Does a BC Break for Landlords Go Too Far?

Fighting a rent increase for herself and neighbours through B.C.’s Residential Tenancy Branch has taken Nanaimo tenant and housing activist Dianne Varga years of effort, generated a pile of paper and, in her view, achieved nothing.

“I feel like tenants have been asked to do a dance with the RTB,” she said. “As lead tenant I’ve followed all the dance steps for two years, but it hasn’t mattered one iota.”

Such disputes have become common since the B.C. government introduced a policy five years ago allowing landlords to apply for extra rent increases to cover the costs of repairs or renovations.

For eligible work, landlords can raise rents by up to three per cent each year for three years. The increases are on top of other increases allowed under B.C.’s rent controls and are permanent, continuing after the repairs are paid for.

At the four-storey Sand Dollar Manor where Varga lives, the question is whether the $73,000 cost of a new elevator should be paid for by tenants of the 73 units or by the building’s owner. Built in 1973, the apartment block at 450 Stewart Ave. near Nanaimo’s harbour is typical of its era, similar in style and age to many in communities throughout the province.

The Residential Tenancy Branch has decided in the owner’s favour twice. The second ruling, in March, was necessary because the B.C. Supreme Court sent the initial decision back to the RTB for reconsideration after finding the branch’s process had been “manifestly unfair” to tenants the first time around due to “the lack of disclosure to the petitioners of evidence that was of direct relevance to material and critical aspects of the decision.”

Varga wrote a backgrounder on additional rent increases for the Vancouver Tenants Union. She has generated a stack of thousands of documents going through the RTB process, which she says is biased in favour of the landlord.

But ultimately she blames the provincial government for allowing additional rent increases in the first place.

In an email Varga described herself as “completely pissed off” by the process.

“This is what tenants on the frontline go through in the attempt to instil justice in the housing system when governments refuse,” she said.

“An effective consumer protection agency wouldn’t allow a lawn mower rental company to get away with directly charging customers for the cost of their equipment and also directly charging them to rent the equipment, but this is what the B.C. government has allowed the powerful landlord lobby to do.”

Tenant involvement is automatic when an owner applies for an additional rent increase. “A hearing is scheduled, and tenants can participate in the hearing and submit evidence if they believe that the costs the landlord is claiming are not eligible for a rent increase,” a spokesperson for the Housing Ministry said in an email. Tenants don’t have to apply to dispute the application, it said.

Varga said many tenants still feel at risk fighting with their landlords and fear they will be evicted if they oppose increases.

It’s also a lot to expect renters to navigate the system and to take on the expense of going to court to fight bad or biased decisions, Varga said. “A lot of tenants, they don’t even know what the Residential Tenancy Act is,” she said in an interview. “They don’t know the basics, let alone how to make a case at the Supreme Court.... It’s really tough. It’s definitely a very uneven field to get involved in.”

In B.C., about one-third of households are renters. Tenants are generally poorer than homeowners and report having a lower quality of life.

For many years the B.C. government allowed owners to raise rents by the rate of inflation plus an extra two per cent. Thanks to compounding, the policy introduced in 2004 allowed rents to jump 40 per cent more over 15 years than they would have if increases had been limited to the inflation rate.

In 2018 a task force of MLAs recommended restricting increases to inflation for tenants who don’t move. During the COVID-19 pandemic the provincial government kept increases even lower but at the same time introduced the new policy to allow owners to apply to the RTB if they felt they needed larger increases to cover renovations or repairs.

Eligible expenses include ones incurred to install, repair or replace a major system or component of the building; to reduce greenhouse gas emissions or energy use; or to improve the security of the property.

An owner cannot get an increase to cover expenditures that are necessary because they failed to repair or maintain the property or for ones that they can fund through another source.

There’s also a provision for landowners to seek an increase if they are facing increased costs and can demonstrate they are facing financial hardship, but it has been used infrequently.

Since 2021 there have been 341 applications for additional rent increases to the RTB. The tenancy branch dismisses about one out of four applications, and a similar number are withdrawn or abandoned by the owner. About half of the time the requests are granted.

Francois Denux is the president of Le Gers Properties Inc., which owns the Sand Dollar Manor in Nanaimo where Varga lives. It is one of the family businesses that comprise Groupe Denux, which together own a mix of rental apartments, townhouses, offices and commercial spaces in B.C., Alberta, Quebec and France.

Owners face rising costs for maintenance and building improvements, said Denux, and for other expenses. Property taxes for the Sand Dollar Manor, for example, rose from $70,402 in 2021 to $86,627 a year later.

Increases in property taxes generally reflect increases in the assessed values of properties. According to the most recent update from BC Assessment, the Sand Dollar Manor was worth $13.5 million as of July 1, 2023.

From a business point of view, seeking to recover costs where possible by applying for an additional rent increase makes sense. “It’s the only tool landlords have really to pass on some of those expenses,” Denux said. “We’re taking advantage of it because it’s available.”

Often the process goes smoothly. Even at the Sand Dollar Manor, most tenants weren’t concerned about what would amount to an $8.34-a-month increase, he said. “It’s been frustrating for the tenants because they’ve gone twice through the wringer there.”

Having had the B.C. Supreme Court dismiss the first application on what he considers a technicality, the second time around the company hired lawyers to make sure everything was done correctly, Denux said, an expense that ate into what the company would see from the increase.

In other buildings, additional rent increases have been more substantial, he said, citing one where a $300,000 roof replacement led to a $60-per-month rent increase for tenants.

Last November in New Westminster, tenants protested outside of their building against their landowner’s efforts to have them pay an extra $50 a month towards a $1-million elevator repair.

Even with the additional rent increases, most long-term tenants are getting a good deal compared with what they would pay in a newer building, Denux said, adding that turnover has dropped as most tenants opt to stay. “They do the math,” he said.

He agreed that the landlord ultimately retains ownership of the building, will benefit from maintaining or improving it and is in fact obliged to keep it safe, but he argued that tenants benefit as well from a safe building and that it’s necessary to find a way to share the costs of maintenance.

“It’s not a perfect system,” he said, “but it’s the only one there is right now for landlords to recoup their costs when they replace a major component in their building.”

Many rentals in the province are a similar age to the Sand Dollar Manor and as components reach the end of their lives they need to be replaced, Denux said in a followup email. Besides elevators, there are boilers, windows, patio doors, roofing membranes, balconies, fire alarm systems, plumbing and more that wear out.

It costs about 50 per cent more to operate an apartment building than it did 15 years ago, he said.

Meanwhile the government has kept allowable rent increases to the rate of inflation or lower. “Unfortunately, operating expenses increase every year, typically more than the allowable rent increase,” he said.

High construction costs in B.C. cities and rising interest rates on mortgages have further squeezed owners, said Denux.

“From a business point of view, and for obligations to shareholders, in an environment of rising expenses it makes business sense for the landlord to apply for an additional rent increase when allowed,” he said. “There is no advantage to anyone, landlord or tenant, to let older apartment buildings deteriorate.”

A CBC investigation in Ontario, which has a similar system for additional rent increases, found the measure was mainly used by a few big financial firms that own buildings. Those firms included the British Columbia Investment Management Corp., the Crown corporation that manages some $233 billion in public sector money, including government pensions.

Certainly not every landowner chooses to seek additional rent increases. Bruce Robinson said property tax, interest rates, income taxes and maintenance expenses are a challenge. “You are squeezed,” he said, adding it can be a challenge to maintain older buildings.

But when a 13-unit building he owns needed $36,000 in work, he chose to cover the cost himself rather than seek an additional rent increase. Depending on when tenants had moved in, he said, they paid anywhere between $519 and $1,550 a month, so it was unclear how to apply the increase in a way that would be fair.

“I’ll eat it and we’ll just carry on,” he said.

In the March 20 decision regarding the Sand Dollar Manor in Nanaimo, RTB arbitrator Anne Wood found again in favour of the owner. Aside from the power unit, which had been upgraded in 2010, the elevator dated back to 1973 and “had surpassed the generally recognized life cycle of 25 to 30 years.”

She accepted that the elevator is a major system of the property and that “the work was conducted to maintain the Elevator System in a state of repair that complies with the health, safety and housing standards required by law.”

She dismissed tenant concerns about a lack of documentation of elevator maintenance since the owner had bought the property in 2015 and said it couldn’t be expected to have paperwork going back further.

And she found that the tenants had “failed to prove the additional rent increase should not be imposed due to inadequate repair or maintenance on the part of the landlord, or the landlord has been paid, or is entitled to be paid, from another source.”

Robert Patterson, a lawyer and advocate with the Tenant Resource and Advisory Centre in Vancouver, said the additional rent increase process has problems that were predicted from the outset.

“The Faustian bargain that government made by implementing these increases isn’t a good one in the long term,” he said. “There are some fundamental things about how the increases work that are pretty grossly unfair to tenants.”

When owners are motivated to make repeated applications, it can lead to rents rising significantly faster with each application as increases compound, he said, in part because increases become permanent and aren’t reversed after the work is fully paid for. “Three per cent per year doesn’t sound like much, but [it is] when it keeps going on year after year after year.”

Rent that increases by three per cent a year will take 24 years to double. Add another three per cent each year, as the additional rent increase policy allows, and that time for the rent to double is cut in half to 12 years.

Despite the caps, rents in many B.C. communities have gone up much faster than inflation, largely thanks to steep increases when a home becomes vacant and a new tenant moves in. A significant portion of B.C. renters, about 16 per cent, pay more than half their income to cover rent and utilities.

There’s also a feeling that the rules are “fluid” and that arbitrators fail to hold landowners to any decent or reasonable standard of evidence, Patterson said.

“One landlord showed up at a hearing apparently claiming, I think it was a $70,000 repair, and had no invoices, no proof of cost, but just testified that he did the work and this is how much it cost and he won, he was granted the order, which is mind-boggling, that you’re going to ground an application of that size and just take someone’s word for it.”

Another issue is that tenants who believe a building hasn’t been properly maintained have to prove it, even though they are unlikely to have access to the records that the owner would.

Patterson said it makes no sense to put the burden of proof on the tenants. “It’s just such a fundamentally unfair thing to do.”

In some cases the work is long done before tenants are presented with the application for a rent increase, he said. “They have no idea at the time it’s being replaced or repaired that this application is coming. The elevator is gone. They have no way to get evidence about the elevator.”

Similarly, it is left up to tenants to demonstrate situations where they think a landowner may be able to use another source of payment for the work. “How is a tenant supposed to know what that is?”

Nor is there a discovery process that would give tenants an opportunity to get relevant documents, said Patterson. While there is a “summons” clause that could play the same role, he has never seen one granted, he said.

Overall, Patterson said, the process and the adjudicators seem to be more interested in efficiency than in taking the time to hear all the facts and get the decisions right.

The policy is interpreted broadly to include anything that supports any function of the building, a definition so wide that it can include cosmetic work, he said, recalling that one landowner tried to include furniture and art.

“That’s not even a capital expenditure,” Patterson said. “Those are just things. You could just take them out of the building next week.”

He’s also seen increases approved to pay for improvements to parking areas, even though tenants have no right to use the parking and an owner can withdraw such a right with 30 days’ notice. “You could be charged a rent increase for a landlord redoing a parking lot that he subsequently takes away from you and you still have to pay the increased rent to help cover its cost for the next three years.”

Allowing owners to charge for work that reduces greenhouse gas emissions sounds good, but the policy includes no definition of how large the reduction should be. There is no minimum, Patterson said. “It’s any reduction.”

For regular maintenance, that should just be part of being an owner, Patterson said. “You expect landlords to budget for these things when they are making their capital plans, and for those landlords this is just icing on the cake. Should we be putting icing on some people’s cakes when others don’t have enough to eat?”

The Tenant Resource and Advisory Centre has urged the government to change the policy and provided detailed complaints to the Housing Ministry, Patterson said. “We outlined our complaints, and then they made the process faster and more expedient instead,” he said. “My vibe is there isn’t really an interest in making it more robust. If anything it’s the opposite, which I think is pretty concerning.”

B.C. Housing Minister Ravi Kahlon said the government is monitoring how the policy is working but has no plans to change it.

“We struck that balance because we understand that we need to encourage buildings to be renovated, for those investments to be made,” Kahlon said. “We haven’t seen major issues or wide-scale issues around this.... Obviously rents are a challenge and we want to make sure that people are protected through what is a very challenging time, but at this point we haven’t seen anything that would be alarming.”

He said he has heard concerns from housing advocates about how rents don’t go back down even after tenants have fully paid for the work. “That is something we are going to look at,” he said, adding that it’s a longer-term conversation that the government was not prepared to act on ahead of the election scheduled for October.

A BC United government wouldn’t make the change either.

“It’s a policy we have to support,” said leader Kevin Falcon. “I get it nobody wants to pay anything more in rents and that’s very concerning, but we also have to make sure that buildings are maintained. After a while if you have too much deferred maintenance these buildings fall into slum status and that doesn’t benefit any of the tenants either.”

Since Premier David Eby came to office he has made housing a priority with a steady stream of announcements aimed at increasing the supply of rentals and dampening rising rents.

But Varga said the provincial government could do much more if it was serious about making life more affordable for renters.

“They tinker away, and they tinker harder as elections approach,” she said, “but if justice actually existed, we wouldn’t have 30 per cent rent increases between tenancies, we wouldn’t have [additional rent increases], we wouldn’t have vast numbers of people who are barely able to pay their rent if they can pay it at all.”