Post by: William Thompson
Recently, we have had more clients building mid and high rise condominiums apartment buildings with the intention of retaining title to the entire building and renting the suites. When a developer decides to keep title to the building for rental purposes, the developer assumes the role of landlord and enters into the realm of tenant protection legislation. Now, one expects tenant protection legislation to impact matters such as rental rates and increases but one wouldn’t expect it to impact decisions around building design and construction. However, recently we encountered a regulation with respect to billing tenants for electricity consumption that every rental property owner or developer needs to know. It is important to emphasize that this legislation potentially applies to all forms of rental buildings, regardless whether the residential suite in question is a condominium, townhome, single family home or suite in an apartment building.
In subsection 40 (3) of Regulations 389/10 to the Energy Consumer Protection Act, 2010, it provides that:
(3) A suite meter provider shall not bill an occupant of a rental unit or a member unit based on the consumption or use of electricity by the occupant in respect of the unit, as measured by a suite meter, if,
(a) the suite meter was installed after the day this section comes into force but is not deemed under subsection 43 (2) to have been installed after the day this section comes into force;
(b) the unit is heated primarily by electricity; and
(c) the electricity measured by the suite meter includes the electricity used in heating the unit.
In simple terms, what this subsection is saying is that if electricity is the primary heat source for a rental suite constructed after 2010, the landlord of the unit will not be able to use a single hydro meter to meter electricity consumed in the suite and bill the occupant for such consumption. The logic behind this provision is highly questionable and now with the proliferation of packaged terminal air conditioner (PTAC) units providing heat, many of which are electric, it is a problem for developers.
Essentially, a developer has four choices if the developer chooses to heat a rental suite with a PTAC unit:
- install a natural gas PTAC system if feasible given the building design and budget;
- install two hydro meters, one to measure electricity consumption by the PTAC system and the other to measure consumption by the lights, plugs, appliances etc. and bill the tenant for both amounts;
- separately measure and bill the consumption by the lights and plugs etc. in the residential suite with a single meter that does not measure the consumption of electricity by the PTAC system and include an estimate of the consumption by the PTAC system in the base rent; or
- include all electricity consumed by the tenant in the base rent for the residential suite.
Obviously none of these options are ideal. In particular, there is a significant cost to having two meters. On the other hand, options (c) and (d) add exposure to the developer, especially as the PTAC systems are typically controlled within the residential suite and the rent cannot vary based on actual consumption.
And while none of the solutions are ideal, at least if a developer is aware of the issue, the developer can determine the best course of action during the planning stage of the building and avoid nasty surprises after the fact.
As noted, it is difficult to understand the thinking behind this provision. Options (c) and (d) do nothing to encourage conservation by tenants and impose risks on the developer that to a large extent are controlled by the tenant because the tenant will likely control the level of heating and cooling in the residential suite. Options (a) and (b) may not be feasible or cost effective. Regardless, developers need to be aware of the legislation and the impact it could have on their building and future operations.