Two Victoria B.C. landlords have been granted a rent increase above the amount that is legally allowed after it was found they were incurring a financial loss on a rental property.
The landlords purchased the property – their first rental property – on Oct. 28, 2021.
They had a variable rate mortgage at the time of 1.9 per cent. However, by June 2023, interest rates had gone up to 6.4 per cent and by July 2023, it was 6.65 per cent.
“In the last fiscal year, the impact on the financing costs incurred by the landlords because of the increased interest rates was $80,058.99. The landlords compared this figure to the interest payable in the previous fiscal year which was $45,722.44,” states the ruling from the Residential Tenancy Branch (RTB).
In April 2023, the landlords reached out to the tenants and asked if they would be agreeable to a rent increase of $500 a month but the tenants said no.
“Some tenants argued that this is the landlords’ investment, so how can this be classified as a loss when the landlords are ‘going to come away with a million dollar house,” the ruling reads.
The landlords said they were not able to lock into a fixed-rate mortgage due to sizeable penalties.
The landlords applied for a 23.5 per cent additional rent increase on top of the permitted annual rent increase of 3.5 per cent for a total rent increase of 27 per cent saying their current financial situation was unsustainable.
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They told the RTB that they did not have a financial buffer and said that even with the increase, they were not going to break even.
The landlords’ rental units are two-bedroom one-bath suites. Utilities are included in the tenants’ rents, which are $1,282, $1,450, and $1,550. The landlord’s requested additional rent increase application would raise the rents in the residential property to $1,628.14, $1,841.50, and $1,968.50 per month.
“I find the landlord’s evidence about incurring a financial loss for the financing costs of purchasing the residential property could not have been foreseen under reasonable circumstances credible,” the ruling states.
“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. I find the landlords exercised care, foresight, judgment, financial prudence, and due diligence in purchasing and financing the residential property, but significant increases in the mortgage interest rate occurred due to unforeseen events.”
According to the ruling, the landlords said they have never applied for an additional rent increase and determined the total amount for this increase by considering the rental income loss they can manage.
“They determined that a net income loss of $10,000 was an amount they can accept, and would still allow them to retain the property.”
The ruling determined that the landlords have proven all the elements required to impose an additional rent increase for a financial loss.
“I find this rent increase significant in one installment, and I order it may be applied over two years,” the ruling states.
In a statement, Housing Minister Ravi Kahlon said that the government is taking action to fight the housing crisis and since 2018 they have kept rental increases at or below inflation.
“The policy that allows these kinds of exceptional rental increases because of financing is an old policy from the old government and this is the first time an application like this has been granted since we started collecting data in 2021,” he said.
“I know people have a lot of questions and I’ve directed staff to review this policy and how it impacts renters in the current context.”
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