B.C. landlords allowed to impose massive rent hikes after mortgage payments spike

Two B.C. landlords whose costs have skyrocketed – due to their variable-rate mortgage – have been allowed to impose huge rent increases on their tenants to offset their financial losses.

In a recent ruling, an arbitrator with the province's Residential Tenancy Branch approved hikes totalling 23.5 per cent over two years for each of the landlords' four rental units.

That's on top of the 3.5 per cent rent increase previously approved by the B.C. government for 2024.

"The landlords experienced dramatic interest rate increases which have made managing the property unsustainable," reads the ruling, which was published in May.

As a result, each of the tenants will be paying several hundreds of dollars more per month next year.

The current rents for the homes range from $1,282 to $1,550, and will increase to between $1,628 and $1,968 in 2025.

In response to the ruling, B.C.'s housing minister said the government will be reviewing the regulations cited in the arbitrator's decision, to determine how the policy stands to impact renters in the context of the current real estate crisis.

"The policy that allows these kinds of exceptional rental increases because of financing is an old policy from the old government," Ravi Kahlon said in a statement. "This is the first time an application like this has been granted since we started collecting data in 2021."

The Vancouver Tenants Union expressed concerns that many more landlords will begin taking advantage of the regulations.

"If government starts bailing out every landlord who's taking a loss, you're going to see rents rise dramatically across the board – and with that, homelessness," said volunteer Rebecca Love.  

First investment property for landlords

According to the decision, the landlords purchased a duplex with four units – one upstairs and one downstairs unit on either side – in October 2021.

It was their first rental property, and they signed for a mortgage at an initial rate of 1.9 per cent.

By last year, their rate had increased to 6.5 per cent. That resulted in their financing costs increasing to $80,058 in the last fiscal year, up from $45,722 the year prior.

The landlords, who are identified only by the initials S.O. and K.O., argued they had good reason to expect the rate would remain low when they purchased the property. The Bank of Canada had kept its interest rate low for more than decade, as part of the government's effort to stimulate the economy following the 2008 recession.

"The landlords testified that they have always used a variable rate mortgage, and at the time of setting up the mortgage, the rates had been stable," the decision reads. "There was no definitive indication that the interest rate would increase as much as it did."

The tenants balked at that argument, suggesting property owners with a variable-rate mortgage should be prepared for their monthly payments to change – particularly after rates had been low for so long.

Some of the renters questioned how the situation could be considered a loss at all when the landlords are ultimately "going to come away with a million-dollar house."

Long-time tenants in B.C. already tend to face massive rent hikes when forced to move for any reason, the Vancouver Tenants Union said, calling once again for the government to implement a system known as vacancy control – which ties rents to individual units, rather than tenants, to prevent huge jumps between tenancies.

"Double-digit increases in rents are standard for anyone looking for a new place," Love said. 

Exceptions to maximum rent increase

Landlords in B.C. are generally limited to a government-approved maximum annual rent increase, but there are exceptions.

Under the province's Residential Tenancy Act, landlords can plead their case for steeper rent hikes, including to cover the costs of some building upgrades.

Those rent increases are imposed permanently. 

Regulations also allow for extraordinary rent increases for landlords who have "incurred a financial loss for the financing costs of purchasing the residential property," but only if those costs could not have been reasonably foreseen.

The RTB arbitrator found that was the case for S.O and K.O.

In the decision, the arbitrator cites COVID-19 as an "unforeseen event" that contributed to the government's decision to implement a series of dramatic rate hikes beginning in 2022.

"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 reads.

The arbitrator also noted that the landlords had not applied for any extraordinary rent increases previously.

Contacted for comment, Landlord B.C. described the RTB ruling as "simply an enforcement of a very long-standing regulation," and one that will help property owners hold onto their investments.

"There is a lot of pressure on the rental housing industry in general," vice-president Hunter Boucher said. "Housing providers are faced with fairly extreme increases in operating expenditures, especially from financing costs." 

Renters and landlords alike can challenge arbitrator's decisions, either by requesting a review through the RTB or a judicial review through B.C. Supreme Court.

 With files from Andrew Johnson, CTV National News