed to.
The Chair: Before we go to clause 100e(2)(d), I was asked by committee members to take a moment and ask the committee to consider our schedule for next week. My understanding happens to be that next Tuesday, Wednesday and Thursday were originally scheduled for the committee for further discussion on the consultation paper. It does not appear to me that we are going to finish the clause-by-clause today, so we are going to have to make a decision as to whether or not we are going to proceed with the clause-by-clause next Tuesday, Wednesday or Thursday or whether or not we go for the consultation paper. If that is the case, then the clause-by-clause probably will not start again until we reconvene the Legislature, so I think it is a fairly important decision we are going to make.
Mr Tilson: I believe that our first mandate is to deal with Bill 4. The majority of this committee, at least, has approved the retroactive aspects of it. It appears that is where the committee is going, so it is not going to create a major problem. I continue to be opposed to that and will continue to be opposed here and in the House, but having said that, I still maintain our first priority is with Bill 4.
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Mr Abel: I think we have covered about 10 clauses in the last three days and I think there are about 21 or so left to deal with, so obviously we do have a scheduling problem here. Might I suggest that we use Monday as additional time to help us get through the clause-by-clause?
Mr Tilson: Mr Chairman, I can say I have been asking for weeks for you to extend the time. You said you were not going to extend the time, the government members said they were not going to extend the time. I have made complete scheduling of many individuals I plan to see on Monday because of that position of the NDP members of this committee, so I will be unable to attend on Monday.
Mr Turnbull: I too will be unable for exactly the same reasons.
Ms Harrington: We do realize it would be very difficult for most of us.
The Chair: Okay.
Ms Harrington: The only concern I had, of course, was that if invitations had been sent out to people to appear on Tuesday, Wednesday and Thursday we would have to deal with that situation today, because if we had to cancel, we would have to do that today.
Clerk of the Committee: The subcommittee had asked me to go through the list that they have provided of witnesses to be invited to appear next week. The people on that list have been contacted and asked, number one, if they are interested in appearing on the discussion paper, and number two, if they are, would they be prepared to appear next week. At this time, no scheduling has taken place. Everyone understands that if it happens it will be on short notice and what the days are that will be available. When I do start scheduling, which I hope will be today or tomorrow, it will be on a tentative basis.
The Chair: Any further comments?
Mr Abel: It would appear that if the committee is not prepared or not able to sit on Monday, does that suggest that we would have to use next Tuesday, Wednesday and Thursday for clause-by-clause?
The Chair: That is up to the committee.
Mr Abel: I guess I was asking the committee. Sorry, Mr Chair.
Ms Poole: Or part of it.
The Chair: It depends on how much debate is generated, and as was stated earlier today, it is not unusual to get into a committee setting where you have the kind of debate over the wording that we saw over the last motion and then we asked for redrafting. That is not unusual. I do not know if that is going to take place in different sections, different portions of the bill that are remaining. I do know that there are a number of motions that we have not yet dealt with by both the Liberals and the Conservatives, and also the government, and every motion is going to cause discussion. So if you are asking me what my opinion is, my opinion is that we probably will use all three days to go through it. That is my opinion. I may be incorrect.
Ms Poole: It appears there are really only two options before us. One is whether to continue clause-by-clause next week or whether to wait until we come back when the House reconvenes, or on the other hand -- what did I say the first time? It has been a long week. We can always shoot through things next week. One is the clause-by-clause or the long-term consultation.
The Chair: She has not been the same since she started talking about market value assessment.
Ms Poole: I know, particularly when the Chair refused to recognize Mr Turnbull's and my point of order on --
The Chair: You were both wrong.
Ms Poole: We better not get into market value or we will never complete clause-by-clause.
Anyway, the two options: The minister has not spoken as to his priority as to the long-term consultation paper. We did have a brief discussion on it this morning, and I know he wants some action by the committee on that as soon as possible, but our caucus is quite amenable whatever the will of the entire committee is. Does the minister have a preference? I mean, your preference would be to finish clause-by-clause today and finish the long-term consultation paper next week, but I do not think that is reality.
Hon Mr Cooke: I do not think I ever suggested that it was. I think there has always been the understanding that the committee would continue in March on the green paper, but I certainly agree with Mr Tilson that the priority has to be to complete Bill 4 and I think that has been the agreement that the committee has made in the past, that the only deviation from completing Bill 4 was going to be the 18th when the discussion document was tabled with the committee and the committee agreed that it would adjourn Bill 4 for that day and then we would continue with clause-by-clause until we were completed.
Ms Poole: I certainly concur with that, I was just concerned because one of your comments to me was that you felt we might be cutting short the consultation paper and the committee's consideration of it and I would not want to leave that impression at all. We are quite eager to hear the witnesses on the long-term consultation and it is a matter of whether it is a priority to complete Bill 4 or whether you consider it a priority for us to go right to the long-term consultation. Our agreement, as I understood it, was that we would interrupt clause-by-clause for the long-term consultation and then we would continue clause-by-clause until it was completed, but --
Hon Mr Cooke: I will begin consultations and have already begun consultations on the green paper and we will proceed with as much time as the committee can establish to have its own consultations on the discussion document. That will be entirely up to the committee. I am not a member of the committee.
Ms Poole: Mr Chairman, might I ask a question? If we are going to use next week for clause-by-clause, or part of next week for clause-by-clause, could we have assurance that when the House comes back into session all three caucuses will be approaching the House leaders concerning time set aside for this committee to look at the long-term consultation paper when the House is back into session?
The Chair: I remind the committee members of the two 12-hour motions that we promised our colleagues we were going to deal with expeditiously. I just remind the committee members of that.
Hon Mr Cooke: We have already approached our House leader.
Mr Brown: The other day when we were discussing this I happened to be in the chair and one of the things that was raised is that there is always some difficulty in holding public hearings when the Legislature is actually in session. The difficulty arises from travelling and our duties that conflict in the House and the bells ringing and the adjournments and the things that are apt to, or sometimes, happen. So I would just, on that practical note, remind the committee that it is sometimes difficult to hold meaningful public hearings when the Legislature is in session.
Mr Owens: May I make a suggestion that perhaps the three party whips take 10 or 15 minutes to take a look at the business and perhaps set out what is going to prove to be contentious, and what might not prove to be contentious and proceed in that manner? You have several amendments on the topics most likely to promote discussion as we move through the process, so perhaps what we could do is to separate out the issues that we agree on and then begin work on the contentious or most likely to cause discussion issues.
Mr Mahoney: If it is anybody's job -- and I am not sure it is -- to do that kind of thing, it would not be the whips, it would be the subcommittee.
Mr Owens: Well, they usually form the subcommittee, any committee I have sat on since coming into this House.
Mr Mahoney: I do not know what the urgency really is, in the sense that Bill 4 is going to be retroactive. That has been clearly laid out by the government. So whether or not it gets passed this afternoon by this committee or next week or March, April or May does not seem to make any difference in the sense that everyone is aware of the retroactivity applications of the bill. The landlords are aware of it, the tenants are aware of it, they know what they are operating under as of 1 October.
Frankly, I think there have been commitments made by the government and by this committee to hear people, to get into the green paper. We have started the process. The Conservative party has attempted and we have attempted, the Liberals, to give more time for the committee to deal with Bill 4 and have been shot down every step of the way in our attempts to do that. We have been quite prepared to sit additional time, extend the hearings, do whatever was reasonable.
Unfortunately, the majority of the members of the opposition on the committee are not available Monday. If they were that might give us an extra day, but I am not so sure that I am prepared to sort of usurp the role of the committee by relegating down to either a steering committee or a subcommittee, or anything of that nature, to make a decision on what we are going to agree to or what we are not.
We all saw this morning that, because these matters tend to be so complex, you get into them and someone else may bring up a point that makes you think of a point. It caused, I think even the minister would agree, confusion from the ministry on exactly what the issue was. There are government amendments and both opposition parties have amendments, and I do not know what the urgency is to ram this thing through committee, particularly considering the retroactivity.
I also object, as I objected on my very first day, on the very first day that the minister was here, to any manipulation of this committee in suggesting that holding up Bill 4 would in effect hold up the long-term consultation paper. We are all interested in a long-term policy in this matter and frankly I think we should do the best we can to get through the amendments that are here, to get as far into the bill as we can and then get on with the plan of the committee, which was to deal with the green paper.
The Chair: Okay, it appears we have two points of view that have been put forward.
Hon Mr Cooke: At least.
The Chair: Two clear points of view: One is to deal with the consultation paper as planned next week and the other is to finish clause-by-clause.
Hon Mr Cooke: Mr Mahoney, I would only say that there was a firm commitment given by your party and by the Conservative Party when we discussed the timing of the tabling of the discussion document when we were all in Windsor and we discussed it over lunch, and there were also obviously discussions by the House leaders. Ms Poole and Mr Tilson will be very much aware of the arrangement that we made in Windsor. If we are to be fair in this place, that arrangement should be implemented. The day to table the document was 18 February and have some discussion, and then there was an agreement we would go back to Bill 4 and do clause-by-clause until it was complete. That is an arrangement that your party and the third party committed themselves to, as did the government.
Ms Poole: Yes, Minister, I can confirm that in Windsor a discussion did take place. Unfortunately, I was not at your table at this luncheon so I got my information second-hand.
Hon Mr Cooke: Mrs O'Neill, I think, spoke on your behalf.
Ms Poole: Yes, from Mrs O'Neill, and she told me that the agreement that had been reached was that on Monday the 18th we would look at the consultation document and then go immediately to clause-by-clause on the Tuesday thereafter. I do not know what discussions took place beyond that. That is what I am aware of.
Mr Chair, might I ask for a five-minute recess when each of our caucuses can determine our position?
The Chair: I would think that it would be fair at this time, because this similar discussion took place in Windsor. We asked the clerk to take down in writing, almost word for word, what we had agreed to do and I think we have found the page where the agreement is contained. So before we adjourn for five minutes, I think we should review what we all think we agreed to in Windsor.
Clerk of the Committee: "It was agreed that the committee schedule for the week of February 18 and 25 be as follows: Monday, February 18, 10 until 12 pm and 2 until 6 pm, ministry discussion paper briefing. Tuesday, February 19, commencement of clause-by-clause, to continue until completion.
Mr Mahoney: What does that mean, "until completion"?
Ms M. Ward: For the rest of our lives.
Mr Mahoney: I do not see a time frame on that. That is my point. I do not know how any group, with respect, could agree that a committee was going to deal with things in a specific fashion. Perhaps if certain confusion had not been put forth on behalf of the government in some of the things that we have dealt with so far, we might have got along quicker. But clearly even the minister did not understand some of the stuff we dealt with this morning. So I do not know that I am prepared to sit back and accept that a committee, over some lunch in Windsor in a restaurant somewhere, has made an agreement that it is going to slam this legislation through by a specific date and then get on with the green paper. I would highly doubt that Mrs O'Neill agreed to anything like that.
The Chair: Okay. It has been requested that we have a five-minute recess. We are going to reconvene at 2:40.
The committee recessed at 1435.
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The Vice-Chair: The committee is back in session. I see a quorum.
Mr Tilson: Mr Chairman, I just wanted to repeat what I told both the minister and Mrs Poole, that my recollection of the Windsor meeting was that we would obviously try, within a certain time frame, to complete the clause-by-clause and get into the green paper discussions, to make some sort of comment. However, it was also emphasized that clause-by-clause would have priority and that if we were not able to meet it within the time frame -- and we obviously have not; here we are at 3 o'clock and we are not going to finish clause-by-clause -- it would appear, therefore, that my recollection would be that we would continue on and, if time permitted, we would get into the green paper discussions after clause-by-clause. The only emphasis I make is that the terms of reference from the Legislature were -- and it would appear that the clerk has pointed that out to me at least -- that we would deal with both of those items, and I would hope that this committee would set enough time in due course to get into clause-by-clause as well.
Hon Mr Cooke: Or to get into the consultation paper.
Mr Tilson: I am sorry.
Hon Mr Cooke: Get into everything.
Mr Tilson: Thank you, Minister. To get into the green paper, yes.
Ms Poole: It has been a long year, Mr Chair.
I would concur with what Mr Tilson has said. As far as our caucus is concerned, I do not think we have had any problem with either going to the long-term consultation next week or completing the clause-by-clause. The only reason it was raised at all was that the minister and I had talked briefly about it this morning and he had expressed concern that if clause-by-clause was going into next week it would cut short the long-term consultation process. That is certainly the last thing we want, and as long as we have agreement that the long-term consultation process will continue once the House is back into session, we are perfectly satisfied to complete clause-by-clause next week.
Ms Harrington: Mr Chairman, I think we have reached a consensus.
The Chair: The consensus is that we are going to proceed with clause-by-clause.
Interjection.
The Chair: What could you add to the subject?
Mr Turnbull: I would just like to point out to the minister that I spoke to the president of one of the tenants' groups that has been requested to appear next week to discuss the discussion paper and he was somewhat concerned about the short notice of it and being able to prepare. So it may have some advantages to the groups who want to prepare their papers. That is all I wanted to give by way of clarification.
Hon Mr Cooke: But they would like more consultation during the summer.
Mr Mahoney: Later.
Mr Turnbull: No, it was just he felt rushed.
The Chair: Okay, the matter has been decided.
Mr Turnbull: Two days.
The Chair: Order. The matter has been decided.
The clerk therefore is not going to make any arrangements for these appointments that we had originally talked about until we are finished the clause-by-clause then. Therefore, we are going to proceed. We are at section 100e. Minister, could you give us a short explanation of 100(d), please?
Hon Mr Cooke: Clause 100e(2)(d) deals with financing costs no longer borne. This means financing costs that no longer exist due to the lowering of interest rates if there was a previous rent review order that recognized increased rents due to increased interest rates. The rent reduction is determined by comparing decreases in interest with increases that had occurred after 1 August 1985.
Clause 100e(2)(e) deals with reduction in rents where there is a discontinuance or reduction of services and facilities or a deterioration in the standard of maintenance. For example, a discontinuance of service could be a closure of the swimming pool and a deterioration in the standard of maintenance could be the landlord stops mowing the grass.
The Chair: Okay, we are going to deal with clause (d) first. All in favour of clause 100e(2)(d)? Carried.
I believe you have given us your description of clause (e) also in your short description a moment ago. I understand there is a Liberal motion to clause (e).
Ms Poole moves that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clause:
"(f) any capital expenditure no longer borne in an amount up to the amount that was allowed in a previous order under this act or the Residential Tenancies Act."
Ms Poole: Mr Chair, would you like a brief explanation of the reasons for this?
The Chair: Yes, I would, please.
Ms Poole: Under the RRRA at the present time there is a costs-no-longer-borne provision. Take an example of fridges and stoves. In the back of the RRRA it has an amortization period for the lifetime, useful life expectancy of certain items, and for instance for a stove it is 10 years and for a fridge it is 10 years. Under this provision, if the landlord at the end of 10 years were to buy a new fridge and stove, then the only additional rent increase that landlord could charge would be the difference between what he had charged for the first fridges and stoves and the new ones that he was replacing them with.
However, what has happened is that in the meantime many landlords have not replaced those fridges and stoves in 10 years, they have been replaced in 20 years, so that for that 10-year period the landlord would continue to receive those rent increases from the tenant even though the amortization period has ended and the full cost of the fridge and stove and interest have been recovered.
So this provision was to rectify that hiatus when a landlord could continue receiving rent increases for an item that had already been paid for. It is not, I think, anything that defies or flies in the face of the principle of Bill 4, it simply is a tenant protection which should have been in there to begin with and a clarification of the extent of the cost-no-longer-borne provision in the RRRA.
Mr Turnbull: Our Conservative caucus is in favour of this, although we would say that potentially there is a further problem which perhaps can be better reflected in the permanent legislation in that we are still compounding based upon the capital amount of the appliance even though it is going to be backed out, and I see the recommendation in the discussion paper that it be handled as a separate item and that you do not increase the base rent based upon the appliance. That was simply an amortization period added and you do not compound based upon that included in the rent.
Hon Mr Cooke: Specifically on the amendment, I think that if you consider that Bill 4 addresses capital in a particular way -- for the time that Bill 4 is in place, capital is not going to be passed through because we have a moratorium -- then the whole issue of cost no longer borne is not something that needs to be addressed during the moratorium period. I do believe it is an issue that needs to be addressed in the permanent system, and I philosophically entirely agree with the types of comments that the Liberal critic is making, but if we were to beef up the provision of cost no longer borne and then allow tenants during the moratorium period to start applying for reductions in rent from the last five years, I think it would, number one, increase the number of cases that we would have going through the system during the moratorium period, which would cause some difficulties during the transition period as we move on to a new permanent system, and I think this is a particularly complex area that should be left to the permanent legislation.
Ms Poole: I am glad that philosophically you agree with this provision, but the fact of the matter is we are not only talking about capital expenditures for the moratorium period, we are talking capital expenditures for replacements that have been made in the past under the RTA or the RRRA, and many of them are now in the stage where the amortization period is ending or has ended and yet there is nothing for the next year or two or however long this interim legislation is in place to give tenants relief.
For instance, a washing machine is five years for amortization or useful life expectancy, so there would be landlords in large buildings who have a number of washing machines that have been paid for, and those tenants will continue to pay those rents; the same for fridges and stoves, appliances, electrical work, all sorts of things.
I do not see where it complicates anything. The ministry would have records. Rent review would have records of these capital expenditures on their computer and it would be very easy for them to send out notification to tenants, just telling them that the cost-no-longer-borne section is going to mean that they no longer have to pay X amount of rent increase and that they can deduct that much from their rent in future. Certainly it could be dealt with through regulations as far as the practicalities of it are concerned, but I maintain that if the principle is adequate and can be supported and if it does not interfere with what the minister has said is the principle of this bill and the principle of the moratorium, I do not see why we would not make this change right now.
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Hon Mr Cooke: The one aspect where I think you are incorrect is that the only way this could be accessed would be if there was a whole-building application by a landlord -- this would not be some notice that would go out to tenants -- and that a reduction would take place because the amortization period was over. The only way it would result would be if there was an application for whole-building review from a landlord, so it would not happen uniformly. It would only happen where there is a whole-building review, an application from the landlord.
And I think, and you may disagree with me, we had discussions, certainly when we were drafting Bill 4, about this whole area, but we felt that during the moratorium period to add this type of a section would be sending a message that not only are we having a moratorium on capital pass-through for a period while we develop the long-term legislation, but we are also saying that there can be reduction in rents during the moratorium and that would be even more difficult for landlords in the province to accept. So we thought that the cost-no-longer-borne issue should be held over for the permanent legislation, rather than adding another section which would be seen by landlords as being terribly unfair.
Ms Poole: In regard to your comments, it is quite accurate that it could be dealt with by way of application under whole-building review. However, that is not what I am suggesting. I do not see any reason why we would have to be tied to that. If indeed rent review does have computerized records of rent increases in the province and the rationale for them, then what I am suggesting is that the regulations could allow that rent review would automatically send out a notice to tenants advising them that the amortization period is past and that they would be entitled to a rent reduction.
Hon Mr Cooke: Colleen Parrish indicates that that could not happen without further amendments to the act. It just could not happen with your amendment alone. There would have to be further amendments.
Ms Poole: My understanding is that a section that we have already passed, 100b(3), which says, "Part VI does not apply where this part applies, unless this part provides otherwise," which none of us understood, did all sorts of marvellous things to the RRRA that we did not know happened until after we had voted for it. I would suspect that that probably also voided provisions about whole-building applications, and I am quite happy to have a friendly amendment providing that the regulations as prescribed could deal with the practicalities of this.
Hon Mr Cooke: To follow on what you are saying, that not only whole-building reviews but then everybody whose capital expenditures had gone through the amortization period would automatically get a notice from the ministry or from the rent review division that their rents would be reduced, I am not sure if you mean that they would be reduced automatically. There would not be a hearing or anything, they would just be reduced?
Ms Poole: That is right, according to the rent review orders.
Hon Mr Cooke: I am not quite sure how many more staff that would require over at the ministry to do that and how many more hundreds of thousands, if not millions, of dollars it would require. I just think that during the moratorium period to do that and to unilaterally, I guess, reduce rents to that extent across the province would be seen by landlords as being terribly unfair when you at the same time have a moratorium. I just think the cost-no-longer-borne issue has to be held off until the permanent legislation.
Ms Poole: Well, with due respect, what you have taken away from rent review through this act is quite significant. The types of decisions that rent review administrators would normally be having to decide upon, whether it be relating to capital expenditures, whether it be relating to financial loss, economic loss, equalization, they are not going to be doing that any more. We already have a very magnificent staff in both quality and number at rent review and I hardly think that this is going to cause millions of dollars in extra expenditures. I would say that the staff we already have hired might well be put to work making sure that tenants receive this protection.
Hon Mr Cooke: We are doing everything we can with the staff in the ministry right now to get the registry up and running after five years of it not being up and running yet. It would be an administrative -- it will be very interesting.
Ms Poole: Unless anybody else has comments, I think we may as well --
The Chair: Mr Mahoney has some comments.
Mr Mahoney: I know the feeling that you are expressing, that we may as well just vote on it and get it over with, but I cannot help but make the comment about the inconsistencies, that what seems like a really good idea and receives philosophical support in the long-term paper cannot be dealt with here. The same issue occurred with interest rates. We dealt with an amendment this morning that allows for the pass-through to tenants of the increase in the interest rates in situations, and yet the green paper recommends that that not be allowed, that that be excluded.
I mean, it is almost a deliberate attempt to confuse the issue so that the tenants and the public follow some political agenda instead of the reality of what we are dealing with.
The Chair: Any further comments?
Ms Poole: Mr Chair, I would ask for a recorded vote.
The Chair: Any further comments? Okay. We are voting on Ms Poole's amendment. We all know what it is. We do not need to hear it again.
The committee divided on Ms Poole's motion, which was negatived on the following vote:
Ayes-4
Brown, Mahoney, Poole, Turnbull.
Nays-5
Abel, Cooper, Harrington, Owens, Ward, M.
The Chair: The amendment is defeated.
Hon Mr Cooke: But we will certainly --
Mr Mahoney: Don't any of you guys go to the washroom?
Hon Mr Cooke: But your vote has certainly been recorded for the permanent legislation.
Ms Poole: No problem about that, Mr Chair.
Hon Mr Cooke: No, I know. I am looking particularly at Mr Turnbull.
Mr Turnbull: I am going to have many words to speak about before the permanent legislation, I assure you.
The Chair: Ms Poole moves that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clause:
"(g) any conditional order made under section 88 or 89 on or before 28 November 1990."
Discussion?
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Ms Poole: The effect of this amendment would be to say that any conditional order that was made prior to the introduction of this legislation should stand under full force and effect of the law. As members are aware from testimony that has been before us, under the RRRA there was a provision that a landlord could go to rent review and get an order prior to commencing capital improvements. Normally, the type of landlord who would ask for a conditional order would be your small landlord, particularly a landlord who perhaps is more cautious and wants to make sure, before he went ahead with capital expenditures and spending money, that he would be able to recoup his costs. We certainly had testimony before this committee, and I think individually as members, as to the hardship this has created for a number of people who did get the conditional order, who went ahead and did the capital repairs under an order of rent review, and then after the fact were told that even though they had a guarantee from rent review that they would be able to have cost pass-through, now under Bill 4 those conditional orders are voided.
I think it is a matter of fairness. I know when I have discussed this with the minister that he has indicated that there has been a lot of discussion about this, there has been a lot of concern at the ministry about conditional orders. It is a very different situation than the normal retroactivity. These are people who really needed to be sure of the guarantee of the law before they went ahead, and they had that guarantee. Under a conditional order, the Rent Review Hearings Board makes a decision that if the landlord fulfils certain conditions then he may have a certain rent increase. It is that clear-cut.
The obligations on the landlord are to fulfil the conditions. The obligation on the part of the government is then to allow those rent increases. I have specifically provided this amendment under separate cover than any other retroactive amendment. I think it is one that members should seriously consider supporting no matter what their feelings about retroactivity and Bill 4. In the name of fairness, I would ask for the support of all members, government members and opposition members, to provide an opportunity for these people to have fairness under the law.
Mr Turnbull: It is very clear that we are against any retroactivity, but the particular form of retroactivity that reaches back and ignores conditional orders where people have gone to the trouble of going to the government and asking the ministry if this would be in order -- they have laid out their plan of action and their budget and the ministry has said that, "Provided you comply with all of those items we will grant you this increase" -- if you do not pass this, you have not got any chance of fairness, and I certainly hope you do vote for it.
In the audience today we have the representative of Kaneff Properties, which has $12.5 million worth of conditional orders. I know the government may look at them as being big, fat-cat landlords, but these are people who over the years have consistently provided good, quality housing and have been one of the mainstays of rental housing in this province. They were extremely cautious, careful landlords who went the route of the conditional order and said: "It's not sufficient just to build. We will go that extra step and make sure that everything we do is in accordance with what the government of the day wishes."
There can be no doubt about it, if you do not vote with this amendment you strike a blow at the whole system of justice that we have relied on in this country.
The Chair: We have the minister, then we have Ms Harrington, then we have Mr Mahoney and then Ms Poole.
Hon Mr Cooke: I am advised that if we were even to proceed with this amendment we would have to make some changes to the amendment as it is currently worded. I have also asked the ministry to prepare some additional information for me to better analyse this particular section and this particular effect of the bill. I guess what I am asking the committee is if it would agree to stand down this particular amendment while we do some more work on this. I would be prepared to deal with it next week. I am not making a commitment today that this type of amendment is going to be accepted. I want further analysis of it so that I can take another look at it. We will do that over the next few days and come back to the committee if the mover of the motion would be agreeable to standing down the amendment.
The Chair: Okay?
Ms Poole: I would be amenable to standing down this motion, particularly with the minister's undertaking that he is reconsidering and looking at further evidence.
The Chair: Okay, we are going to stand down Ms Poole's amendment.
I am instructed that we have another motion. I am instructed it is Ms Poole's motion.
Ms Poole moves that subsection 100e(2) of the act, as set out in section 8 of the bill be amended by adding the following clause:
"(h) subject to subsection (7a), (7b) and (7c), capital expenditures that, in the opinion of the minister, are necessary to ensure the structural soundness of the residential complex or the health or safety of the tenants or that are supported by a petition of at least two thirds of the tenants of the residential complex;"
Ms Poole: Although it is out of sync with the numbers in this bill, there were three provisions that were attached to this amendment. Again, simply because of numbering sequence, I had to put them, on the advice of legislative counsel, as 7a, 7b and 7c, and with your permission I would like to deal with this as a whole. The import of my amendment does not represent the full entirety of what I am putting forward unless these four provisions are considered as a whole. We will also save debating it four different times.
The Chair: My advice is that if the committee agrees, we can deal with it as a whole, but the votes are separate. Okay, we have a consensus. Please proceed.
Ms Poole: Okay. Would it be in order for me to read (7a), (7b) and (7c), so that the committee can understand them in their entirety?
The Chair: I think it would be helpful.
Ms Poole: I move that section 100e of the act, as set out in section 8 of the bill, be amended by adding the following subsections:
"(7a) The minister may disallow part or all of any capital expenditures under clause (2)(h) that, in his or her opinion, were required as a result of the ongoing, deliberate neglect of maintenance and repair of the residential complex.
"(7b) The minister shall consider evidence submitted as to the quality and value for money of the repair, replacement or renovation when determining the amount of the increase under clause (2)(h).
"(7c) The maximum amount the minister may allow in a determination under clause (2)(h) is 5% of the gross potential rent."
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I apologize to the committee if any of the clauses, subs or anything else was misspoken, but I am not a lawyer, so I do not pretend to know which are subs and which are sections and so on and so forth.
These four provisions together deal with a concern that I have had, not only under Bill 4 but for the time that I have been a member of this Legislature, dealing with capital expenditures. One of the major concerns I have had under Bill 4 is that there is no provision for capital replacements, no provision for major repairs and no provision for what happens to buildings that are halfway through major repairs.
I would like to take a closer look at what Bill 4 will do if it is not amended. First of all, it has virtually ensured that little or no capital improvements or major repairs will be done in the province over the next year or two or however long the moratorium lasts. I know the minister has expressed the viewpoint that not a lot can happen in the two years or the year or however long the moratorium lasts, but I think to say that is not considering the state of our aging housing stock. I gave some statistics in the House back in November which I think would bear repeating.
Of our housing stock, 80% was built pre-1976, so that 80% of our housing stock is over 15 years old; almost two thirds was built pre-1970, so that means it is 20 years old or older; over a third was built pre-1960, which means it is 30 years or over; and close to 10% was built pre-1920, which makes it 70 years or older. Buildings that are 20 or 40 or 50 years old need major replacements and repairs, and if they do not get that work, they can degenerate into slums quite quickly.
We have all heard evidence from expert presenters and from people who have presented to our committee, that cement corrodes, electrical work fails, water penetrates caulking and roofing, balconies disintegrate, parking garages disintegrate and fall victim to salt corrosion, elevators wear out and plumbing needs to be replaced. I do not think any member of this committee disputes those facts. The minister's response, on a number of occasions when I have heard him speak, has been, "If they had done proper maintenance, these things would not happen." But that just does not make sense. We have heard that expert testimony, and they are saying these are things that do not depend on day-to-day maintenance, as far as their replacement is concerned. It has nothing to do with whether the ongoing repairs done to the building were performed. It has more to do that roofs have certain life expectancies. It has to do with the fact that our climate in Canada goes from a variety of 40 or 45 degrees centigrade down to minus 10 degrees, and this variation in temperature has a tremendous effect on the deterioration of cement and the corrosion of it. And all these factors are very crucial.
You may say, "The moratorium's not going to last that long and we'll have provisions in our long-term legislation, so why bother about it?" It is not that simple, because I can tell you that small repairs will become major repairs, things that should be fixed now and which are not, may never be fixed, particularly if the landlords do not feel that the long-term solution is beneficial. In the meantime we are going to have tenants phoning our offices, and I can assure you they will be phoning you as MPPs, and they will be saying, "But I've got no heat, and the landlord says he won't put in the new boiler even though six months ago he told me that he'd ordered one." And the fact is, he ordered it but under Bill 4 he cancelled the order. I have had buildings in my riding which time and time again they have repaired but the repair just will not hold because the boiler has reached the end of its useful life expectancy. It has to be replaced.
You may think that the only thing that tenants care about is rent increases, and I will grant you it is a very important priority for tenants, what rents they pay, but of equal concern to tenants is that they have a good, clean, decent, well-maintained place to stay. Not only are we not going to have major repairs done, I would submit to you that under this legislation landlords are going to abrogate their responsibilities for even the day-to-day repairs that tenants may have been enjoying in their buildings. I am not talking about slum landlords, the kind for which I have absolutely no tolerance or sympathy; I am talking about landlords who are simply frustrated, fed up with the system and cannot believe that this is happening. They say, "The extras won't be there. I don't care any more," and that is the worst part of it, that they say they do not care.
I am going to show members a picture, if I can find it. This is one of the buildings on Antrim Crescent. You can tell that it does not look too great and I do not think any of you would like to be living in that kind of state right now. That building was in the middle of renovation when Bill 4 was introduced. The renovations were for what I think all of us would say, necessary capital repairs. It involved new roofs, replacing the corroded cement on these balconies which are in this picture, emergency generators, improved lighting, repairing the salt corrosion in the underground garages, major repairs and replacements for the elevators and fire pumps. The landlord contacted me and said he had halted all construction on the site, and this involved, I believe, five or six buildings, a huge number of tenants involved. He had halted construction and I went out there one week later and that was the state. He said he was going to finish up anything that would be a safety hazard to the tenants and everything else he was just going to stop.
Unfortunately, if we do not have any provision under Bill 4 for dealing with that necessary capital work, those tenants are going to be stuck in that kind of accommodation until the moratorium is over, and perhaps longer if there is no provision in the long-term legislation for capital repairs. I do not consider that to be tenant protection, quite frankly; I consider it to be a myopic view that tenants only are concerned about rent increases and do not care about maintenance and do not care about the type of accommodation that they live in. I am not positive, but I drove up to Scarborough to see these buildings and I believe they are in our Speaker's riding, Mr Warner's, and I do not think he is going to be very happy once the calls start coming in and saying, "But the landlord isn't doing anything about this mess."
Now, speaking specifically to my amendment, if I can find it here, there are a number of things that I have always insisted should be part of any capital expenditures cost pass-through. The first is that the repairs should be necessary, and the minister has spoken to the difficulty on previous occasions of defining "necessary," but I can tell you that less than a year and a half ago, I believe it was 30 October 1989, I tabled with the Ministry of Housing a provision to change a regulation that would have defined "necessary" and would have given the ministry and rent review the prerogative of limiting capital replacements to necessary repairs.
The comments of the minister at the time were not with the difficulty of defining necessary repairs; what he said about it is, "Dianne, I want to deal with the luxury renovation problem through regulations because I can get it through a lot more quickly." And he said, "What you are suggesting would need a legislative amendment." So he said, "Until we do our review of this legislation, we're going to have to deal with it in a different way."
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Ladies and gentlemen, this is legislation. This is not regulation. It is not beyond the scope of this bill before us and in fact I think it would enhance tenant protection and it would mean that we as members could be assured that necessary capital work was being done.
I have provided a number of safeguards. First is that it is an opinion of the minister. As you know, this is terminology which refers to the minister or his or her representatives, so it is really the Ministry of Housing that would be making these decisions, and they would weigh evidence as to whether it affected the structural soundness of the residential complex or the health or the safety of the tenants; and those should be prime considerations, because if there is a fire hazard and the landlord does not take care of it and replace that wiring, it may be all well and good to say, "Well, the municipality can get a work order and fix it," but you have probably already heard about the state of work orders from the municipality and the trouble enforcing them. It is not working. Landlords can give the runaround to municipalities and standards boards and building inspectors for months and even years, and if the landlord says, "Hey, you can't get blood from a stone," then we are back to square one.
So those were necessary components. I said to ministry staff earlier I am so mind-boggled by Bill 4 that every time I use the word "necessary" these days I tend to add "repair" automatically. It seems there is nothing else in my life but this bill, but I feel these are necessary components for any capital expenditure cost pass-through that we allow.
I have also added another provision, and that is if there is support by the tenants, because there are repairs or replacements that the tenants might actually want, particularly in smaller units where he might only have four tenants and they say: "Well, we really want this, and maybe it doesn't affect the structural soundness, but quite frankly, I think this hallway looks terrible. I am embarrassed to have people in and I want this to have decent carpeting on and I want the wallpaper done." If those tenants are in agreement, then I do not see why we as legislators should be saying to them that, if all parties agree, it should not be allowed.
You might say, "Well, that would drive rents up," but -- aha -- I have thought of that. That is where the second part, going over to (7a), (7b) and (7c), comes in, that these repairs would be capped at 5%. That would be the maximum. And again, the landlord would have to prove that they were necessary, that the structural soundness of the building was in jeopardy or the health or safety was in jeopardy or that the tenants wanted these repairs.
The cap is a vital component of this, but not the only component. I have also been concerned that landlords who have neglected their building will be the ones rewarded and allowed to come forward and say, "Aha, I have neglected the building so that it's in a state of jeopardy. Therefore you guys should reward me and allow me to have a rent increase and up the rents." I did not want that to happen either, so I have put in a provision for "ongoing, deliberate neglect of maintenance and repair of the residential complex."
Now this is different than ongoing, deliberate neglect that there is a provision for under the RRRA. One of the difficulties under the RRRA with the provision about ongoing, deliberate neglect is that it was tied to the landlord. It was tied to the owner of the building and in many cases what had happened was that the neglect was not caused by the current owner, it was caused by a previous owner, so the tenant was helpless to get any type of remedy for ongoing, deliberate neglect because the building had changed hands. So I have tied this not to ongoing, deliberate neglect by a landlord but ongoing, deliberate neglect of the residential complex so that it transcends one owner or two owners or however many there were.
My feeling is that if the current owner bought that building in a state of neglect, that owner would have gotten a good deal. He or she would have paid far less for that building than if the building had been in a state of good repair, so I do not see that that owner should be exempt from providing good accommodation for those tenants simply by the fact that when he or she bought the building it was in a rundown state. So I hope that would address your concerns, if any, about the ongoing deliberate neglect.
Subsection 100e(7b) was a provision which I added because it is one of my own personal hobby horses, and that came about because of a rent increase demanded by the landlord of the buildings 221 and 265 Balliol. I think members will recall that they attended with Mr Walker at the hearing. They were the ones who obtained an injunction from the courts to stop the landlord's work on that building.
One of the main problems the tenants in that building had was that the landlord tore out perfectly good kitchen cabinets and replaced them with very, very shoddy cabinets, that the end result of the work was that they had far less than they started out with and that they were not happy with the quality of the repairs. The other problem they had was that there was excessive money charged for these repairs and replacements.
Let me give you an example. I believe it was $68 per square metre that the landlord charged for the carpeting in the hallway, and my understanding is that industrial grey carpeting runs about $19 to $20 a square metre. This carpeting was wearing out within a year because of its shoddy quality. He paid an exorbitant price and the tenants had various serious allegations, which they could substantiate, that there was a middleman who was not at arm's length to the landlord who was creaming off money in the middle so that the landlord was getting not only the rent increase for $68 per square metre, but the landlord was also making a hefty little profit in the middle. Unfortunately, the only remedy that those tenants had would have been to go to court and prove these allegations and substantiate them.
I had a meeting with John Bassel of FRPO at the time, because he was very concerned when I was raising these matters in the Legislature. He looked at the cost-revenue statement and he said, "I can't believe the type of money that this landlord put in." We were talking a couple of million of dollars for the two buildings; I believe it was a couple of million for windows that he said there is no way those windows should have cost that much.
So those two provisions, the quality and value for money, I felt tenants should be able to have that as a defence that, if the landlord was ripping them off, why should the landlord be able to claim that? The landlord should only be able to get the rent increase for the value of that repair.
So that is a description of the major provisions of this amendment that I have proposed. I just would ask members to seriously consider adopting this amendment. It does not gut or I think interfere with the moratorium or the principle of the bill. I think you would find that many tenants in the long term were very grateful for them.
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And I would ask you to consider when you vote on this that if you do not support it, the first time a landlord phones and says he is closing down the underground parking garage and 400 tenants have no parking because he cannot ensure the safety of the building, if the salt corrosion continues and he does not have the money to do that replacement, I hope you will accept that landlord's calls and I hope you will accept those tenant calls. The first time, like I say, that in November and December of next year when the heat is off, or maybe even sooner, and the landlord says: "No, I'm not going to replace this boiler. I've repaired it 20 times, but I cannot repair it any more. It needs to be replaced, but I am not doing it," I hope you will be the ones that have to deal with that. I have a funny feeling that instead it will be my office that tries to clear that up.
I hope you will consider supporting this amendment. I think it is reasonable. I do not think it will deal with outrageous rent increases, and not every building will have a landlord who will apply under it, but it will provide a safeguard for those tenants who feel their health and safety is in jeopardy or that there are certain elements of the building that are going to deteriorate and be in very rough shape if it does not get the necessary repairs. It also provides an element of tenant participation so that when tenants want certain work done, they have that right under your Bill 4. Mr Chair, those are my very brief comments under this section.
The Chair: Very good.
Ms Poole: That was only part one.
Mr Turnbull: I am very sympathetic to all of the points made by Ms Poole. However, we will not be supporting it. We are going to bring in our own amendments which, I respectfully say, in most respects are more restrictive on the landlords than the ones brought in by Ms Poole. We have actually created a list of those essential repairs which are important for the maintenance of buildings and codified that in some way, in the hope that the ministry and the members here will accept that we are trying to ensure that just those structural elements and safety elements are considered. And without trying to pre-empt Ms Poole's amendment, I will just simply say that in terms of the allowance for tenants to have input, we have tightened it up still further that 75% of tenants would need to vote to have work done.
I think it is tremendously important that the government recognize that at this time, in all of the discussion papers and all of the submissions that we had, it has been identified that there is a need for, conservatively, $7 billion worth of work that will be required on residential complexes between now and the year 2000. Given the fact that we do have a recession on now, it would seem appropriate that some of those renovations were going forward.
So in this sense I am supporting the spirit of Ms Poole's motion, but I am just simply saying that I will be bringing forward a more detailed, a more restrictive motion, and I do hope that you will consider passing it.
Mr Mahoney: Recorded vote.
The Chair: Thank you for your advance information on your amendments. Are there any other advance amendments we could discuss? I am just teasing, just trying to have some fun, to break the monotony.
Interjections.
Mr Mahoney: Could we have a recorded vote on that?
The Chair: No, no. Any further discussion on Ms Poole's amendments? You have already spoken, Ms Poole, at length, and no one else has said anything.
Ms Poole: Mr Chair, on a point of order: Not only do I disagree with you on your point of view on market value assessment, and I think Mr Turnbull would concur with me, but I also disagree with your opinion that Mr Turnbull's viewpoint was monotonous. It was most unfair.
The Chair: You are right. I was correct on the first one and incorrect on the second one.
Ms Poole: I have a comment about Mr Turnbull's statement.
The Chair: No, we cannot discuss Mr Turnbull's amendments. We are discussing --
Ms Poole: No, not his amendment, his statement.
The Chair: Which was about his amendments.
Mr Mahoney: It was about her amendment.
Ms Poole: Yes, it was his comment about support for my amendment, Mr Chair.
The Chair: Okay.
Ms Poole: Correct me if I am mistaken, but I thought when I talked to Mr Tilson he said he was going to support mine because mine went first and then if it failed, you would be bringing your own in. Far be it from me to sow dissension in the ranks, but this does put you in a real dilemma.
Mr Turnbull: Could I suggest that we have a five minute --
Ms Poole: Is he around?
Mr Turnbull: No, unfortunately Mr Tilson had to leave. He would have liked to have been here. Clearly we understand that we need the concurrence from the government members with any bill, so it was not a question of keeping the numbers here; we need your help anyway. I would suggest that in view of this perhaps we have a five-minute delay and discuss the position.
Mr Mahoney: You want to discuss it with us?
Mr Turnbull: Yes.
Ms Poole: We could officially ask for 20 minutes, but I do not think that would be fair or desirable.
Mr Duignan: Five minutes can be 15 minutes.
Interjection.
The Chair: We will adjourn for five minutes to have private discussions among members of the committee.
The committee recessed at 1546.
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The Chair: I would like to call the committee to order, please. The committee had requested a five-minute adjournment to have private discussions among colleagues. Mr Turnbull.
Mr Turnbull: Mr Chair, after having consulted with Ms Poole, I would like to bring forward a friendly amendment to her motion, and that is to clause 100e(2)(h). Where it reads "supported by a petition," second line from the bottom, that would be substituted with the words "supported by consent in writing." I think that addresses one concern I have.
I am particularly concerned that we do this at this time. We want to make sure of the structural integrity of buildings, and given the fact that the building trades are depressed at this moment, I think it is important that we do not cut off work on major repairs to buildings during a recession. So on that note, I would support the motion from Ms Poole with that amendment.
The Chair: Okay, I am going to reread the amendment as amended in a friendly fashion.
Ms Poole: By the way, Mr Chair, just for the record I would say that I accept that friendly amendment.
The Chair: Okay. I will reread the amendment and then we will have discussion.
Moved by Ms Poole that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clause:
"(h) subject to subsections (7a), (7b) and (7c), capital expenditures that, in the opinion of the minister, are necessary to ensure the structural soundness of the residential complex or the health or safety of the tenants or that are supported by consent in writing of at least two thirds of the tenants of the residential complex;"
Discussion?
Ms Harrington: Yes. Briefly, I appreciate the concern that has been expressed both by the third party and the opposition to making sure that landlords do necessary repairs. The relationship between tenants and landlords, I would think, is at the heart of this that we are dealing with although I must say that there are two problems; first of all, clearly the capital expenditures and the whole issue of tenant approval. You know, both of those things, which are necessary and which are not necessary, will be set out in the consultation paper. Second, the decision on these types of things, if you think twice on it, obviously it is a very complex matter and it will need an administrative structure to deal with. So I would just like to say that our party at this time, because it is an interim bill, will not be accepting this amendment, but we will be dealing with these issues very shortly.
Ms Poole: I have difficulty with Mrs Harrington's comments that, first, this will be dealt with in the long-term consultation paper and, second, that it requires an administrative structure. We have an administrative structure -- it is called rent review -- and at last count, I believe, it was costing the taxpayers of this province somewhere in the vicinity of $40 million a year. I do not see that we are going to need additional people. For one thing, it would give the ministry a very firm testing ground as to what was feasible, so that by the time you are introducing your long-term legislation, and in fact by the time that your long-term legislation passes, you will have a very good idea of whether this system works, whether it is a viable one.
I could read you the option from the long-term consultation paper, and although I had tabled my amendments before release of this paper, much of the wording is the same. So it is a viable option, and it may end up even being the preferred option, and this is an opportunity not only to make sure that tenants are protected over the next year, year and a half, two years or however long the moratorium lasts, but it is also an opportunity to see how viable the system really is. We do not need any extra money. Not one extra dime has to go into it. The system is in place. So as far as administrative structure is concerned, I am afraid that I do not buy that argument, and as far as not including it simply because it is something you are going to look at in the long term, I do not buy that either.
I think that there is not a person whom we have talked to who disagrees that necessary capital expenditures, major repairs and replacements should take place. Everybody agrees it has to be done. What we are going to grapple with is, how should it be paid for. And in the meantime, if you have agreed that it should be done, surely you have to have some provisions for making sure it is done, because I can tell you it is going to be an extremely rare case that it will be done unless you have some sort of mechanism by which there can be a cost pass-through.
I do not want to prolong this debate, but I had hoped that the government members would support this, particularly since many tenants will support this. I think you will find that some time down the road you will have paid the price politically, as well as in other ways, for having ignored capital repairs to our aging housing stock.
Mr Turnbull: As I have said, it has been identified in the discussion paper that $7 billion worth of needed repairs are going to be needed by the year 2000. We are in a recession. We have seen the government come forward with some efforts at a countercyclical economic policy in that it seeks to prime the pump in some modest way with the hope of offsetting the ravages of the inflation. I cannot think of a better time to be doing major structural work than at the moment. The cost will be the lowest because there are people who need work and you are going to get very keen contract workers who need to be employed. We have seen workers here. We know they are out of work. We have a letter on file since yesterday from the law firm of Koskie and Minsky, representing the various tradespeople from Metropolitan Toronto, emphasizing the dangers of this type of legislation, and we have seen in expert testimony from the ministry staff that fully two thirds of all work is necessary by their very small-c conservative assessment of what is necessary.
I would suggest, frankly, that people who have a stove that is not working would say it is necessary. But be that as it may, we are talking about structural repairs needed for the safety and the structural integrity of buildings. Surely at a time that we are in the midst of a recession -- and very often the tradespeople we are talking about are your natural supporters -- you do not want to cut off this work, and at a time that it is going to be done more cost-effectively than it could have been done for the last several years. I am most concerned that you consider the impact on jobs and the fact that your own ministry has identified this need for work to be done. And you are not going to get it done under Bill 4. It is absolutely inconceivable that a landlord will commence any capital work during this moratorium.
The Chair: Any further discussion?
Mr Mahoney: Recorded vote.
The Chair: The minister has a comment to make.
Hon Mr Cooke: Just very briefly, I think that I understand the point that the Liberal Housing critic and the member of the third party are saying today, as they have said in the past. I have tried to explain, on behalf of the government, the point that we have indicated right from the beginning, that Bill 4 is an interim piece of legislation, that we believe we have to find a fairer mechanism to deal with capital on a long-term basis. We have not found that mechanism yet. The green paper outlines some of the options, and through the consultation process I hope that we will all be able to find a mechanism that will work.
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It is not as easy as to just say that the minister will decide what is necessary, what is not necessary, that tenants will be able to vote on it. There are many tenants and many tenant organizations that very much oppose the concept of having votes in buildings because of the difficulty in the process, and whether pressure is put on certain tenants and how that can work. What happens, if your requirement is 66% or 75%, what about the tenants who vote against the repairs to the building? What about the real impact on rents for those tenants who cannot afford it, who have voted against? Those are all areas that we have to take into consideration. It may be in the end that when we have had sufficient consultation there will be mechanisms that we can find where tenant participation can be part of the permanent system; I do not know. I want to hear about that during the consultation period.
There definitely will have to be mechanisms to deal with capital, whether it is through a capital reserve fund, whether it is other mechanisms that we have outlined in the green paper. Those are questions that we will want to hear from people about right across the province.
But I think to accept this series of amendments would be to assume that we have found the permanent solution, which we have not; and I do not believe this is workable and I do not believe that it is the proper solution. I think that the entire mechanism that we have spelled out for the people of the province of a moratorium for a period, the consultation document, the legislation for this summer, that is all part of a process, and the temporary moratorium is a very essential part of the process.
I know we will continue to hear from the Liberal and Conservative spokespeople that the sky is falling as a result of this bill, and I just do not believe that is the case.
I do believe that there were significant problems under Bill 51. The Liberal Housing critic, when she was a member of the governing party, recognized that there were those significant problems. They had to be dealt with. It was a promise that we made before the election and during the election, that we would follow through on those commitments. We have done that.
We also, quite frankly, and I would be the first to admit, have varied from the commitment that we made in the election. We have come to the conclusion that we cannot just have a straight guideline in the permanent system, that we have to have a variance and a mechanism that deals with capital, so we are proceeding in that way. But during the moratorium period it would be wrong to try to fix Bill 51 by accepting these types of amendments. Let us work together and try to find the permanent system that will work.
In the meantime, there are landlords across this province who have year after year after year invested money in their buildings to maintain those buildings with the rents they receive. Not every landlord who has put capital into his building goes through the rent review system. They will continue to do that. You know that and I know that. If a parking garage is in a poor state of repair today, in 1991, it was in a poor state of repair four months ago. You know that and I know that. And those kinds of repairs we expect landlords to continue to carry out. We expect buildings to be maintained.
One thing that has certainly bothered me through this entire discussion since 28 November has been the deliberate attempt by the opposition parties to play down the fact that $8 billion a year is being paid in rent now. That $8 billion is supposed to pay for something. It is not supposed to just go through and pay for daily maintenance and taxes and other things. There is an expectation that that rent is to pay for the operation of the building and the maintenance of the building, and I think you do a disservice to tenants, you do a disservice to a lot of good landlords in this province who have used that money well and have kept their buildings up, to simply say, "Now, because of Bill 4, you don't have to do anything and you can blame the government." That is inappropriate. That is not the way that it has worked in the past. You know that and I know that.
We will, I believe, develop a permanent system that is fair and will, on a long term, put in place mechanisms that will provide for ongoing maintenance of buildings, not the type of capital expenditures that were provided for in Bill 51 that encouraged landlords to let their buildings deteriorate and then bunch up capital expenditures and have huge rent increases. That is not the way to manage a housing stock in the province. We want to develop a housing strategy and a rent regulation bill that will encourage ongoing, permanent maintenance of buildings without having huge rent increases that economically evict tenants from their place -- their home, not just their apartment, but their home.
So we cannot accept this series of amendments. And you can continue to describe it in any way you want, but the fact of the matter is that there was a need for increased tenant protection and there was a need for a mechanism to find that permanent solution. That is what this moratorium is all about. It provides for better tenant protection, and in the long term we will find a piece of legislation that I think will be workable, unlike the piece of legislation that many people have had to suffer under for many years.
Mr Turnbull: You suggest that we do a disservice to landlords. I would respectfully submit that the landlords who have lived within the guidelines for many years are also the very people who occasionally have had to go for these unusually large capital expenditures. We have had expert testimony before this committee on many occasions which absolutely dispels the myth that you are trying to perpetuate, and that is that somehow it is ongoing neglect which causes the need for major capital items to be done. And I see the minister is not even interested in what we have got to say.
Hon Mr Cooke: Of course I am.
Mr Turnbull: Thank you.
Hon Mr Cooke: I have been hearing it for three months.
Mr Turnbull: And so you should have, because there has been good expert testimony from your own people from the ministry who have said that two thirds of all of the capital expenditures are necessary, and we have also heard testimony that many of these repairs are not a question of neglect, there is a certain lifespan, with the technology of how buildings were built 25 to 35 years ago, that needs to be replaced. When you get to a point where you have got a major capital item, you have to fund it, and contrary to what you are saying, we have also seen sufficient numbers that many landlords in this province are not making profits.
You are saying that there was this expectation from tenants that this money should be put away. Quite frankly, that is a distortion of the facts. We know that there was no allowance to create any capital fund, and we have heard from the ministry testimony to the fact that it was never considered to be the way of funding capital expenditures. Major capital expenditures were always passed through to the tenant, from the very inception of landlord and tenant legislation. Furthermore, there are an awful lot of the buildings which were caught in the initial legislation brought in by the Conservative government, which in fact were making losses at that time, so there could have been no money extra to do those repairs. It has always been contemplated in legislation that major items would be funded by the tenants.
Now you are saying that somehow the landlords are wrong in wanting the money to do these repairs. This is the time we can get the most cost-effective repairs of buildings. We know the repairs have to be done. We want the housing stock to be maintained so we maintain safe housing for the people of this province; that is absolutely essential. It is ludicrous to suggest that just by ignoring this need for the next year it is not going to impact on the workload. We have people who are workers in this province who need the work and it is work that needs to be done. It is not make-work projects. Surely when the Treasurer is trying to pursue a countercyclical economic program, it is appropriate that the funds be made available to do needed repairs in this province.
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Mr Mahoney: I want to thank the minister for relighting the fire in my belly a little bit. I was finding things were bogging down a little, and I guess I needed a lecture and can always appreciate one, as sanctimonious as it might be.
I find it really incredible to have a member of the New Democratic Party, minister or not, tell the opposition that we have been doing a disservice by distorting facts or painting a picture that is less than accurate, when I think of the things that have been said and the dwelling on things like marble lobbies and other luxury renovations and 100% increases and economic evictions. We have been looking for them all over the province, and from the people who came before our committee, we heard of a few economic evictions, we had a few tenants before us, but by and large we were not seeing that, particularly when we got outside of Toronto.
You know, I have made this argument before, but I think it was Mr Brown who said that I had asked numerous presenters before this committee if they could just tell us what there is in Bill 4, other than a cap that protects the tenant, that helps the tenant get renovations, that helps the tenant solve problems, that gets rid of the rats and the other vermin, and the cockroaches, that actually motivates some improvement in the living quality of their particular unit. We asked that question to the city councillors who came before us with their entourage of supporters. We were unable to discern anything in the bill that provided anything beyond the cap and beyond a freeze that would do anything to give any incentive for anyone to improve the situation.
So we are not making up stories, this is reality. We had tenant groups telling us that. We had tenant groups that were actually opposed to the legislation. If I were the minister, I would wonder why. Maybe they have analysed it and they realize that there are some improvements that indeed should be done, particularly in the area of capital.
And to say that we have got this temporary piece of legislation and then speak in favour of the philosophy, as Ms Harrington has done, and supporting the philosophy, to have it addressed in the green paper -- as I said earlier, it is doublespeak. It says: "We think it's a good idea, but we don't want to do it now. Let's put in this terrible temporary legislation, and then we'll get down and do some serious business later on."
And the constant reference to Bill 51. We recognize, Minister, that you are the government, and barring an early election call, which I assume is not likely, you will be the government for approximately four more years.
Hon Mr Cooke: I could ask your views on that.
Mr Mahoney: You could ask my views on an early election call. Peterson did.
Hon Mr Cooke: What was your advice?
Mr Mahoney: Unfortunately, he listened to me.
Interjections.
Mr Mahoney: But in all seriousness, I must wonder who is keeping whom in committee. I hear honourable colleagues opposite say that we are stalling the bill, we are keeping people here. We have an amendment that has been on the floor that has been spoken to at great length in a very articulate way -- I had better say that or I am in trouble -- and been very forceful in putting it forward. I think the committee was at the point we were almost ready to vote on the thing, and all of a sudden we get a lecture. I mean, I am surprised. You are an experienced legislator and frankly should -- I would have thought would -- have known better.
The issue of jobs: We have had people before us, you know; we did not make it up. I remember watching the night news on the night of the 28th after your great pronouncement and the shock waves that rolled across the province. It was not someone's imagination that all this equipment was being taken out of buildings and thrown into the back of trucks and people were going home out of work. Many of those people, tenants, by the way, who now no longer have a job with which to pay the rent that you are putting a cap on, I am sure they are very appreciative.
So the fact is that there are opposite points of view, and I respect that, and we have a responsibility to expose and put forward those opposite points of view, as you have done in past years. It is our job and I happen to think we are doing it reasonably well and are probably going to get even better as we get into this role more; and we do not need a lecture about distorting things to tenants, because that is not the case at all. We are repeating the facts that have come in before us as a committee.
We had the folks here showing us the contracts they were losing. We had the folks here, and I have talked about them before, small landlords. You see, you tend to want to hide behind -- and the Premier's statements about, you know, the big, huge numbered companies that own all of these rental units -- you tend to want to hide behind it just because they are big guys. Iggy Kaneff I guess can afford to lose $12 million. I doubt it, but you tend to hide behind that. But the small people are the ones, and there are thousands of them around this province, landlords, small landlords who have worked hard to get where they are, and they are not being treated fairly in this bill.
I cannot reargue and will not reargue issues passed and lost on the retroactivity. It is sincerely my hope, and I mean this sincerely, in a spirit of co-operation, that you, Minister, will look very, very carefully at the conditional orders that are out there; and if you come back, I think it would be a major gesture on your part to come back with something that makes sense, that would literally stave off bankruptcy for some of these people.
I just suggest that it is totally unfair to suggest that any member of the opposition is distorting facts or putting facts before tenants or doing them a disservice. Many of the tenants, Minister, you will be, I am sure, delighted to know, happen to agree with us on this and think that this bill is a travesty.
Ms Poole: Minister, you really should not have baited the bears like this. We were all set to vote until you made your outrageous comments, and the inconsistencies are mind-boggling.
The first inconsistency: You said, "Well, no, sorry, too bad, but can't support your amendment on what to do about major capital repairs because we haven't decided what to do with major capital repairs and we'll be dealing with that in the long-term paper, so we can't put this in right now because that would imply we have a long-term solution." On the other hand, what this committee has heard every single day is that Bill 4 is temporary and the things in Bill 4 will not be in the permanent legislation, that it will be changed.
You have got to get your act together. Either Bill 4 is permanent legislation, therefore you do not want to put this "necessary capital" stuff in because it predetermines how your long-term solution will turn out, or on the other hand Bill 4 is temporary and all it does is provide a temporary solution to major capital until you bring in your long-term paper.
The minister says things in press conferences, in newspapers, in committee, in the House, such as, "We've always recognized that there's a need for capital." He has not said how he has dealt with it, but he says, "We've already recognized that capital replacements and repairs would have to be dealt with."
But I have before me today a copy of the Hansard from 2 May 1990. It was opposition day, called by the NDP on rent control, and it was a motion brought forward by Mr Cooke, "...this House calls upon the government to replace the Residential Rent Regulation Act with real rent controls that will allow only one guideline-based rent increase per year with no exemptions."
There was not one word in there about necessary capital expenditures, not one word about how it was to be dealt with. According to Mr Cooke, less than one year ago, it was irrelevant. It did not need to be dealt with in rent control, whether temporary or long-term or at all.
Now today he is telling us, of course there has got to be a provision for capital. Now that he has got his votes, now that they are the government of Ontario, they do not need to talk about what they did a year ago. That is not good enough, and I particularly resent it when he accuses the Liberal and Conservative caucuses of deliberately attempting to play down the $8 billion in rent that is paid by tenants every year.
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Certainly our caucus, and in defence of the Conservative caucus, neither of us have at any time attempted to play down the fact that large amounts are paid in rent across this province. After all, there are 1.2 million units in this province, so obviously there is going to be a very large rent bill. But that presupposes what I can only call a naïve opinion, that there is always sufficient profit in the rents to take care of major capital expenditures, and it is very clear that this is not true.
There are obviously some landlords who have owned their properties for 25 years, have no mortgage and are in a much more solvent position to pay for capital repairs. Many landlords are not. You want to say across the board that major capital repairs should be paid for out of rent. I would submit to you that you had better have your Ministry of Housing officials get an economic analysis of whether this is feasible before you throw out these idiotic ideas.
I specifically asked the Ministry of Housing staff at lunchtime why that option was not in here, basically not to do anything about major capital but to leave it to the individual landlord to decide what should be done and to pay for it himself or herself. It is not an option in there. Every single option in this rent control issue has some provision that capital repairs would have to be paid for somehow by extra moneys. So I really resent the implication that we are deluding the public or that we are trying to mislead members of this committee, not only on the need for capital repairs but also our position on how they should be provided. I think that what I have provided is a very reasonable compromise of an amendment. It would not result in excessive rents, it would ensure that these capital repairs took place, and, Minister, I really do wish you would revisit this issue. You have to be consistent first and foremost.
Mr Brown: This is really interesting. I was very worried that the minister and the New Democratic caucus had no conception of investment or how economies really work, and for a while there I was thinking maybe --
The Chair: Order, please. These are important comments being made by all members.
Ms Poole: Sorry, the minister asked me for a document.
Mr Brown: I was really quite concerned that they did not understand. For a moment, when he said that in the permanent legislation capital expenditures were going to have to be looked after in some way, I had some hope that he really did understand the issue. Yesterday I had the privilege of going up to the standing committee on estimates for a few minutes and listening to the Minister of Mines at those estimates. He is a very capable person and one I respect very much, and in response to a question from a New Democrat the minister gave what I considered to be one of the best answers regarding investments in markets and how the real world works. I thought: "Things are looking up. They understand." Mr Pouliot described how exploration work depended on the price of the commodity and how investment works in the mining industry, which is not unlike any other industry.
Mr Mahoney: We all know he's a Liberal.
Mr Brown: I suggested to Mr Pouliot at the end of this conversation with another New Democrat that he speak to Mr Cooke and explain the realities of the real world to Mr Cooke. Apparently they have not had the opportunity to have the conversation, because what the minister just told me is just beyond belief, that they should have the money. Well, maybe they should, but the fact is they do not.
To change gears just for a second, we had a presenter in Ottawa, Minister, a tenant who came before us. His problem was he had voted for you. His problem was he believed what you said.
Mr Turnbull: They know better now.
Mr Brown: He believed that in your Agenda for People --
Mr Mahoney: Agenda for power.
Mr Brown: Well, it appears that way now, Mr Mahoney. It says:
"New Democrats would bring in rent control. That means one increase a year based on inflation. There would be no extra bonuses to landlords for capital or financing costs. It's simple, it's fair, and it avoids the bureaucracy which has frustrated both tenants and small landlords."
Minister, he is disappointed in you because now you are talking about passing capital through. That is what he said. He said: "Boy, now they're going to pass capital through. I can't believe this. Even in Bill 4 they're going to do that." Well, not capital, but for extraordinary expenses. This is what they are going to do. He said: "I can't believe this. That isn't what they said." I, for one, would like to know what happened between 6 September and 28 November that changed your mind, because that is not what your platform was, that is not what you said in the Legislature back in -- was it June?
Ms Poole: May.
Mr Brown: May. That is not what you said. What is the difference? For you to make these statements that landlords should have the money is all well and good, but in the real world "should" and "do" are two different things. If we want capital expenditures to be made to keep parking garages from falling down, there is going to have to be some provision; and no tenant in this province is going to be happy that he cannot use a parking garage because the landlord will not fix it because of Bill 4.
The interesting thing, I think, here is that our arguments could be wrong, your arguments could be wrong, but we are going to know, a year from now we are going to know, we are really going to know, because we are going to be able to look at apartments and say: "Were they kept up better than they were? Is the rental stock in better repair than it was?" So we are going to have a way to measure that, and I suspect that tenants are going to say: "Gee whiz, the Liberals and the Conservatives were right." I think that is what they are going to say. So for you not to adopt Mrs Poole's amendment to support this, you are going to be the ones that have to explain it. Before, you were in opposition and you could say anything you wanted or so you thought --
Mr Mahoney: And did.
Mr Brown: -- and did, but now you are in power. This is the real world. This is real action. This is not TSN. You are responsible for what you do and people are going to be able to tell whether the policy worked or whether it did not. I would suggest to you the thing is you have already broken your election promise, or are about to. Well, you have, you have broken your election promise. You see, you can deal with this one. This is nothing new. You have broken your specific promise.
So, Minister, I would just hope you will reconsider your position. You know, I think, deep down that capital expenditure will not be done in this province at the rate it was. Further to that, I think you will find that there are not the choices in housing that there could be, that there will not be as many new rental units come on to the market this year as there should be. Over the past we know there have not been as many as we need, but I think it is going to get worse. I think we all know it is going to get worse.
With those comments, I would just ask the minister, seeing as we are really going to be able to evaluate what you did, we are really going to know -- a year from now what you have done will be history, it will be a matter of fact. It will not be a matter of what I think is the thesis or what you think is the thesis. The facts will be there and I am very confident that if you do not show some flexibility here, the facts will be on our side.
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The Chair: I believe that concludes discussion on Mrs Poole's amendment.
Ms Poole: Recorded vote, please.
The Chair: A recorded vote has been requested.
Ms Poole: We are voting just on clause (h)?
The Chair: We are voting on your amendment.
Ms Poole: Yes, the first provision, clause 100e(2)(h).
The Chair: Right.
The committee divided on Ms Poole's motion, which was negatived on the following vote:
Ayes-4
Brown, Mahoney, Poole, Turnbull
Nays-6
Abel, Cooper, Duignan, Harrington, Owens, Ward, M.
The Chair: The motion is defeated. We now go to Mr Turnbull's amendment.
Mr Turnbull: It tracks the motion that we have just had from Mrs Poole, but fine-tunes it a little.
The Chair: Mr Turnbull moves that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clauses:
"(f) any capital expenditures that in the opinion of the minister are necessary to maintain the structural integrity of the residential complex including,
"(i) repairing or replacing delaminated concrete and steel in an underground parking garage,
"(ii) replacing a roof,
"(iii) converting the residential complex from galvanized to copper plumbing and replacing boilers,
"(iv) repairing cladding on the residential complex,
"(v) making repairs necessary to protect the safety of tenants, and
"(vi) carrying out energy conservation measures required by the Ministry of Energy;
"(g) any additional capital expenditure if at the time of contracting for that expenditure 75% of the tenants whose rent would be affected by that expenditure have consented to it in writing."
Mr Turnbull: Since we have had the debate on the previous amendment, it would seem unlikely that you are going to vote for this, although I would emphasize that we have tightened up the definition, we have codified this and we have particularly emphasized the question of safety, which must be paramount to all of the parties, safety for the tenants.
Looking at subclause (vi), this question of energy conservation, your own Minister of Energy has said that you do not want to build any further atomic power stations, you want to emphasize conservation. Now the facts are that we have a tremendous number of buildings in this province that are very old buildings and it is a fact, unfortunately, that as buildings age they settle and the windows do not fit as tightly. That is just a given. Also, the majority of the older housing stock is single-glazing. I certainly ran in the last election very strongly on the fact that we need to be environmentally conscious, and in fact I would suggest that all three parties fought the last election with, fortunately, one thing in common, that we all believed that we have got to do things for the environment. One of the key things we can do that can reduce dependence on fossil fuels and the need to build further atomic power stations is by going forward with conservation measures that I believe the Ministry of Energy is actually contemplating mandating.
Now, surely at the time of a recession, as I said before, it is appropriate for us to be doing these kinds of works, like putting in new, double-glazed windows, when it is going to cost less than at any other time. If the economy goes back to being warm or even hot again, simple economics say that it is going to be more expensive. A few years ago in the Legislature there was a suggestion that they replace the windows here in the Legislature. At the time the cost estimate was $2.5 million; it is now up to $10 million. It seems appropriate that we would be doing that.
Why did we not say 100% of the tenants voting if they wanted something done? Simply because you will never get 100% of anybody voting for anything. If we had to form a government with 100%, we would have difficulty, all of the parties would, but we want to give the ability to tenants to mandate that certain things should be done and to negotiate with the landlord.
Given the fact that there is a great similarity with Mrs Poole's amendment, albeit somewhat tightened up, I would suggest that we should not spend a great deal of time debating it and that we should move forward.
The Chair: Thank you for the amendment, Mr Turnbull. Any discussion on this amendment?
Mr Mahoney: Recorded vote.
The Chair: No discussion. A recorded vote has been requested. Do we need the amendment read again? No, all right.
The committee divided on Mr Turnbull's motion, which was negatived on the following vote:
Ayes-4
Brown, Mahoney, Poole, Turnbull
Nays-6
Abel, Cooper, Duignan, Harrington, Owens, Ward, M.
The Chair: The amendment is defeated. I believe Mrs Poole has another amendment. Mrs Poole, am I correct in saying that you have another amendment?
Ms Poole: Yes. Mine is to clause 100e(2)(i) and Mr Turnbull appears to have one, clause 100e(2)(h).
The Chair: Let's check the other list there.
Ms Poole: If Mr Turnbull does want to proceed with his, I have no problem with that.
The Chair: Okay.
Mr Turnbull moves that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clause:
"(h) in respect of a residential complex any part of which was occupied as a rental unit before 1 January 1976 the extent to which the rent for the residential complex is a chronically depressed rent within the meaning of section 91."
Mr Turnbull: This is important when you consider there are such restrictive measures being put forward in Bill 4 that some landlords with the older complexes are going to have great difficulty in maintaining their properties. We are concerned about bankruptcies. That is why we are bringing forward this needed clause.
The Chair: Is there any further discussion? All in favour of Mr Turnbull's amendment?
Mr Mahoney: A recorded vote.
The committee divided on Mr Turnbull's motion, which was negatived on the following vote:
Ayes-4
Brown, Mahoney, Poole, Turnbull
Nays-6
Abel, Cooper, Duignan, Harrington, Owens, Ward, M.
Ms Poole: By the way, I would officially withdraw my amendments for subsections 100e(7a), (7b) and (7c). Since my main motion failed, I withdraw those.
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The Chair: Okay, but I believe we have a couple of amendments prior to that.
Ms Poole moves that subsection 100e(2) of the act, as set out in section 8 of the bill, be amended by adding the following clause:
"(i) the amount under a notice issued under section 92 on or before 28 November 1990."
Discussion?
Ms Poole: To explain the import of this particular amendment: We had decided in our caucus to deal with retroactivity in three separate sections. The first one, which was defeated the other day, applied to capital work that was done; the one that has been tabled today for the minister's consideration on conditional orders will be dealt with next week; and this one is the retroactivity that deals with phase-in orders for financial loss.
As members are aware, there was a provision under the RRRA that if a landlord was experiencing financial loss, which was usually due to the purchase of a building, he or she could make application to rent review for relief. Under the RRRA, unlike previous legislation, for the first time this financial loss was capped at 5% a year. Prior to the RRRA there was no annual limitation on what a landlord could put through for financial loss.
The way the system worked is that rent review would give an order for phase-ins over a number of years to compensate for the financial loss to get the landlord to a break-even point. The typical example would be the phase-ins would occur over five years, with a 5% cap per year.
It is the contention of our caucus that once a rent review order was in place the rent review order should be honoured and we feel this does extend also to the phase-in orders that were ordered by rent review.
So that, in very brief words, is the intent of this particular amendment.
The Chair: Any further discussion?
Mr Turnbull: It is just inconceivable that you can allow people to do work with phase-in orders and then ignore them, and that is all I have got to say. It just flies in the face of democracy.
Ms Poole: Just one final comment. A number of the small landlords who appeared before us in our hearings and broke down were ones who felt they were victims of Bill 4 in that the cancellation of those financial loss orders would put them in a position of jeopardy, that they would face bankruptcy. A number of them indicated that they would lose their life savings.
I can say that financial loss, probably of anything in rent review, gives me the most difficulty as far as a position on it is concerned, but I have a lot of sympathy for tenants who say that a landlord's investment should not be gained at their expense.
On the other hand, the difficulty is that a number of these landlords made their decision to purchase a building, many of them because it was going to be the basis of their retirement, and they did it with the understanding that over a five-year period they could get to a break-even point on the rents. We have heard stories about landlords not being able to refinance their mortgages. One landlord who appeared before us told us that his home had been heavily mortgaged and he feared he would lose his home because of this. So it is obvious that the cancellation of phase-in orders under Bill 4 is going to create hardship in a number of cases. That is all I have to say.
Mr Mahoney: I just want to add that members may recall, and maybe Mrs Poole can help me out, I believe it was a tenant organization in Hamilton that came before us who addressed the retroactivity issue, and it was not just a small group. Do you recall the name?
Ms Poole: Yes, it was the Housing Help Centre of Hamilton-Wentworth.
Mr Mahoney: To paraphrase what they were saying and refresh members' memories, they used words like "Retroactivity is dangerous, retroactivity must be justified," and they said that they saw no attempt by this government to justify, or at least no success in justifying, retroactivity. That is not some landlord group with millions of dollars coming forward, that is a tenant representative group that is coming forward and saying that this is unjust.
We have lost the main argument on retroactivity and you have decided that that is the way it is going to be. The minister has indicated that he is prepared to consider some compromise perhaps. I will not put words in his mouth, because I hold out some hope that we will come out of this with something on the conditional orders, and I would ask that you look at this in the same light. It really would be difficult to understand how you could justify one and not the other. It is difficult for me to understand how you can justify eliminating either of these, or dealing with the retroactivity issue in any way whatsoever, but you seem bent on doing that and I would ask at the very least that you consider this in the same light as the amendment on conditional orders.
The Chair: Any further discussion?
Mr Mahoney: Do I get a response to that from the minister? I am asking the minister a question.
Hon Mr Cooke: I hesitate to respond, because the last time I responded --
Mr Mahoney: Well, just respond nicely. It is simple.
Hon Mr Cooke: This is another one of the areas of the bill that are, I agree, very difficult, but phase-ins, in my view, were one of the difficult areas of the previous legislation and a way of building in, over a very long period of time, substantial rent increases to tenants, and I would not agree with the assessment that has been made by the Liberal Housing critic that this is an area that is of most concern to some of the landlord community. I just would not agree with that assessment of it, but other than that I am not going to address it any further. I am going to try to stay away from the rhetoric and proceed with the bill. I am not prepared to reconsider this section in the temporary legislation.
The Chair: Any further discussion?
Mr Mahoney: Recorded vote.
The committee divided on Ms Poole's motion, which was negatived on the following vote:
Ayes-4
Brown, Mahoney, Poole, Turnbull.
Nays-6
Abel, Cooper, Duignan, Harrington, Owens, Ward, M.
The Chair: The amendment is defeated.
An hon member: Do you have to raise your hands in unison?
The Chair: All in favour of clause 100e(2)(e)?
Mr Turnbull: Mr Chairman, was it not agreed that we would go until 5 tonight?
The Chair: Yes.
Mr Turnbull: It is 5 now and I have other commitments.
The Chair: Was there going to be further debate on clause 100e(2)(e)?
Ms Poole: Mr Chair, some time ago, I think this morning, we were talking about subsection 100e(1) and the "extraordinary operating cost" and the municipal taxes, and at that time the minister indicated that my amendment, which was 100e(5)(a), I believe, if I can find it in here, the government had agreed to that. Although I do not intend to speak to this, can I have two minutes?
Mr Turnbull: Sure.
Ms Poole: Would you mind? It would make me very happy to think after all those hundreds of hours of work that there was one amendment that I could get through.
The Chair: Mr Turnbull wanted to finish. I have two conflicting opinions.
Ms Poole: Two minutes?
Mr Turnbull: If it is two minutes, okay.
The Chair: Two minutes to do what? Is it two minutes to vote on clause 100e(2)(e) or is it two minutes for Mrs Poole to discuss a different matter?
Mr Owens: Two minutes on her amendment.
The Chair: She has another amendment?
Hon Mr Cooke: There is a difficulty. With the amendments, we are going to find that apparently we have to do subsections 100e(3), (4) and (5) and then --
Ms Poole: Unless we have unanimous consent to take them out of order. Is that not the way it is?
The Chair: We are not going to get it done in two minutes, I assure the committee. Do you want to proceed?
Mr Turnbull: No.
The Chair: We do not have unanimous consent to proceed. I acknowledge that it is now 5 o'clock. The committee stands adjourned until 10 am next Tuesday.
The committee adjourned at 1701.