Ontario Rent Control Exemptions: Is Your Unit Exempt from the 2.1% Guideline?
If you own a rental property in London, St. Thomas, or Strathroy, you've probably heard about Ontario's annual rent increase guideline. For 2026, that guideline is 2.1% — the lowest it's been in four years. But here's something many landlords don't realize: a significant portion of rental units in Ontario are completely exempt from this cap.
If your unit qualifies, you can raise the rent between tenancies by any amount you choose, and you can negotiate freely with new tenants without any ceiling holding you back. Understanding whether your property falls inside or outside rent control is one of the most important things you can know as an Ontario landlord.
This guide breaks it all down.
What Is Rent Control in Ontario?
Rent control limits how much a landlord can increase rent for an existing tenant in a given year. The Ontario government sets the guideline annually under the Residential Tenancies Act, 2006 (RTA). In 2026, that guideline is 2.1%.
What this means in practice: if a tenant is already living in your unit, you generally cannot raise their rent by more than 2.1% in a 12-month period — unless you apply for an Above Guideline Increase (AGI) through the Landlord and Tenant Board (LTB).
The guideline applies automatically. You don't need to file anything to follow it, and it applies to every rent increase except those covered by the exemption we're about to explain. The current year's guideline is always published on the Ontario rent increase guideline page.
The Exemption: Units First Occupied After November 15, 2018
In 2018, the Ontario government made a major change to the RTA. Under legislation that took effect on November 15, 2018, any residential rental unit that was first occupied for residential purposes after that date is permanently exempt from rent control.
This is commonly called the "post-2018 exemption" or the "new build exemption."
What "First Occupied" Means
"First occupied" refers to the very first time anyone lived in the unit as a home — not when you bought it, not when you started renting it, and not when a new tenant moved in. It's the date a tenant first took occupancy of a brand-new or newly created residential unit.
For example:
- A newly constructed condo building that issued its first tenant keys in March 2019 — exempt
- A house converted to a legal duplex where the basement apartment was first occupied in July 2020 — exempt
- A rental house that has been occupied continuously since 2005 — not exempt, even if you purchased it in 2023
- A house that sat vacant from 2016 to 2022 and then was rented for the first time — not exempt, because the structure itself existed and was available for residential use before November 15, 2018
The key test is whether the unit (not the building, not your ownership) was first used as a residential space after the cutoff date.
New Builds vs. Conversions
Purpose-built rental buildings constructed after November 2018 are typically fully exempt. Basement apartments carved out of existing houses can also qualify — but only if the basement was never used as a dwelling before the cutoff. If you converted an old rec room into a legal apartment in 2021, that unit is likely exempt. If you're renting out a basement that tenants lived in back in 2015, it's not.
When in doubt, check your property records and building permit history. The burden of proof can fall on you in an LTB dispute.
What the Exemption Actually Allows
If your unit is exempt, here's what changes:
Between Tenancies: Set Any Rent You Want
When one tenant leaves and a new tenant moves in, you can set the starting rent at whatever market rate you choose. There is no cap, no guideline to calculate, no form to file. If your unit was renting for $1,800/month and the market has moved to $2,200, you can list it at $2,200.
During a Tenancy: Still No Cap
Even with a sitting tenant, you can raise the rent by any amount — as long as you follow the correct notice rules. The 90-day advance notice requirement still applies, and you still need to use the right form (more on that below). But there's no percentage ceiling on the increase.
Vacancy Decontrol Still Applies to Non-Exempt Units
For units that are under rent control, a different rule provides some flexibility: when a tenant voluntarily vacates, you can reset the rent to whatever rate a new tenant agrees to pay. This is called "vacancy decontrol." Once the new tenancy starts, rent control applies again for that tenant. This is a separate concept from the post-2018 exemption, but worth knowing — it affects older units too.
Which Form to Use: N1 vs. N2
Even exempt units require proper notice before a rent increase takes effect. The form you use depends on whether your unit is rent-controlled.
Form N1 — Rent-Controlled Units
The N1 (Notice of Rent Increase) is the form used when the rent increase follows the annual guideline (or no more than the guideline). Landlords with rent-controlled units use this form to notify tenants of a guideline-compliant increase.
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You must serve the N1 at least 90 days before the increase takes effect. Serving it late — even by one day — voids the increase, and you'd need to re-serve and wait another 90 days. The form must show the new rent amount and the date it takes effect.
See our full guide to Ontario rent increase rules and the N1 form for step-by-step instructions.
Form N2 — Exempt Units
The N2 (Notice of Rent Increase — Exempt from Guideline) is used when the unit is exempt from rent control and you're raising rent beyond the guideline — or at any amount you choose.
The N2 also requires 90 days' notice before the increase. The mechanics are similar to the N1, but the N2 explicitly signals to the tenant (and the LTB, if it ever comes up) that the rent control guideline does not apply.
Using the wrong form — serving an N1 when you should be using an N2, or serving the N2 without actually qualifying for the exemption — can create problems. If a tenant disputes the increase at the LTB, your documentation needs to be consistent with your claim.
When No Increase Notice Is Required
If a new tenant is moving in and you're simply setting an initial rent, no N1 or N2 is required. The starting rent is whatever you and the tenant agree to in the Ontario Standard Lease. The N1/N2 only comes into play when raising rent for an existing tenancy.
How to Price a Vacancy in an Exempt Unit
When setting rent for a new tenancy in an exempt unit, you're essentially setting a market price. Here's a practical approach for landlords in London and surrounding areas:
- Check comparable listings. Search Kijiji, Facebook Marketplace, and Rentals.ca for similar units in your neighbourhood. Look at size, finishes, utilities included, and proximity to transit or amenities.
- Factor in your costs. Mortgage carrying costs, property taxes, insurance, maintenance reserves, and management fees should all be accounted for.
- Don't price aggressively at first. Setting rent too high leads to vacancy. A good tenant at a fair rate is worth more than a marginally higher rent with weeks of vacancy.
- Document your rental rate. Keep a record of why you set the rent where you did. If a dispute ever arises, documented reasoning supports your position.
What Tenants Can Do
Tenants in exempt units have fewer protections around rent increases, but they're not entirely without recourse.
- A tenant can still file with the LTB if they believe the unit doesn't actually qualify for the exemption.
- If a landlord serves the wrong form, the tenant can challenge the increase.
- If a landlord fails to give 90 days' notice, the increase can be delayed or voided.
- Tenants can always negotiate — just because you can raise rent doesn't mean you have to.
It's also worth noting that the exemption only affects rent amounts. All other tenant protections under the RTA still apply: maintenance obligations, entry rules, eviction procedures, and so on. The exemption is narrow — it applies to the rent cap only.
Documenting Your Exemption Status
If you believe your unit is exempt, here's what to keep on file:
- Building permit and occupancy permit showing the construction date or conversion date
- First tenancy agreement showing the move-in date
- Utility connection records confirming when the unit was first inhabited
- Municipal records for any zoning or permit applications
If you ever end up before the LTB and your exemption is challenged, this documentation can be the difference between a valid increase and one that gets rolled back.
Frequently Asked Questions
My tenant moved in after November 2018. Does that mean my unit is exempt?
Not necessarily. What matters is when the unit was first occupied for residential purposes, not when your current tenant moved in. If other tenants lived there before November 15, 2018, the unit is not exempt — even if your current tenant arrived years later.
I bought a new condo in 2021 and rented it out. Is it exempt?
Almost certainly yes, if it was a newly built unit and no one had ever lived in it before you rented it out. A condo sold by a developer and rented for the first time after November 15, 2018 is a textbook example of an exempt unit.
Can I use the N2 to raise rent by 20% mid-tenancy on an exempt unit?
Yes, if the unit is genuinely exempt. However, you must still give 90 days' advance notice using Form N2, and the increase can only take effect on a proper rent increase date. Raising rent dramatically mid-tenancy often causes good tenants to leave, so it's worth weighing the business case before serving notice.
Does the exemption expire?
No. Once a unit qualifies as exempt, it remains exempt permanently. The "first occupied after November 15, 2018" test is applied once — at the time of first occupancy — and the result is permanent.
What's the difference between vacancy decontrol and the rent control exemption?
Vacancy decontrol applies to all units, including rent-controlled ones. When a tenant leaves, you can reset the rent to market rate before the next tenancy begins. The post-2018 exemption goes further — it removes the guideline cap entirely, even for sitting tenants, not just at vacancy.
Ready to Make the Most of Your Rental Property?
Understanding rent control exemptions is just one piece of the larger picture of successful property management. Whether your units are exempt or not, knowing your rights and using the correct procedures protects your investment and keeps your tenancies running smoothly.
If you're a landlord in London, St. Thomas, or Strathroy looking for support — from screening tenants to handling rent increases the right way — the team at Prospera Properties can help. We manage residential properties throughout Southwestern Ontario and take the paperwork and stress off your plate.
Get in touch with us today to learn how we can support your rental portfolio, or visit our landlord services page to see what full-service property management looks like.