B.C.'s Residential Tenancy Branch has ruled two landlords can increase rents for their tenants by 23.5 per cent over two years after they successfully argued that they incurred a financial loss as mortgage rates have increased.
The two landlords were seeking a 23.5 per cent addition rent increase because their current financial situation is unsustainable due to increasing rate hikes. A May 2024 ruling from the Residential Tenancy Branch says the landlords did have a buffer, but they said "no one saw this going to this level."
It adds that even with the 23.5-per-cent increase, they would still not breakeven.
The landlords purchased the property, a four-plex, in October 2021, with an initial interest rate for borrowing money at 1.9 per cent, according to the May 2024 Residential Tenancy Branch decision.
They argued that in the last fiscal year, that the impact on financing costs because of the increased interest rates was $80,058.99. That's compared to the previous fiscal year, which was $45,722.44.
The landlords testified that they have "always used a variable mortgage" and at the time of setting up the mortgage, the rates were "stable." By June 2023, the rates had increased to 6.4 per cent and the following month, it was up to 6.65 per cent. It remained at 6.65 per cent by the time of the hearing.
They said said that if they fixed their interest rate in 2023, the penalty would be "very large," as it was too early in their mortgage term. However, two tenants said that with a variable rate, it is "reasonably foreseeable" that the rate will change, adding that the landlords should enter "these kinds of financing circumstances with a cushion to absorb the rate variability."
The landlords said they reached out o the tenants in April 2023, asking if they would be open to an additional rent increase over the allowable limit.
The ruling said that some tenants argued that the four-plex was the landlord's investment, "so how can this be classified as a loss when they landlords are 'going to come away with a million dollar house.'"
One tenant said they were asked for a $500 per month, which they didn't agree to, but instead suggested a $50 increase to the landlord. The tenant said the landlords didn't respond.
B.C.'s 2024 allowable rent increase limit is 3.5 per cent.
The four units' current rents in 2024 were: $1,282, $1,450 and $1,550 for two units. The rental units are two-bedroom and one-bathroom suites, with utilities included.
With the 23.5-per-cent increase, it would raise rents to $1,628.14, $1,841.50 and $1,968.50.
The landlords said comparable rents in the area ranged between $2,200 and $2,650, but a tenant said those examples show rental units that are larger and more modern.
A tenant said there have been minor interruptions in services, including waiting for laundry parts for over a week and the landlords didn't offer any compensation. There have also been similar situations with the furnace not operating properly.
The landlords have also served 10 day notices for unpaid rent, but they were resolved. A one-month notice was also served for being repeatedly late paying rent.
The Residential Tenancy Branch arbitrator said they found the landlords' evidence about incurring financial loss for the financing costs "could not have been foreseen under reasonable circumstances," adding the landlords testified they have always used a variable rate.
"I find the world and economic events in reaction to the pandemic were not reasonably foreseeable and have impacted the landlords, despite them taking reasonable precautions by accessing a mortgage through a recognized and well-known lender."
The ruling said the landlords' mortgage was held through on the the "big five" banks.
The arbitrator added that the landlords determined the 23.5-per-cent increase by considering rental income loss they ca manage and $10,000 was the amount they could accept, but would still allow them to retain the property.
The increase has to be applied over a two-year period, as the arbitrator said it would be a significant increase in one instalment.
The first year will be a 12-per-cent increase, in addition to the province's 3.5 per cent. The second year, will be 11.5 per cent in addition to the province's yet-to-be-determined rent increase limit for 2025.
