British Columbia’s Residential Tenancy Branch has ruled that two landlords can increase their tenants’ rents by 23.5 percent over a two-year period after successfully arguing that they suffered a financial loss due to increased mortgage rates.

The two landlords demanded an additional rent increase of 23.5 percent because their current financial situation is unsustainable due to increasing interest rate increases. A May 2024 ruling by the Residential Tenancy Branch states that while the landlords had a buffer, they said “no one expected it to be this high.”

In addition, even with an increase of 23.5 percent, the break-even point would not be reached.

According to the Residential Tenancy Branch’s May 2024 decision, the landlords purchased the property, a four-family house, in October 2021 at an initial loan interest rate of 1.9 percent.

They argued that the impact of increased interest rates on finance costs in the last fiscal year was US$80,058.99, compared to US$45,722.44 in the previous fiscal year.

The landlords testified that they had “always used a variable mortgage” and that at the time the mortgage was taken out, interest rates were “stable.” By June 2023, interest rates had risen to 6.4 percent and the following month to 6.65 percent. At the time of the hearing, they remained at 6.65 percent.

They said if they fixed their interest rate in 2023, the penalty would be “very high” as it was too early in the term of their mortgage. However, two tenants said with a variable rate, it was “reasonably foreseeable” that the rate would change, adding that landlords should “enter such financing circumstances with a buffer to cushion the rate fluctuations”.

The landlords said they contacted the tenants in April 2023 and asked if they would be willing to accept another rent increase beyond the permitted limit.

The decision states that some tenants argued that the four-family house was an investment by the landlord. “So how can you call it a loss when the landlords ‘walk away with a house worth a million dollars’?”

One tenant said he was asked to pay $500 per month, which he did not agree to, but instead suggested the landlord increase it by $50. The tenant said the landlord did not respond.

The permissible rent increase limit in BC is 3.5 percent in 2024.

Current rents for the four units in 2024 were: $1,282, $1,450, and $1,550 for two units. The rental units are two-bedroom, one-bathroom suites, utilities included.

The 23.5 percent increase would increase rents to $1,628.14, $1,841.50 and $1,968.50.

Landlords said comparable rents in the area ranged from $2,200 to $2,650, but one tenant said those examples showed larger and more modern rental units.

One tenant reported that there had been minor disruptions in the supply, for example having to wait over a week for parts for the laundry and the landlords had not offered any compensation. There have also been similar situations where the heating did not work properly.

The landlords also issued 10-day reminders for non-payment of rent, which have been resolved, and a one-month reminder was issued for repeated late rent payments.

The Residential Tenancy Branch arbitrator said the landlords’ evidence that they would incur financial losses as a result of the finance charges was “not reasonably foreseeable”. He added that the landlords had testified that they had always used a variable interest rate.

“I consider that the global and economic events in response to the pandemic were not reasonably foreseeable and have impacted landlords despite them taking reasonable precautions by obtaining a mortgage from a recognised and well-known lender.”

The ruling stated that the landlords’ mortgage had been upheld by the “big five” banks.

The arbitrator added that the landlords had determined the 23.5 percent increase taking into account the loss of rent they could afford and that $10,000 was the amount they could accept that would still allow them to keep the property.

The increase must be made over a period of two years because, according to the arbitrator, it would be a significant increase in one installment.

The first year will see a 12 percent increase, in addition to the province’s 3.5 percent. The second year will see 11.5 percent, in addition to the province’s yet-to-be-determined rent increase cap for 2025.