Residential Tenancy Office raises rent 38%

[jimtan]

Market catches up to long-term tenants; rents to rise 38 percent
By Jackie Wong April 24, 2009
tyee.ca

An eight-month tenant-landlord battle in Vancouver's West End came to a head this week following the public release of an April 2 decision from the Residential Tenancy Office that allows the new landlords of the Seafield apartments to issue 38 per cent rent increases to nine of the 14 units in the 77-year-old heritage building.

The hikes are lower than the 73 per cent increases originally requested by new landlords Jason Gordon and Chris Nelson, brothers-in-law and former internet gaming executives who bought the building last summer and have since been trying to bring rents up to what they see as market rates.

Seafield tenants, the oldest of whom have lived in the building for nearly 50 years, have been fighting what first seemed like evictions for renovations (what they called 'renovictions') and then the 73 per cent rent increases disputed during a March 11 conference-call hearing between 18 tenants, Gordon Nelson Investments, and a dispute resolution officer. Tenants are currently unable to comment further as they are seeking legal advice and a potential judicial review of the decision, but advocates say the decision marks the effective end of rent control in the province.

"I have spent the last three years of my life asking the BC Liberal government to review the [Residential Tenancy] Act, to remove sections that are causing evictions and $500-a-month rent increases. They will not do it," Sharon Isaak told reporters yesterday.

Isaak co-founded Renters at Risk, a local tenant rights advocacy group, when she and her neighbours were served floor-by-floor eviction notices in their West End apartment building in 2006. Isaak and her neighbours fought the case at the Residential Tenancy Office and, after a lengthy battle, won. "I encourage every renter in this province to wake up...this decision signals the end of rent control as we know it."

Vancover-Burrard MLA and Vancouver-West End NDP candidate Spencer Herbert has been lending support to Seafield tenants through their struggle and, in efforts to provide better security to long-term renters, introduced a private members' bill in the legislature last fall called the Long-Term Renters Protection Act.

"Basically, the floodgates are open now for big landlords to seek massive rent increases for tenants province-wide," he said. "We're calling for a balanced Residential Tenancy Act between landlords and tenants. Obviously, landlords need to be able to make money. We're not against yearly rent increases. We just think they need to be balanced."

Despite the 38 per cent increases that have some Seafield tenants paying up to $500.00 on top of their regular monthly rent, Gordon Nelson Investments partner Chris Nelson says the new rents are still not up to market rates.

"In the case of the two-bedroom units, we've rented a unit for $1850 a month. So it's still $400 less [than market rates], so still a big subsidy to the tenants," he told the Tyee. He called the Seafield case a "messy battle" that involved tough dealings with the tenants.

http://thetyee.ca/Blogs/TheHook/Housing ... ntDispute/

[feuille]

Normally I'm on the fence regarding these issues, since I'm sure many buildings are legitimately below market, so rent increases are probably justified despite how "inhumane" it is for the people living there. But this landlord thinks a 77 year old heritage building in West End should command $2250/mo for a 2 bedroom? That's more than you'd pay in Yaletown for a brand new building!

In the end, I'm going to assume the compromise of $1850 is probably closer to market value, so it's probably a case of the landlord shooting for the stars (73%) and getting what he wanted (38%). Anyhow, the supposed landlord subsidy here is still nothing compared to how badly recent condo "investors" subsidize their tenants!

In these situations, the only party who benefits is the previous landlord who cashed out at the peak. The new landlord loses by overpaying and will never get much return on his investment, and the tenants lose by getting a reality check (rent increase).

[thirdlittlepig]

I'd be interested in more information before deciding about this one. If a particular building had no or few increases over many years, say twenty years, and then had a forty percent increase, that's about 2% for each year. That doesn't seem out of line. If it turns out to be within the amount that rent controls would have allowed, then I think it's fair. If there's been regular increases all along, then forty percent would not seem right, unless you can show that maintenance of the building,perhaps deferred for many years, has become much more expensive etc. or justify expense somehow.

[wiseman]

You are also ignoring the compounding effect of increases over time. i.e. 2% per year for 20 years is about the same as a 49% one time increase at the end of the 20th year. Never mind that they were below market for a long time.

[thirdlittlepig]

I wasn't ignoring anything, I was estimating. And forty percent over twenty years, as my "fur instance" example, for the sake of argument, is actually less than 2% per year,because of compounding.

[watchinginwait]

Some points to note.

• The landlords continue to compare apples with oranges. These are spacious but basic old suites. They don’t boast amenities such as balconies, exercise rooms, dishwashers, stainless steel appliances and so on. However, the building has seen various upgrades in the last few years, ranging from new plumbing to swapping out old casement wood windows for new double glazed vinyl windows. When the new owners bought it the building was meticulously maintained. No more.

• Rents were increased to the maximum allowable every year for the past two decades or more.

• The new landlords have a record of mass eviction in the case of every building they have purchased. They targeted this building and elected to pay well over market value ($3.45 million on assessed of $2.79 million, 2007-8) based no doubt on the assumption that they would again be able to kick out people from their homes to cosmetically renovate.

• As in the case of any purchaser, they would have had access to the business details and rent roll of the building, which, btw, sold in 2006 for $2.45 million.

• When these guys bought the building most analysts were already suggesting things were slowing down.

Nothing like getting the tenants to pay for your misreading of the market.

[grantness]

If they can find tenants to pay 70%+ higher rents, how are they misreading the "market"? Sounds like the only thing they misread was their ability to evict the old tenants getting a good deal.

[jesse1]

The actual decision can be read here (pdf). The officer was extremely strict on what units were considered comparable. Most units offered by the landlords were rejected because of incomparable amenities. Two of the units had claims rejected because none of the "comparable" units offered were comparable in the view of the adjudicator. The other interesting thing to note is that any evidence offered by the tenants is irrelevant. All the landlords had to do was show there existed units with rents above the units' in question current rents. The details behind the rents of these cherry-picked units is not relevant, only that these units with higher rents exist.

The officer basically threw out all the tenants' arguments. That's the way the Act is written. I think it instructive for landlords and tenants to read this decision. If you're a landlord looking to increase rents above the 3.8% cap, know that you only need to show specific and comparable units with higher rents and you will likely have a ruling in your favour. Just be sure the units are truly comparable.

[jesse1]

Nothing like getting the tenants to pay for your misreading of the market.

Bingo, though they probably would have done it regardless. I suspect they are forced to raise rents to stay cash flow positive.

[DAB]

"I have spent the last three years of my life asking the BC Liberal government to review the [Residential Tenancy] Act, to remove sections that are causing evictions and $500-a-month rent increases.

"In the case of the two-bedroom units, we've rented a unit for $1850 a month. So it's still $400 less [than market rates], so still a big subsidy to the tenants," he told the Tyee. He called the Seafield case a "messy battle" that involved tough dealings with the tenants.

The tenants are paying below market rent for quite some time and now they are complaining that they have to pay market rent?

[thirdlittlepig]

• Rents were increased to the maximum allowable every year for the past two decades or more.

• The new landlords have a record of mass eviction in the case of every building they have purchased. They targeted this building and elected to pay well over market value ($3.45 million on assessed of $2.79 million, 2007-8) based no doubt on the assumption that they would again be able to kick out people from their homes to cosmetically renovate.

So if you were going to allow more government regulation you would have to start with not allowing potential landlords to pay above market price, you might even have to insist they only pay what the current renters can support. Which would effectively freeze the sale of many rental properties (since the only motivation to buy was increase in value of property). That would be serious meddling in free enterprise. Allowable rental increases I gather have been sort of set in relation to inflation (?), but the value of properties has gone up 100% or more in just a few years. So how would you get anyone to buy or maintain these places if they can't set rents in relation to their costs? Otherwise landlords would effectively be subsidizing lower rents, which it seems many have been doing anyway. Wouldn't normal market forces naturally regulate the rents? If the landlords overpaid for a property and then jack up the rents beyond what the market allows, they'll just have to sit there and hold empty units, which in general just doesn't make business sense. If the value of properties increases 100% or so, I don't see how rents cannot increase substantially sooner or later. All rent controls can do is slow down the corrections somewhat, or the whole system would get out of sync. It appears that the only check on the price of rental real estate is either the rent that people can afford to pay, and eventually the speculators are sent home to lick their wounds when that doesn't pan out as planned. As the market climbs wildly, renters can expect there's going to be upheaval. When the market tanks, landlords that thought they were going to make a killing are going to feel some pain too. Boohoo, they'll have to set rents that peole can pay. Unless taxpayers want to start subsidizing poor people's rent (more than what is done already) I don't see any other way for the system to work.

[Deana]

There are so many rentals on the market in the West End and Downtown and these residents should just simply - move. Yes, the owners are greedy pigs, but they are the owners, not the renters. It is sad, especially after you live at the same place for 50 years, but true.

All tenants should move out and have those greedy landlord pigs simmer through this coming summer with plenty of vacancies in their "investment" property.

[islandlandlord]

There are so many rentals on the market in the West End and Downtown and these residents should just simply - move. Yes, the owners are greedy pigs, but they are the owners, not the renters. It is sad, especially after you live at the same place for 50 years, but true.

All tenants should move out and have those greedy landlord pigs simmer through this coming summer with plenty of vacancies in their "investment" property.

The lanlords are not pigs, they're business people. Its not their job to provide affordble housing for anyone. I'd argure that the tenants want something for nothing. If those renters wanted to live in the sme place for 50 yrs, they should've bought their own place 50 years ago; Not that i dont like long term tenants

Obviously the original 73% was way too much, as the highest they got was 38% i think.

[registered]

The first issue is the validity and mandate of institutions like the RTO, the second is whether, given that mandate, the office fulfilled those mandates in good faith. I don't side with any party on this one. Tenant shouldn't expect decades of rental stability. The new owners are obvious opportunists with a history and no concern for good tenants. The RTO is everything I've come to expect from decades of government policies, integrity and efficiencies. No winners in this bunch.

[jesse1]

Allowable rental increases I gather have been sort of set in relation to inflation (?)

Allowable rental increases are typically set at the government-determined inflation rate plus 2%. This year it is 3.7%. If these units' rents were below FMV, they could catch up in a few years' time.

If the value of properties increases 100% or so, I don't see how rents cannot increase substantially sooner or later.

It's a big mistake to assume that rents will eventually "catch up" to price increases. It is one possibility but the rents have to come from somewhere. If total incomes can't support the rents landlords want to charge, rents cannot increase that much.

These landlords have decided to significantly increase the rent. They are allowed to do this in an attempt to produce a decent return. If they overpaid, it means they will not make a decent return, no matter what they want to charge for rent. The market sees to that.