VANCOUVER — Lawyer Rob Patterson says the phones at British Columbia’s Tenant Advice and Resource Centre have been ringing off the hook, but he fears the decision to allow a landlord to raise rent by 27 per cent will drive up demand for the centre’s services even further.
Patterson, a legal counsel for the centre, said a rule allowing landlords to apply to British Columbia’s Residential Tenancy Branch for rent increases that exceed an annual maximum set by the province should be eliminated.
In a May ruling posted on social media this week, a panel arbitrator allowed landlord Kriss Canada Ltd. to raise rent this year above the 3.5 per cent limit set by the province as the landlord’s mortgage costs soared due to rising interest rates.
Patterson said the provision had been rarely used in his years working for the federal government and said the province must act quickly to remove it from the law.
“If the floodgates are indeed being opened here, then it will add fuel to the fire in terms of housing affordability in the province,” he said. “To nip this in the bud, it will require fairly decisive action in a relatively short period of time.”
He said provincial housing policies should not protect investors from losses when they make risky bets in the real estate market.
The arbitrator’s decision details how the company purchased the four-family home in October 2021 with an adjustable-rate mortgage that started at 1.9 percent but more than tripled by June 2023.
The decision states that the owners told the arbitrator that the rent increases made the rent level unsustainable and that the resulting financial losses could not have been foreseen “under reasonable circumstances”.
Meanwhile, the tenants explained to the arbitrator that the property was a capital investment and that any shortfalls should not be considered a loss, as the landlords would “get away with a house worth millions”.
The arbitrator concluded that the company had experienced “dramatic interest rate increases that made the management of the properties unsustainable” and that it should be allowed to raise rent beyond the 3.5 percent limit.
“The landlords testified that they have always used a variable mortgage rate. Over the years the variable rate has remained stable and it would be reasonable if the interest rate could increase by a few percent at renewal,” the decision states.
“In my view, the landlords exercised care, foresight, judgment, financial prudence and due diligence in purchasing and financing the residential property, but due to unforeseen events, significant increases in mortgage interest rates occurred.”
Patterson said the decision could allow landlords to go after tenants to protect themselves from the risks they take by investing in rental properties.
“This is bad policy from the start,” he said. “It encourages risky behavior by landlords and property buyers.”
Patterson said the rule could be lifted by the provincial government “quickly and painlessly.”
“The rules need to be changed now to stop this from becoming a commonplace thing that happens across the Lower Mainland and across the province,” he said. “The affordable housing crisis is already so bad, it’s already so pronounced. We don’t need to add fuel to the fire. It’s going to happen just fine on its own.”
In other decisions, arbitration courts rejected attempts by landlords to increase their rents due to increased mortgage loans.
A decision in June involved an unnamed landlord who had also bought a rental property with a variable rate mortgage, relying on the advice of his broker or banker that rates would remain stable.
“Mortgage rates rise (and fall) often and are a reasonably foreseeable circumstance,” the arbitrator noted. “Moreover, in this case, mortgage rates have been rising steadily since the landlord purchased the property and there was no sudden, totally unexpected and extraordinary increase.”
Housing Minister Ravi Kahlon said in a written statement on Thursday that the rule allowing landlords to request “extraordinary” rent increases was introduced by the previous government.
The statement said the case allowing the 27 percent increase was the first the ministry has been aware of since it began collecting data in 2021.
“Tenants are struggling with the high cost of rent,” the statement said. “I know people have many questions and I have directed staff to review this policy and its impact on tenants in the current context.”
This report by The Canadian Press was first published August 15, 2024.
Darryl Greer, The Canadian Press
