Real estate professionals in Toronto report a growing trend of landlords offering cash incentives to tenants to vacate their units. While still considered relatively uncommon, the practice is gaining traction, particularly in response to financial pressures faced by landlords, including rising interest rates.

Natalie Costello, Founder of Natalie Costello Real Estate, notes an increase in instances where landlords resort to offering cash for keys. Last year alone, she assisted three clients through this process, highlighting the growing prevalence of such transactions in the city.

Understanding ‘Cash for Keys’ Offers

Bob Aaron, a Toronto real estate lawyer, explains that in Ontario, where rent control regulations have been in place for decades, landlords seeking to sell a unit or raise rent beyond the current tenant’s payment have three options: move into the unit, conduct extensive renovations, or buy out the tenant. The latter is colloquially known as “cash for keys.”

The process often involves negotiations between landlords and tenants, where tenants may request a substantial amount, and landlords counter with a lower offer. The goal is to reach an agreement or risk the tenant remaining in the unit.

Emerging Trends and Causes

Daniel Vyner, Principal Broker at DV Capital, acknowledges that while not a dramatic surge, cash for keys offers seem to be increasing, particularly among real estate investors looking to sell properties. Vyner notes that these offers are more prevalent in rent-controlled condos, where tenants’ monthly rent payments may fall short of meeting investors’ cash-flow expectations, a situation exacerbated by higher interest rates.

Payment Amounts and Frequency

Reports suggest a wide range of cash for keys offers, varying from $10,000 to $30,000. The most common payment amount is approximately six months’ worth of the tenant’s rent, although some cases involve offers equivalent to a year’s rent. The severity of the situation and the vulnerability of the property owner are cited as factors influencing the amount offered.

Tenant Rights and Legal Landscape

Despite these offers, Ontario law states that tenants have the right to stay in their units, paying the same rent, unless they default or reach an agreement with the landlord. Legal processes, including hearings at the Landlord and Tenant Board, may extend for six months to a year, contributing to delays in resolving disputes.

While these instances are not yet widespread, experts anticipate that cash for keys offers may become more common as mortgages are renewed at higher interest rates in the coming years, further impacting property profitability.

Bob Aaron emphasizes that tenants are entitled to stay in their units, paying the same rent, unless specific conditions are met. Even with cash offers, tenants may be reluctant to move, as the financial incentive may not offset potential rent increases in a new location. The challenge for landlords lies in conducting a risk-benefit analysis, considering the percentage of the sale price tenants are requesting and weighing the downside risk if the tenant opts to stay.