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

Toronto, the bustling heart of Canada, is witnessing a growing trend in the real estate market: the increasing prevalence of "cash for keys" offers. Real estate experts are noting a rise in instances where landlords are offering cash incentives to tenants to vacate their units, shedding light on the financial pressures faced by property owners, particularly in the face of higher interest rates.

Natalie Costello, founder of Natalie Costello Real Estate, revealed that this practice is becoming more common, sharing her firsthand experience of assisting three clients through the process just last year. Costello emphasized that this phenomenon, once relegated to whispers within the industry, has now become more prevalent.

But what exactly are "cash for keys" offers? According to Bob Aaron, a Toronto real estate lawyer, these offers typically arise when landlords, constrained by Ontario's long-standing rent control regulations, wish to sell a unit or increase rent beyond the current tenant's payment. Landlords then have three options: move into the unit themselves, conduct extensive renovations, or buy out the tenant – colloquially referred to as "cash for keys."

While still not reaching dramatic proportions, Daniel Vyner, principal broker at DV Capital, noted an increase in these offers, particularly from real estate investors looking to sell their properties. Vyner explained that such offers are more common in rent-controlled condos, where tenants' monthly rent payments may fall short of meeting the financial expectations of the property owners, a situation exacerbated by higher interest rates.

The range of payment amounts for these offers varies widely. Costello reported amounts ranging from $10,000 to $30,000, depending on the circumstances and the tenant's rent. Vyner indicated that the most common payment equates to about six months of rent, though some offers extend to covering a full year.

However, tenant rights are protected under Ontario law. Aaron clarified that tenants are entitled to stay in their units, paying the same rent, unless certain conditions are met, such as the landlord moving in or undertaking extensive renovations. Even if a tenant receives a cash offer, it might not offset potential rent increases in a new location.

The frequency of these offers may rise in the coming years as mortgage renewals occur at higher interest rates. Vyner predicts that this could further impact profitability, prompting more landlords to explore "cash for keys" negotiations.

Despite the evolving landscape of Toronto's real estate market, the underlying question remains: How common are these offers? Aaron disclosed that he has encountered three instances over the last couple of years, while Vyner, on the other hand, either directly or indirectly heard about such offers about once a week throughout most of 2023.

In navigating this trend, landlords are advised to conduct a risk-benefit analysis, considering both the tenant's asking price as a percentage of the sale price and the potential downside risk if the tenant chooses to stay put. As the city continues to grapple with these changing dynamics, the "cash for keys" phenomenon adds another layer of complexity to Toronto's vibrant real estate landscape.

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