A recent Ontario court decision has placed renewed attention on how landlords calculate and administer above-guideline rent increases, commonly known as AGIs.

According to reporting by the Toronto Star, Canadian Apartment Properties Real Estate Investment Trust, better known as CAPREIT, lost an appeal involving tenants at a 427-unit apartment building located at 100 Wellesley Street East in Toronto.

CAPREIT and the building’s tenants had previously reached an agreement through the Landlord and Tenant Board allowing an above-guideline increase to recover eligible capital expenditures. The agreed increase began in 2013 and was intended to remain in place for 10 years.

The dispute arose over what should have happened after that 10-year period ended.

CAPREIT began reducing the AGI component in 2023. However, Ontario’s Divisional Court concluded that the landlord should have stopped charging that component altogether once the agreed period expired. The court dismissed the landlord’s appeal and ordered it to pay costs to the 16 tenants who brought the case forward.

For Ontario landlords and property managers, the decision carries an important operational lesson:

Receiving approval for an above-guideline rent increase does not mean the additional amount can automatically remain in the rent calculation forever. The landlord must follow the exact terms, duration and calculation method authorized by the applicable order or agreement.

What Is an Above-Guideline Rent Increase?

Ontario establishes a provincial rent-increase guideline each year.

For most rent-controlled tenancies, this guideline represents the maximum percentage by which a landlord can raise the rent without first receiving approval from the Landlord and Tenant Board.

The Ontario guideline for 2026 is 2.1%. Landlords must generally wait at least 12 months after the beginning of the tenancy or the tenant’s last lawful increase and provide at least 90 days’ written notice using the appropriate form.

An above-guideline increase allows a landlord to apply to the LTB for permission to increase the rent by more than the regular annual guideline in specific circumstances.

This is not an automatic landlord right. It requires a formal application, evidence and an LTB decision or legally valid agreement.

When Can a Landlord Apply for an AGI?

The LTB may approve an above-guideline increase for specific categories of expenses recognized under Ontario’s residential-tenancy framework.

These can include:

• Eligible capital expenditures
• Extraordinary increases in municipal taxes and charges
• Certain costs for additional security services

Capital expenditures may involve major building systems or significant work that benefits the residential complex, but not every repair, renovation or operating expense qualifies.

For qualifying capital expenditures and security-service costs, the LTB can generally allow an increase of up to three percentage points above the annual guideline in each of as many as three consecutive years. Different calculation rules may apply to unusually large municipal tax increases.

What Happened at the Toronto Building?

The dispute involved a large CAPREIT building at 100 Wellesley Street East.

According to the reported facts, the landlord and tenants agreed through the LTB process to an AGI associated with capital expenditures. The agreement established that the increase would apply for a 10-year period beginning in 2013.

When the 10 years ended, the tenants argued that the AGI amount should have been completely removed.

CAPREIT instead began reducing the amount gradually in 2023.

The Divisional Court sided with the tenants and ruled that the agreed increase should have stopped once the specified 10-year period ended. The court also ordered CAPREIT to pay costs to the 16 tenants involved in the appeal.

The decision does not mean all approved AGIs must always disappear after exactly 10 years.

Rather, it emphasizes that the landlord must follow the specific legal authority governing that particular increase. The wording of the LTB order, settlement or agreement—and the applicable statutory calculation rules—matters.

Why Is This Decision Important?

Many landlords focus heavily on receiving approval for an AGI but pay less attention to what happens several years later.

That can create problems when:

• The approved recovery period expires
• The property changes ownership or management
• Historic rent records are incomplete
• Annual increases are calculated using the wrong base rent
• The AGI amount is not removed or adjusted as required
• New property-management software carries an old charge forward automatically

A small monthly calculation error can become a substantial liability when it affects many units over several years.

The Toronto case shows that landlords must manage an AGI throughout its entire lifecycle—not simply obtain the original approval.

An AGI Is Not Necessarily a Permanent Rent Increase

One of the most important lessons from the case is that an AGI should not automatically be treated as a permanent addition to the tenant’s rent.

Its duration and future treatment may depend on:

• The reason for the AGI
• The LTB’s written order
• A settlement or consent agreement
• The applicable legislation and regulations
• The amortization or recovery period
• Any later review, appeal or court decision

Property owners should never assume that because an amount appeared in last year’s rent ledger, it can simply be included again this year.

The underlying order must be reviewed.

Why Accurate Base-Rent Calculations Matter

Annual rent increases are calculated from the tenant’s lawful rent.

If an expired or unauthorized AGI amount remains in that figure, each later percentage increase may also be calculated from an incorrect base.

That can create a compounding problem.

For example, an incorrect monthly amount may affect:

• Subsequent annual rent increases
• The tenant’s last-month rent deposit
• Interest owed on that deposit
• Rent arrears calculations
• Statements provided during a property sale
• Financial records used by new owners or property managers

This is why rent ledgers should show not just the current monthly payment, but also how the amount was established.

What Ontario Landlords Should Do

1. Review the Original LTB Order or Agreement

Do not rely only on an internal rent spreadsheet or notes left by a previous manager.

Locate and review:

• The AGI application
• The LTB order
• Any consent agreement or settlement
• Supporting calculation schedules
• The effective date
• The approved percentages
• The permitted duration
• Instructions concerning future reductions or removal

The original legal document should guide the rent calculation.

2. Track the AGI Separately

A landlord’s rent ledger should clearly distinguish between:

• The regular guideline increase
• The approved AGI component
• The year each amount took effect
• The remaining recovery period
• Any scheduled reduction or expiry date

Treating every component as one undifferentiated rent figure makes future errors more likely.

3. Create an Expiry Reminder

If an order or agreement contains a defined end date, that date should be entered into the property-management system well in advance.

Useful reminders may include:

• Six months before expiry
• Three months before expiry
• Before the next annual N1 notice is prepared
• Before annual budgets are finalized

Rent increases should never run on autopilot without a review of the legal basis.

4. Audit Historic Rent Records

When acquiring or taking over management of a building, review more than the most recent rent roll.

The audit should include:

• Original tenancy commencement date
• Annual rent-increase notices
• LTB orders
• AGI calculations
• Exemptions from the rent guideline, if applicable
• Rent deposits and interest
• Any tenant agreements affecting rent
• Prior credits, abatements or refunds

A rent roll provided by a previous owner is useful, but it is not a substitute for verifying lawful rent.

5. Use the Correct Notice and Timing

For most guideline-controlled tenancies, landlords must generally wait 12 months between increases and provide at least 90 days’ written notice using the prescribed form.

When an AGI application is pending or approved, the notice must accurately explain the status of the requested increase.

The LTB’s official materials note that the annual guideline is the maximum most landlords can charge without Board approval, and landlords must follow the prescribed AGI process when seeking more.

6. Do Not Assume Tenant Payment Makes the Increase Lawful

A tenant paying the requested amount does not always resolve whether the charge was legally calculated.

Ontario law contains time limits and procedural rules governing rent disputes, but landlords should not rely on tenant silence as their compliance strategy.

The safer approach is to calculate the rent correctly from the beginning, correct identified errors promptly and obtain professional advice when the history is unclear.

7. Correct Errors Carefully

If a rent audit identifies a possible overcharge, the landlord should not make an improvised adjustment without understanding the wider consequences.

The review may need to consider:

• How long the error continued
• Which tenants were affected
• Whether later increases were based on the wrong amount
• Whether refunds or credits may be required
• Whether notices need to be corrected
• Whether legal proceedings or limitation periods apply

An Ontario lawyer or licensed paralegal should review complicated AGI or lawful-rent disputes.

What Does This Mean for Small Landlords?

The reported case involves one of Canada’s largest residential landlords and a 427-unit building, but the underlying lesson applies to owners of every size.

A small landlord can face the same basic risks if they:

• Use the wrong annual guideline
• Increase rent before 12 months have passed
• Fail to provide 90 days’ notice
• Use the wrong LTB form
• Miscalculate an approved AGI
• Carry forward an amount after its legal basis has ended

The dollar amount may be smaller than in a major apartment building, but the consequences can still include repayment obligations, LTB proceedings, legal costs and damaged tenant relationships.

What Does This Mean for Property Buyers?

Purchasers of occupied rental properties should conduct careful due diligence before assuming that the rent roll is legally correct.

A higher reported rental income may appear attractive, but a buyer should ask:

• Are the current rents lawful?
• Are any units subject to AGIs?
• Are there outstanding LTB applications?
• When do approved increases expire?
• Were proper notices issued?
• Are complete tenant ledgers available?
• Could any tenants claim an overpayment?

A lawful-rent issue discovered after closing can affect both cash flow and the property’s value.

Why Professional Property Management Matters

Rent administration is not simply entering a new number into a spreadsheet once a year.

It requires ongoing attention to:

• Tenancy commencement dates
• Rent-control status
• Annual guideline percentages
• Notice periods
• Prescribed forms
• LTB orders
• AGI expiry dates
• Rent-deposit adjustments
• Complete tenant records

A professional property-management system should provide both operational reminders and a clear audit trail.

However, property managers should not independently interpret uncertain court orders or provide legal conclusions beyond their professional scope. Complex rent disputes should be referred to qualified legal counsel.

Topromanage’s Perspective

The CAPREIT decision is not a warning against making legitimate capital improvements.

Ontario law provides an AGI process because major building work, extraordinary tax increases and certain security costs can create real expenses for rental-housing providers.

The lesson is that the process must be followed from beginning to end.

Responsible landlords should:

• Apply only for eligible expenses
• Maintain invoices and supporting evidence
• Follow the LTB order exactly
• Track every approved percentage separately
• Review expiry or adjustment dates
• Audit rent calculations before issuing new notices
• Correct errors in a timely and professional manner

An AGI may be legally justified, but poor administration can still turn an approved increase into an overcharge.

Final Thoughts

The recent Divisional Court decision involving CAPREIT and tenants at 100 Wellesley Street East highlights the importance of precise rent administration.

The landlord had authority to collect an approved above-guideline increase for a defined period. The dispute arose because that additional amount continued to be charged after the period had ended, rather than being removed as the court determined was required.

For Ontario landlords, the key message is straightforward:

Do not treat an AGI as permanent unless the governing order and applicable law clearly support that conclusion.

Review the original documents, track the increase separately, monitor its end date and verify the lawful rent before issuing every new notice.

At Topromanage, we help GTA property owners maintain organized rental records, track important deadlines and manage tenant communications professionally. Where an AGI, lawful-rent calculation or LTB order requires legal interpretation, owners should also seek advice from an Ontario lawyer or licensed paralegal.

Disclaimer: This article is provided for general informational purposes only and does not constitute legal advice. Above-guideline increases and lawful-rent calculations depend on the specific LTB order, tenancy history and applicable law. Landlords and tenants should obtain advice from a qualified Ontario lawyer or licensed paralegal regarding their particular circumstances.

Source: Toronto Star

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