No. It may seem like it is illegal, like a scam, but the truth is many people in Toronto’s competitive rental market and other places are paying up to a year’s worth of rent to secure a quality residence.
In Ontario, a landlord is only legally permitted to request that a tenant pay the first and last month’s rent in advance. However, if a tenant offers to pay more to outcompete other would-be tenants, the landlord may accept it.
Realtors say this has become the standard practice. Realtors advise their clients to offer months of rent in advance because the newcomers they work with typically lack credit scores, recommendation letters, or a job history in Canada when they first arrive. Consequently, they rely on cash to establish their reliability. To make their clients competitive in the bidding war for secure housing, agents propose that clients offer a year’s rent in advance. It is difficult for a landlord to decline a cheque for $60,000. Realtors have an incentive to close the deal. They receive one month’s rent as a commission. They do not receive additional commission if they convince their clients to pay for additional months in advance, but they know such an offer puts their clients in a better position to win a rental bidding war.
The price-to-rent ratio, as measured by the Organisation for Economic Co-operation and Development (OECD), is an indicator that compares the cost of purchasing a property to the cost of renting it. This ratio is used to assess the relative affordability and value of owning versus renting a home.
For investors, the price-to-rent ratio provides insight into potential returns from rental income versus property appreciation. A lower ratio might suggest better rental yields, while a higher ratio could point to higher property appreciation prospects.
For landlords, the practise of accepting a year’s rent in advance protects them from fraudulent credit score documents and false employment information that often result in the nonpayment of rent. Many landlords are in situations with non-paying tenants who owe them hundreds of thousands of dollars.
Major rental operators in Ontario say they do not request additional rent upfront, and it is less likely that this is a requirement. However, a tenant union in Toronto says that their hotline receives approximately 40 calls per day from individuals who are complaining about illegal tactics employed by both corporate and private landlords, including the request for multiple months of rent upfront. At first, it was newcomers who were paying for multiple months of rent upfront to secure housing. Today, this practise extends to everyone looking for a good rental, including Canadians with solid employment and strong credit scores, due to the record-low vacancy rate and competition for quality housing.
Why not get out of the rent rut? Discover what it would take to move you from renter to homeowner to landlord. See what’s possible, and let’s create a plan to get you there.
