Converting an Apartment or Townhome to Condominium? Enjoy the Benefits, but Don’t Forget About Your Tenants

Post by: David Sunday

Many owners of Ontario rental properties are finding it advantageous to convert their properties to condominium.

The conversion of an apartment or townhome complex to condominium typically results in a significant reduction of property taxes payable.  In the City of Toronto, for example, the 2011 tax rate for multi-residential was 2.09% of assessed value, whereas the tax rate for residential was only 0.79% (figures rounded). The multi-residential rate applies to rental non-condominium buildings, whereas the residential rate applies to residential condominium units.

Even after allowing for an increase in assessed value resulting from conversion, the potential property tax reduction is usually quite significant.

A further benefit of conversion is that the owner’s long-term options can include the sale of individual units, rather than just the sale of an entire property or a sale of shares in the company that owns the property.

But an owner must also consider the rights of its existing tenants and how tenant rights may impact the net benefits of conversion to the owner.  Key considerations include that:

  • A tenancy cannot be terminated on account of a condominium conversion;
  • In many conversions, the Residential Tenancies Act will protect or heighten existing tenants’ security of tenure;
  • An exception occurs where the conversion occurs less than 2 years after the first rental of a unit in the complex;
  • Following conversion, existing tenants have the right of first refusal to match any agreement to buy their unit that the landlord is willing to enter into with a third party; and
  • If property taxes are reduced by more than 2.49%, then tenants may be entitled to rent reductions calculated in accordance with a formula under the Residential Tenancies Act.

Municipalities also have the power to impose conditions of approval on an application for conversion, which, if onerous, will also have a significant impact on the net benefits to an owner.

All of these factors should be carefully considered before a property owner decides whether to pursue conversion.

Some Considerations in Converting Apartments to Condominium

Post by: Craig Robson

Ontario developers who wish to complete condominium conversions should note:

  1. There is no Tarion warranty coverage for existing buildings that are converted to residential condominium.  This may concern buyers.  To the developer, it means that the project does not have to be registered with Tarion.  No security needs to be provided to Tarion.
  2. Because there is no Tarion coverage there are no Tarion deposit receipts and hence all monies received from buyers on agreements signed before registration of the condominium must be kept in trust by the developer’s lawyer unless bonding or insurance that complies with the Condominium Act regulations is provided.
  3. Many municipalities wrongly assume a request to convert to condominium is a license to request fees and payments that are not warranted or in accordance with legislation or case law.  For example, requiring a park dedication or cash in lieu as a condition of converting an existing residential building to condominium is simply not warranted by the Ontario Planning Act, the Ontario Condominium Act, nor applicable case law.  Such a conversion does not give rise to any increased need for parks.  Hence there should be no payment of cash in lieu of parkland dedication or parkland dedication.
  4. Many communities have restrictive Official Plan policies discouraging conversions.  While this is misguided in most places other than Toronto, it’s a fact.  Municipality policies on conversion should be reviewed before taking too many steps towards a conversion.  It’s too bad that many municipalities do not realize that converted older existing rental stock is the only housing that many people can afford to buy.  Why municipalities stand in the way of such entry into the home ownership market by lower income people is a mystery and disappointing.