You may have recently read headlines about an interesting development in Canada's largest commercial real estate market. Last week, a group promoting the concerns of business owners (known as The Better Way Alliance), received an audience with the City of Toronto Council via a motion presented by one of Toronto's better-known City Councillors, Josh Matlow.
Councillor Matlow's motion supported three parts of a 4-part Commercial Renters' Bill of Rights.
The rights sought by the City to protect the interests of Toronto's commercial tenants include the right to a standard lease, the right to affordable dispute resolution, and the right to predictable rent adjustments.
City of Toronto
Like all municipalities across Canada, the City of Toronto does not have broad jurisdiction over property rights. Municipalities have some powers of regulation and taxation in relation to property, but those powers are specifically bestowed by the provinces and territories. Likewise, across the country, many provinces and territories have enacted legislation governing certain rights and obligations of property owners. For example, British Columbia, Manitoba, New Brunswick, Nova Scotia, Northwest Territories, Prince Edward Island, Saskatchewan, and the Yukon have various landlord and tenant acts on the books. Some provinces call their legislation a Landlord and Tenant Act. Others, such as British Columbia and Ontario, have both a Commercial Tenancy/Tenancies Act as well as a Residential Tenancy/Tenancies Act.
Writ large, real property owners comprise a broad category of persons spanning landowners, developers, land users, landlords, tenants, subtenants and occupants. You would therefore not be alone in wondering why the City of Toronto appears to be involved in a proposal to change the rights of commercial property owners vis-à-vis their commercial property tenants.
The answer probably lies in the well-established notion that, "all politics are local."
Toronto's "Commercial Rental Reform" Initiative
Rebounding from the havoc wreaked by COVID-19 has been challenging and downright dismal for many businesses. A prolonged period of weak recovery has inspired significant handwringing and calls to action. Against this backdrop, The Better Way Alliance apparently seeks to strengthen the rights of commercial tenants to put them on par with some of the rights of residential tenants.
They are looking for rent control for small businesses that are locally owned. They wish to protect those small businesses from heavy-handed dispute resolution mechanisms contained in leases (and supported by laws), which essentially give landlords the upper hand over a struggling tenant. They wish to simplify business practices for small businesses by imposing a uniform lease document that would level the playing field by reducing barriers to entry for entrepreneurs and other less sophisticated business operators.
One question raised by critics is whether this initiative, if successful, would effectively discourage landlords from leasing to 'Ma-and-Pa' businesses.
Nevertheless, the headline news is that on May 23, 2024, the City of Toronto adopted Councillor Matlow's motion to request the Ontario government to:
- implement commercial rent control for small, locally-owned businesses;
- establish a dispute resolution tribunal for commercial tenants and landlords; and
- develop and require standardized leases for commercial tenants and landlords.
In doing so, Toronto City Council waived the technical requirement that Councillor Matlow's motion be referred to the City's Economic and Community Development Committee. Notably, instead, it moved directly to adopt the motion to put the request to the Government of Ontario.
Some would read between the lines that by not having the ECDC Committee study the matter, the City of Toronto Council realizes the idea has little potential for traction with the Province of Ontario. The City may be merely signalling to a certain set of constituents that it is concerned for their well-being and is supportive of their plight. After all, it's not as if the City of Toronto can pass the laws that would provide for the identified goals.
The Fine Print
It is also noteworthy that the materials underlying the motion (more specifically, what was presented to Toronto City Council via The Better Business Alliance), contrasted against what was referred to the Ontario government, reveal a wide chasm in the ask.
The Better Business Alliance "Commercial Renter's Bill of Rights" includes muscular rights that would:
- allow tenants to "uphold" lease rights without taking legal action, including avoidance of eviction in a dispute, access to a simplified, non-judicial dispute resolution tribunal and rights of self-help and associated cost offsetting;
- provide for caps on rent increases including dilution of net-ness;
- guarantee renewals at the option of the tenant (i.e., security of tenure beyond the negotiated lease term); and
- allow tenants to withhold rent when owed money by the landlord or whenever the landlord is in breach (to compensate the tenant for the alleged amounts owed or obligations unfulfilled).
What next?
It is rumoured that other municipalities and interest groups across Canada are musing about introducing landlord-and-tenant regulations to alleviate the harsh pain and risks often experienced by small businesses in connection with commercial real estate. However, for the City of Toronto, it must be said that responsibility for enacting laws concerning rights and obligations of property owners falls squarely within the domain of the Province of Ontario. It's their move. The fact is, the current majority government for the Province of Ontario is notoriously friendly to the real estate investment community.
What do you predict Ontario will do with Toronto's motion? Your guess is as good as anyone's.
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