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Several companies named in the suit dispute their use of the controversial software
Published Dec 18, 2024 • Last updated 19 hours ago • 7 minute read
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YieldStar generates apartment pricing recommendations for landlords by reviewing market surveys, unit types, pricing categories and availability. Photo by Getty Images/iStockphoto
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A new proposed class-action lawsuit alleges multiple landlords and property managers “conspired” to control rents across Canada using an algorithmic software called YieldStar. This follows Canadian politicians’ concern about the practice, and a civil antitrust lawsuit filed by the United States Department of Justice (DOJ) in August against RealPage Inc., the Texas-based company that created YieldStar.
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What are the allegations?
The class-action suit is seeking certification and the allegations have not yet been proven in court. Several companies named in the proposed suit dispute their use of the controversial software.
Adam Tanel, the main litigator on the Canadian case and a partner in Koskie Minsky’s Class Action Group, said his firm had been looking into YieldStar for quite some time.
“If corporations, who ostensibly should be competing, are sharing sensitive information with one another so that they can all increase the price of their goods, that is contrary to the Competition Act,” Tanel said.
YieldStar generates apartment pricing recommendations for landlords by reviewing market surveys, unit types, pricing categories and availability. RealPage said it leverages real-time lease-transaction data in order to respond to changes in supply and demand, meaning proposed rent changes could skew higher or lower.
However, the proposed lawsuit alleges that the software collects non-public pricing information that wouldn’t typically be shared amongst competitors, allowing landlords to “conspire” and “control” the prices of their rental units. It also claims it was a requirement or necessary expectation for the users of this software to accept the pricing recommendations.
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And, as a result, renters had to either pay non-competitive rates or leave and find accommodation elsewhere, the proposed suit alleges.
RealPage recently stated it received notice the DOJ has closed its criminal investigation into pricing practices in the multifamily rental housing industry and the company will “continue to aggressively defend itself in the remaining, previously filed civil lawsuits.”
It is unclear whether this will have an impact on the civil antitrust suit filed by the DOJ and eight states. Like the Canadian case, the DOJ claimed RealPage contracts with competing landlords who agree to share “non-public, competitively sensitive information about their apartment rental rates and other lease terms” to run the software.
It causes you to make sacrifices that you shouldn’t have to
Cynthia Black
Cynthia Black, the main plaintiff in the Canadian case, rented in Toronto’s Livmore High Park community for about two years, first at 50 High Park Avenue and then the building at 55 Quebec Avenue when she moved in with her partner earlier this year. Her landlord at these buildings was GWL Realty Advisors Residential Inc. (GWLRA), owned by Canada Life. GWLRA, one of the companies named in the proposed lawsuit, told Financial Post in November that it had decided to terminate its use of YieldStar.
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The Livmore High Park buildings were constructed after 2018, which means they are exempt from Ontario rent controls (currently set at a yearly increase of 2.5 per cent). Black accepted a seven per cent rent increase for a 14-month term on the first apartment, which she ended early.
Now that she lives with her partner, his young son and her dog in the apartment at 55 Quebec Ave. that is just over 700 square feet, she thinks about how they are going to find a place big enough to suit their needs. Her partner has faced rent increases as well.
“It causes you to make sacrifices that you shouldn’t have to,” Black said. “There’s cutting back wherever you can on treats and special experiences, and getting the best discounts on food that you can, but then there’s also foregoing expanding a family.”
Black knows she is not alone in being impacted by rising rents, pointing to neighbours who are delaying having children as well.
“It’s affecting our wallets and it’s affecting our life decisions.”
Bhutila Karpoche, who is the Member of Provincial Parliament (MPP) for Parkdale—High Park, said tenants in buildings owned by GWLRA brought this matter to her attention back in April, reporting double-digit rent increases.
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Karpoche said she said a letter to the Competition Bureau in the fall, urging the bureau to investigate the use of YieldStar in Canada. She also put forward a bill to end the exemption for rent control — which she believes could help prevent companies from using tools like YieldStar to raise rents as well — but the bill was voted down last week.
What companies have been named?
Jennifer Bowcock, a spokesperson for RealPage, previously told the Financial Post that RealPage’s presence in Canada is “fairly low” at a one per cent penetration rate and said its revenue management software is “purposely built to be legally compliant.”
The 15 companies named in the proposed suit are: RealPage Inc., Quadreal Property Group, Westcorp Property Management Inc., FirstService Residential Management Canada Inc., Associated Property Management (2001) Ltd., GWL Realty Advisors Residential Inc., M&R Property Management, Rhapsody Property Management Services Limited Partnership, Hollyburn Properties Limited, Canadian Apartment Properties Real Estate Investment Trust (CAPREIT), Dream Unlimited Corp., Woodbourne Capital Management International LP, RIOCAN Real Estate Investment Trust, Choice Properties Real Estate Investment Trust and Tricon Residential Canada ULC.
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CAPREIT said in a statement that it “has not used, does not use, and will never use Yieldstar, or any other software that is the subject of this claim” and will “be seeking to have this action dismissed.”
M&R Property Management said it never used YieldStar or any other software to set rents or conspired or colluded with any landlord, adding, “We will take all necessary steps to defend and correct the situation.”
A representative from Choice Properties said the company has four rental buildings that are co-owned with a partner and were managed by Yieldstar.
“When we recently learned about this issue, we immediately instructed the third-party manager to cease any use of this software on our co-owned sites,” the spokesperson said in an email. “The Statement of Claim contains factual inaccuracies as it relates to Choice Properties and we intend to vigorously defend against the claim.”
Another spokesperson for Associated Property Management said the company has never used YieldStar and was “entirely unaware” of the existence of the program before this lawsuit, adding they believe their inclusion in the proposed lawsuit is a mistake.
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“Our operations utilize software called Yardi, and we have never employed any system or program to recommend pricing to us,” the spokesperson said in an email. “Should this filing proceed, we are confident that we will be promptly removed, as our brokerage has never utilized this software.”
Yardi Systems, Inc. is a property management software company, also the subject of another price-fixing lawsuit in the United States, filed last year. Yardi has responded to allegations on its website stating its software “does not use (and has never used) confidential, competitor, or non-public rent data for adjusting asking rent” and that it intends to “vigorously defend” itself against the lawsuit.
In early December, Yardi and 10 property management companies named in the claim lost their bid to dismiss the lawsuit, allowing it to move forward.
A spokesperson from Dream Unlimited previously told Financial Post it has “never subscribed” to YieldStar, but engages a property manager that previously used YieldStar as an input for its pricing recommendations. In September, it told the property manager to discontinue its use of YieldStar.
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However, Tanel said there’s a concept of “vicarious liability” in Canadian law, in which the employer or the person who operates through an agent can still be found liable for the conduct of their employee or agent.
What are the next steps?
Tanel said the claim has been filed in the Ontario Superior Court and the next step is to have it certified as a class proceeding, which can take months.
While the allegations have yet to be proven in court, Tanel said there are two primary goals of the lawsuit. One is to return money into tenants’ pockets, who may have paid more for their rents than they otherwise would have, according to the claim.
The proposed class action is seeking financial compensation for tenants who have resided in any of the properties owned or operated by the 14 companies named, going back to 2009.
The other goal, Tanel said, is to discourage potential anti-competitive behaviour by large corporations.
Black hopes that this lawsuit will deter landlords and property management companies from using YieldStar at all, and result in “real change,” such as producing more affordable housing that is built and sold without profit as the primary motive.
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“Everyone deserves a home that meets their needs and allows them to have security,” she said.
The most recent data from Rentals.ca and Urbanation showed asking rents across Canada sank to a 15-month low of $2,139 in November, with big metropolitan areas such as Toronto and Vancouver seeing year-over-year dips in price. However, the report also notes average rents in Canada were still 6.7 per cent higher than two years ago and 18.8 per cent higher compared with three years ago.
Dania Majid, a staff lawyer at the Advocacy Centre for Tenants Ontario (ACTO), believes broader oversight is still needed.
“The Competition Bureau must investigate tenant complaints about these practices to fully understand their effects on Canada’s rental market,” said Majid in an email. “Such an investigation would enable the bureau to recommend essential protections for renters and ensure fair market competition.”
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A spokesperson from the bureau confirmed in an email that it has “commenced a preliminary investigation into algorithmic pricing in the Canadian real estate rental market, and that protecting competition in the real estate industry is a priority for the bureau.”
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