Most Ontario landlords treat the N1 as paperwork. It works more like a compounding asset. Every guideline increase you serve becomes the base for the next one, and every one you skip is gone for good, because the Residential Tenancies Act has no way to go back and collect it [3]. Over ten years that gap shows up twice: first in your monthly cash flow, then in what a buyer will pay for the building.
At a glance
- The rent increase guideline is 2.1% for 2026 and 1.9% for 2027 [1].
- A lawful increase needs the right form (N1 for rent-controlled units), 90 days of written notice, and 12 months since the last increase or the start of the tenancy [1][2].
- Skipped increases cannot be recovered. The next N1 is limited to that year's guideline, applied to the rent actually being charged [3].
- A $1,500 unit that received every guideline increase from 2017 through 2026 rents for $1,794.24 today. The same unit with no N1s is still at $1,500. That is $294 a month, $3,531 a year, and $17,350 uncollected over the decade.
- Across a 12-unit building, that is about $42,400 a year in net income. At a 5% capitalization rate it is roughly $847,000 in value.
- Even one skipped year (2023) costs that 12-unit building about $6,300 a year today, or about $126,000 in value at a 5% cap rate.
How the N1 works
The rent increase guideline is the most a landlord can raise a sitting tenant's rent in a year without approval from the Landlord and Tenant Board. It is calculated from the Ontario Consumer Price Index and capped at 2.5% [1]. It covers most private rental units. It does not cover units first occupied for residential purposes after November 15, 2018, and it does not apply on turnover, when the landlord and a new tenant agree on the rent [1].
Three conditions make an increase lawful [1][2]:
- The right form. Form N1 for rent-controlled units. Exempt units use Form N2, care homes use N3, and an agreed increase for capital work or a new service uses N10.
- 90 days of written notice before the date the new rent takes effect.
- 12 months since the last increase, or since the tenant moved in.
The increase is not automatic. The province repeats this in its guideline announcements: rent increases are not automatic or mandatory [6]. If no N1 goes out, the rent stays where it is, indefinitely.
Service matters as much as the form. The Board's instructions allow the notice to be handed to the tenant or an adult in the unit, left in the mailbox or where mail is normally delivered, slid under the door or through a mail slot, couriered, or mailed. Posting it on the door is not valid service for an N1 [2]. A mailed notice is deemed given on the fifth day after mailing, so the 90 days start later than the postmark [3].
For a February 1, 2027 increase, that means the notice should be in the tenant's hands before the end of October 2026. Count back 90 days, add five if you are mailing, then give yourself a cushion.
A missed increase is gone for good
Ontario's rules have no catch-up provision. The Act limits an increase to the guideline for the year it takes effect, applied to the rent the tenant is lawfully paying [3]. A landlord who skipped 2023, 2024 and 2025 cannot serve one N1 in 2026 to make up three years. The 2026 notice is 2.1% on the old rent, and the three skipped years stay out of that tenancy's rent permanently.
There are only two resets. One is turnover, when a new tenant agrees to a new rent [1]. The other is an above guideline increase approved by the Board, which is tied to specific things such as eligible capital work that has been paid for and finished [5]. Neither replaces the annual notice.
The loss also grows on its own, because each increase is the base for the next. Skip the 2.5% for 2023 on a $1,631.86 rent and you are short $40.80 a month that year. The 2024, 2025 and 2026 increases are then calculated on the lower number, so the shortfall is $43.76 a month by 2026 without skipping anything else.
The cash flow math over ten years
Take one unit renting for $1,500 a month at the end of 2016, with the same tenant in place and an increase effective every January 1 at the full guideline [1]. Here is where that unit sits in 2026 under four histories.
Now multiply by 12 units. One skipped year is about $6,300 a year. Three skipped years is about $18,400 a year. A decade without N1s is about $42,400 a year, and $208,000 that was never collected.
That money is close to pure net income. A guideline increase adds revenue without adding a cost. Property tax, insurance, utilities and repairs are the same whether or not the notice goes out.
The example assumes the tenant stays, and in Ontario they usually do. CMHC measured turnover in Greater Toronto purpose-built rentals at a record low of 6.4% in 2024 and 8.5% in 2025 [7]. At that pace the average unit changes hands roughly once every twelve years. Long tenancies are exactly where skipped increases pile up.
The guideline already trails your costs
The guideline is a ceiling, and for most of the last five years it has sat below inflation. The province's own releases give the numbers. The CPI formula would have produced 5.3% for 2023, 5.9% for 2024 and 3.1% for 2025, and each year was capped at 2.5% [4][5][6]. In 2021 the guideline was frozen at 0% when the formula would have given 1.5% [1].
Add those four years together and landlords were held 8.3 percentage points below what the inflation formula produced, before compounding. That part is legislated, and there is nothing to do about it. The N1 is the part you control. A landlord who also skipped the capped increase in those years fell behind twice.
There is a judgment call in a soft market, and it is worth being honest about it. CMHC's 2025 Rental Market Report put vacancy in Kitchener-Cambridge-Waterloo at 4.1% and noted that landlords there held rents steady for sitting tenants, especially those who signed at peak rents between 2021 and 2023, to keep them in place [7]. That is a rational call for a tenant already paying at or above market.
It is a different decision for a ten-year tenant paying hundreds below market. A 1.9% increase on that unit carries almost no vacancy risk. Make the decision unit by unit, on purpose, instead of skipping the whole building by default.
What it does to your sale price
Income property is priced on income. The standard method is direct capitalization: net operating income divided by a capitalization rate. At a 5% cap rate, every dollar of annual net income is worth $20 of price. At 4.5% it is about $22, and at 6% about $16.70.
Run the same 12-unit building through that arithmetic. The cap rates below are illustrative, so use the rate your own market is trading at.
A single $40.80 increase that never went out, across 12 units, is a six-figure number at closing. Two things make it worse than it looks on the rent roll.
First, the buyer inherits your tenants and your rents, and is bound by the same guideline. They cannot recover what you skipped any more than you can, so they will not pay for it. Lenders generally size the mortgage on the same in-place income, which means a thinner rent roll also limits what your buyer can borrow.
Second, "the rents are below market, so there is upside" is only true at turnover, and nobody can schedule turnover. With turnover in the single digits, a buyer is waiting years for that upside and will discount it accordingly. Rent that sits below the legal maximum because N1s were skipped is not upside at all. For that tenancy it is simply gone.
The paper trail a buyer will ask for
A serious buyer asks for the rent roll, the leases, and the N1s with a record of service for each unit. They are checking one thing: that the rent on the rent roll is the lawful rent.
The Act explains why they care [3]:
- An increase is void if the notice was not given as required (section 116).
- A tenant can apply to the Board within 12 months of the date the amount was first charged, and the Board can order money collected improperly to be repaid (section 135) [1].
- Once a tenant has paid the increased rent for 12 consecutive months with no application, the increase is deemed not void, and rent first charged a year or more earlier is deemed lawful (sections 135.1 and 136).
In practice the exposure sits in the most recent 12 months of increases. A clean N1 file closes that question in a five-minute review. A missing one opens a conversation about a holdback or a price adjustment.
It also helps to know what is not an N1. A text message, an email saying the rent is going up, a verbal agreement, or a fresh lease with the same tenant at a higher figure does not replace the form. The province's wording is written notice, in the proper form, at least 90 days ahead [1].
For each increase, keep a copy of the signed N1, the date and method of service, the name of the person who served it, and a ledger showing the new rent charged from the effective date. That is the whole file.
Terry Riddoch
About the Author: Terry Riddoch, Ontario Multi-Family and Commercial Real Estate Broker
Terry Riddoch is a licensed Ontario real estate broker with Re/Max Real Estate Centre, based in Waterloo Region and specializing in multi-family and apartment building sales across Ontario. With 19 years of experience and over $90 million in closed transactions, he advises independent landlords, private investors, and national investment groups on buying, selling, and valuing apartment buildings, investments and development land across the Province of Ontario including Kitchener, Waterloo, Cambridge, Guelph, Hamilton, London, Windsor, Kingston, Belleville and Brockville.
Clients know Terry for candid advice, data-driven analysis, and doing the work well ahead of the deal. He writes regularly on Ontario landlord rules, rent control, the Landlord and Tenant Board, and housing policy to help property owners make informed decisions.
Thinking about selling an apartment building, or looking for your next investment property? Call Terry at (519) 591-1725, email [email protected], or visit terryriddoch.ca for a confidential, no-obligation conversation about your property.
Sources
- Government of Ontario, Residential rent increases, ontario.ca, updated June 23, 2026. Guideline table 1991 to 2027, rules for increases, exemptions, the 12-month dispute window and the 2021 freeze footnote.
- Tribunals Ontario, Landlord and Tenant Board, Form N1, Notice of Rent Increase: Instructions.
- Residential Tenancies Act, 2006, S.O. 2006, c. 17, sections 116, 119, 120, 126, 135, 135.1, 136 and 191.
- Government of Ontario news release, June 29, 2022, announcing the 2023 rent increase guideline (formula result of 5.3%, capped at 2.5%).
- Government of Ontario news release, June 30, 2023, "Ontario Capping Rent Increases Below the Rate of Inflation" (2024 guideline; formula result of 5.9%, capped at 2.5%).
- Government of Ontario news release, June 28, 2024, "Ontario Capping Rent Increases at the Lowest Rate in Canada" (2025 guideline; formula result of 3.1%, capped at 2.5%).
- Canada Mortgage and Housing Corporation, Rental Market Report 2025, Greater Toronto Area and Kitchener-Cambridge-Waterloo sections.
- Tribunals Ontario, Landlord and Tenant Board, Forms, including Form N2 and its instructions.
Worked examples are the author's calculations from the guideline percentages in source 1, rounded to the cent each year.
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