Tribunal approves rent jump after landlord cites financial losses due to sky-high rates
The Residential Tenancy Branch (RTB) of British Columbia has ruled that a landlord acted reasonably in imposing a rent increase of 23.5% for tenants in a four-unit property, citing unforeseen financial strain due to escalating interest rates.
The ruling, delivered in May 2024, was based on an application made under the Residential Tenancy Act and the Residential Tenancy Regulation, which allows landlords to request additional rent increases beyond the annual cap in cases of unforeseen financial loss.
The landlords purchased the property in October 2021, financing it with a variable-rate mortgage at an initial interest rate of 1.9%. However, by mid-2023, interest rates had risen to 6.65%, dramatically increasing their annual financing costs from $45,722.44 in the previous fiscal year to $80,058.99.
Despite maintaining a financial cushion, the landlords argued that the swift and unexpected rise in rates left them unable to sustain the property financially under the current rent structure.
In April 2023, the landlords approached the tenants, requesting a rent increase beyond the 2024 allowable limit of 3.5%. When the tenants declined, the landlords filed an application with the RTB under Section 43(3) of the Residential Tenancy Act.
After reviewing the case, the RTB ruled in favour of the landlords. The decision acknowledged that the landlords had reasonably planned for potential rate increases but could not have foreseen the substantial hikes that occurred in 2023. It was determined that the landlords demonstrated all required elements under the Residential Tenancy Regulation to justify the additional rent increase.
Read next: Canada's rental supply surges to decade-high levels
The RTB noted that the landlords had not requested a rent increase that matched market rates but instead calculated an increase to reduce their financial loss to a manageable level. Even with the rent adjustment, the landlords projected they would still incur a net loss of approximately $10,000 annually.
To ease the impact on tenants, the RTB approved a phased implementation of the rent increase over two years. For example, a tenant currently paying $1,282 per month will see their rent increase to $1,480.71 in 2024 and then to $1,628.14 in 2025.
"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 RTB said in a statement.
Make sure to get all the latest news to your inbox on Canada’s mortgage and housing markets by signing up for our free daily newsletter here.
