Renovictions Explained

 

“Mommy, what’s a renoviction?”

By Mark Moore

It was November 9, 2008.  My wife stood with mayoral candidate Gregor Robertson and others in front of our home, Seafield Apartments in the West End of Vancouver, to speak out against “renovictions” – the use by some landlords of section 49(6)(b) of the provincial Residential Tenancy Act (RTA) to evict tenants by performing renovations that supposedly require vacant suites, in order to evade controls on annual rent increases. 

As my wife was visibly upset I asked our then six-year old son if he understood what was going on.  I explained that we rented our home, and that the men who now owned it wanted everyone in our building to move out so that they could make more money. 

Our son thought for a moment, and then said: “That’s not nice.”

 Sure, it may not sound nice, but what does the law say?

 49(6)(b) says: “A landlord may end a tenancy in respect of a rental unit if the landlord has all the necessary permits and approvals required by law, and intends in good faith, to … renovate or repair the rental unit in a manner that requires the rental unit to be vacant”   

In Berry and Klooet v. British Columbia, 2007, (22) the Supreme Court of BC said that “the purpose of (49(6)(b)) is not to give landlords a means for evicting tenants; rather, it is to ensure that landlords are able carry out renovations” and that when tenants are willing to accommodate renovations (even if this requires them to vacate their homes for a few days), then a tenancy may not be ended.

 The Minister of Housing and Social Development, Hon. Rich Coleman, told me and others in October, 2008 that he agreed with the Court’s view, and that “only a few bad apples” misuse this section of the Act.

 But there can be a large economic incentive to come up with a way to break a long-term tenancy, and 49(6)(b) offers such a way.

 The RTA and its regulations limit annual rent increases during a tenancy to 2% above the rate of inflation, except under exceptional circumstances.  But rents on vacant apartments can be set freely.  So when apartments are scarce a vacant apartment will generally rent for more than the rent that could be charged for the same apartment during an ongoing tenancy.  This creates an incentive to get rid of long term tenants in order to raise rents by more than the annual limit. 

 To give an idea of the size of this incentive – increasing the annual rents of a building with 20 units by just $200 a month per suite might increase the building’s value by nearly $1 million dollars!  The reason is that buildings are typically valued by dividing the “net operating income” (roughly rents minus normal annual expenses) by a capitalization or “cap” rate, which might be around 5 percent per year.  So driving up rents by $1 per month drives up the building value by $240 ($1 times 12 months divided by 0.05). 

If the renovations in my example cost less than $40,000 a unit, then renoviction provides an easy means to earn an extraordinarily large return on investment. 

In a very tight rental market, such as the one that prevailed in Vancouver in 2006-8, the rent increase might be even more.  And renovations might consist of routine upgrades such as new paint, floors, windows and appliances, which need to be done periodically.

Frequently asked questions about renovictions and the RTA

Q:  Isn’t 49(6)(b) necessary to allow renovations or repairs that genuinely require a unit to be vacant?

 A:  It is unclear what these might be. The only example Minister Coleman could imagine was a building whose walls were filled with mould and which had to be stripped down to the building envelope. This is the “leaky condo” scenario and, as many owners can testify, occupants have lived through these renovations without vacancy (as they were unable to sell or to move).

 Q:  Isn’t 49(6)(b) a necessary compromise, to encourage landlords to invest in maintaining and upgrading the stock of rental housing?

 A:  This mistaken idea is based on a misleading story, which goes something like this:  The rental stock is old and needs to be upgraded, but landlords can’t afford to or lack the incentives to maintain and upgrade their buildings given the limits on rent increases, so they must get above normal rent increases one way or another.

 While this story sounds plausible, there is no evidence for its assertions and its logic is flawed.

 Old buildings do not fall apart just because they are old.  The Seafield where I rent is nearly 80 years old but has had periodic upgrades to electrical and plumbing systems, carpets, windows, and routine replacement of the roof and boiler as well as frequent cleaning and landscaping.

 Any business must plan on routine expenses to maintain its assets.  Periodic maintenance and repairs are as much a part of predicted expenses as insurance, taxes or heating.

 When someone buys a building, they look at the future expected revenues and expenses.  If a building will have higher expenses because of deferred maintenance, then the offer price will be lower.  If it is in better shape the offer price will be higher.  This gives owners the incentive to properly maintain their assets.  Upgrades can be done on vacant apartments whose initial rents are not controlled.

 Q: Isn’t the problem just the controls on rent increases?  Shouldn’t landlords be able to charge what they want?

 A: The current government disagrees and so this is not the law.  In October 2002 Minister Coleman told the legislature: “The issue we had to deal with was this. Do you not have a system at all of rent fairness and go straight to the market, where you would have an open market to establish rents, or do you have a rent fairness system? …We struggled with that. We came to the conclusion after consulting with the landlord groups, frankly, and with tenant groups that there had to be some form of rent fairness.” (Hansard, vol. 9, no. 13 (31 October 2002) at 4205)

 One argument for the current system is that it spreads the risk of a sudden change in rental demand by phasing in rent increases over several years, while allowing rents to be set freely for vacant apartments.  It also provides owners with undisputable, predictable annual rent increases.

 Q: Why should tenants expect any security of tenure?  Don’t landlords have right to do what they like with their property?  Tenants can buy condos if they want security.

 A: The current RTA tries to balance property rights of owners with tenants’ rights to security in their homes.  No business has unrestricted property rights – owners are required to follow laws with respect to employment, safety etc., all of which are constraints on free contracting.  Society has an interest in maintaining some sense of stability in their homes for renters, especially in a city which already has the least affordable housing market in Canada.  

Q: Can’t tenants go to the Residential Tenancy Branch (RTB, which adjudicates landlord-tenant disputes under the RTA) to dispute an unlawful eviction?

 A:  They can, but many tenants don’t know their rights.  Landlords tell them they have to leave (or use the ex-police officers of MoMac Consulting to encourage them to sign away their rights).  Even if they do know their rights it takes a huge investment of time to dispute an eviction at the RTB, where the argument will be about whether the proposed renovations require extensive vacancy. 

Tenants are typically at a big disadvantage.  And the poor decisions can result, leaving tenants with no recourse but to appeal to the Supreme Court, a very expensive and daunting task.

 Given these obstacles, most tenants just leave.  Even if they successfully dispute an eviction there are no penalties imposed on the landlord for trying to evict.  So 49(6)(b) is really a one way bet for those landlords who lack any moral qualms about trying to use it to their advantage.

Q:  Is this problem really widespread?  Isn’t it only “a few bad apples”? 

 A: While there is no systematic data collected, it seems that most landlords value their long term tenants and don’t try to evict them from their homes.  But property owner and mangers’ organizations seem unwilling to censure members who do renovict, and there are no penalties for trying.  This is unfair to the vast majority of landlords who play by the rules. 

 Q:  Wouldn’t amending the RTA to allow a “right of first refusal” (which allows current tenants the right to return to their suite at their current rent after renovations that require vacancy) such as Ontario has done remove the incentive for renovictions?

 A:  Unfortunately not.  Tenants groups in Ontario report that landlords there simply drag out the time spent on renovations and forgo a few months rent to make it unlikely that long term tenants will return.  This is worth it to the owners because of an expected capital gain on the order of 240 times the monthly rent potential increase.  Trying to specify what kinds of renovations require vacancy and which ones don’t is also not a solution – this simply allows landlords to customize the proposed renovations in order to create a vacancy.

 This leads to the conclusion that the only way to stop renovictions is to get rid of 49(6)(b) altogether so that all tenants can have some sense of security in their homes. 

If you support this view, please let your MLA and Minister Coleman know by writing to them.