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.

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