The Residential Tenancy Act (the “Act”) and the Residential Tenancy Regulation (the “Regulation”) state that every year, landlords can only increase the rent by the limit set by the Residential Tenancy Branch (“RTB”). The 2024 rent increase limit for residential tenancies is 3.5%.
In a recent dispute resolution RTB decision, however, the RTB granted the Landlords’ application for an additional rent increase of 23.5%.
Are the Landlords entitled to impose an additional rent increase for incurring a financial loss for the financing costs of purchasing the residential property?
Section 43(3) of the Act states that a landlord may request the director’s approval of a rent increase in an amount that is greater than the amount calculated under the regulations by making an application for dispute resolution.
Residential Tenancy Policy Guideline #37D-Additional Rent Increase for Expenditures (PG#37D) is intended to help the parties to an application understand issues that are likely to be relevant. PG#37D states a landlord may apply for an additional rent increase if they, acting reasonably, have incurred a financial loss for the financing cost of purchasing the residential property, if the financing costs could not have been foreseen under reasonable circumstances. PG#37D describes that financing costs refer to the costs directly attributable to borrowing money.
Have the Landlords incurred a financial loss for the financing costs of purchasing the residential property?
In October 2021, the Landlords bought a four-plex unit (the “Property”). The Landlords testified that the interest rate increases are such that the rental income now received makes the property unsustainable for them. The Landlords entered into a variable rate mortgage with one of the big five banks. Their initial interest rate for borrowing money to buy the Property was 1.9%. By June 2023, the interest rates had gone up to 6.4%, and by July 2023, interest rates went up to 6.65%. Due to the increased interest rate, the Landlords incurred financing costs of $80,058.99 in the last fiscal year. The Landlords compared this cost to the interest payable in the previous fiscal year which was $45,722.44.
In April 2023, the Landlords reached out to the Tenants and asked if they would be agreeable to an additional rent increase over the annual allowable limit. The Tenants were not agreeable.
The Landlords submitted that they are not asking for an additional rent increase close to the current market rent rate, but at present their current financial situation is unsustainable. The Landlords argued that even with the increase, they are not going to breakeven. The Landlords determined the total increase amount by considering the rental income loss they can manage. They determined that a net income loss of $10,000.00 was an amount they can accept, and would still allow them to retain the Property.
Outcome
The decision noted that although the Landlords did have a cushion to buffer in case of rate increases, the rate increase in 2023 was substantial and quick. It was found that the Landlords experienced dramatic interest rate increases which made managing the Property unsustainable. As a result, the Landlords were successful:
“They have proven, on a balance of probabilities, all the elements required to be able to impose an additional rent increase for a financial loss for financing costs of purchasing the residential property under section 23 of the Regulation.”
The Landlords were granted an additional rent increase of 23.5%.
For more information, read the full decision.
If you are a landlord dealing with a Residential or Commercial Tenancy matter, please contact any member of our General Litigation Practice Group for a consultation.
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Poonam Pabla Lawyer | General Litigation Vancouver |
This article is intended to be an overview of the law and is for informational purposes only. Readers are cautioned that this article does not constitute legal or professional advice and should not be relied on as such. Rather, readers should obtain specific legal advice in relation to the issues they are facing.