'Cash for keys' offers on the rise in Toronto, real estate professionals say

Instances of landlords offering cash for tenants to vacate a unit have risen in Toronto, according to real estate professionals in the city.

Real estate experts say the practice is still relatively uncommon, but they have been seeing it more frequently in Canada’s biggest city as landlords face financial pressures such as higher interest rates.

Natalie Costello, founder of Natalie Costello Real Estate, told BNN Bloomberg that the practice of cash offerings for apartment keys has been on the rise. Last year, she started personally helping three clients through the process.

“Unfortunately (it’s) not an urban legend, this is a very real thing that we are seeing more predominantly over the last little while,” Costello said. “I’ve spent over a decade in this industry and we heard whispers of it before, now it has become more prevalent.”

WHAT ARE 'CASH FOR KEYS' OFFERS?

Bob Aaron, a Toronto real estate lawyer, told BNNBloomberg.ca that as Ontario has been under rent control regulations for decades, sometimes a landlords want to sell a unit or raise rent beyond what the current tenant pays. 

Landlords have three options in that case, Aaron explained: they can legitimately move into the unit themselves, do an extensive renovation or buy a tenant out.

“Colloquially that’s known as cash for keys,” he said. 

“It becomes something of a dance. A tenant will ask for a very high amount, the landlord will offer a very low amount and then they have to come to some conclusion or the tenant just remains there.” 

WHERE DO THEY HAPPEN?

While there is not a “dramatic amount of these cases,” Daniel Vyner, principal broker at DV Capital, said cash for keys offers appear to be increasing, mostly from real estate investors looking to sell their properties.

“The analogy ‘cash for keys,’ I've heard about that for many years, but it was really 2023 where I started firsthand hearing and seeing these situations,” Vyner told BNNBloomberg.ca in an interview. 

The Toronto broker said cash-for-keys offers happen most often in rent-controlled condos due to cash-flow issues when tenants’ monthly rent payments “are insufficient” to cover the cash-flow expectations of a real estate investor, he said.

Those scenarios have become more frequent over the past year, Vyner said, as investors have had their finances squeezed by higher interest rates.

Delays at the tribunal that handles landlord-tenant disputes in Ontario may also be contributing.

Aaron noted that if a landlord wants to move into a unit, tenants are entitled to ask for hearing at the Landlord and Tenant Board – but it can take between six months to a year for a case to be heard, depending on what jurisdiction the property is in, he said.

RANGE OF PAYMENT AMOUNTS

Costello said she has seen a broad range of “cash for keys” offers. 

“I’ve seen and heard anywhere from $10,000 to $30,000, so (it) just depends on the situation and it also seems to depend on the amount of rent that they’re paying,” she said. 

Vyner said the most common payment amount he has heard of totals about six months of the tenant's rent, but he has heard of offers amounting to a year's worth of rent. 

“It depends on the severity of the situation (and) the vulnerability of the owner,” he said. 

Aaron said he has seen low monetary offers, around $2,000, and instances where a tenant asks for as much as $25,000. 

“When landlords ask me, ‘How much should I pay,’ I tell them to do a risk-benefit analysis,” Aaron said. 

“What percentage of the sale price is the tenant asking for? Is it one per cent, two per cent, 10 per cent? And what is the landlord's downside risk if the tenant stays there?”

HOW COMMON ARE OFFERS?

Aaron said that he has seen three instances of cash for key offers over the “last couple of years.”

However, he noted that some cases “may never get to a lawyer,” as people may only seek legal advice if negotiations are ineffective. 

Vyner said he directly or indirectly heard about “cash for keys” offers about once a week throughout most of 2023.

Offers of this type could become more common, he added, as mortgages are renewed at higher interest rates in the coming years, “which would further erode profitability if the current monthly lease isn’t increasing.”

TENANT RIGHTS 

In cases like this, Aaron said Ontario law is clear that “the tenant is entitled to stay” in the unit paying the same rent, unless they are in default, come to an agreement with the landlord, or if the landlord moves in or does extensive renovations. 

“A tenant is entitled to stay forever. There's a 2.5 per cent annual increase, so they'll have to pay that,” he said.

Aaron said that even if the tenant receives an offer, it may not offset a potential rent increase from moving. 

“I can understand that tenants don't want to move because no matter how much money they get from a landlord, whether it's $1,000 or $10,000 or more it's not a windfall. They're going to have to turn around and pay market rent on an equivalent unit,” he said.