LD23-577

Landlord application · rent increase. Outcome: granted. A. The maximum allowable monthly rent for the Residential Property, including the 3.0% allowable rent increase for 2024, and additional rent increase, is as follows: Unit Rent Effective Date 61 $2,115.00 January 5, 2024 63 $2,210.00 January 5, 2024

Order text

Orders of the Director of Residential Tenancy
Docket 23-730 December 8, 2023
Introduction
[1] On October 13, 2023, the Landlord filed two Landlord Applications to Request Additional Rent Increase (Form 9) with the Residential Tenancy Office (the “Rental Office”) pursuant to subsection
50.(1) of the Act (the “Applications”). The Landlord is seeking a rent increase for the Residential Property exceeding the allowable percentage established by subsection 49.(2) of the Act, in the amount of 3.0%.
[2] The Applications are also seeking the 3.0% allowable rent increase for 2024, totaling a 6.0% rent increase.
[3] The Applications disclose the current rents, proposed rents (which includes the 3.0% allowable rent increase for 2024), and effective dates for the proposed increases which are as follows:
Unit Current Rent Proposed Rent Effective Date 61 $1,995.00 $2,115.00 January 5, 2024 63 $2,085.00 $2,210.00 January 5, 2024
[4] On November 20, 2023, the Landlord submitted into evidence two Landlord Statement of Income and Expenses (Form 10) (the “Statements”).
[5] On December 5, 2023, a teleconference hearing was held before a Residential Tenancy Officer (the “Officer”). The Landlord and two Tenants participated in the hearing.
[6] All relevant documents (including the Notice of Hearing and Evidence Package) were properly served in accordance with subsection 100.(1) of the Act.
Issue to be Decided
i. Is the Landlord permitted to an additional rent increase exceeding the allowable percentage as requested in the Applications?
Summary of the Evidence
[7] The Residential Property consists of a both sides of a duplex and it was purchased in 2022 for $450,000.00. The Landlord stated the Year 1 expenses are the actual expenses from January 2022 to December 2022. The Year 2 expenses are the actual expenses from January 2023 to October 2023. There are no Year 3 expenses as the property was purchased in 2022. The Tenants had no position regarding the rent increase.
Adjustments to the Statement
[8] The Officer’s adjustments to the income and expenses are provided below. The adjustments will be reflected in the Revised Statement of Income and Expenses (Form 10) and is attached as APPENDIX “A” of this decision. The Officer has combined the rental income and expenses of both Statements as a part of the adjustments and this will be reflected in one Appendix “A”. Some of the expenses have been taken from either 2022 or 2023, depending on the relevance of the evidence submitted.
1. [Line 3 – Rental Income]
The total rental income for 2023 will be $48,960.00. Line 3 of the proposed rental income is set as $51,900.00, which includes the 3.0% allowable rent increase for 2024.

Orders of the Director of Residential Tenancy

2. [Line 12 – Management Fees]
The Landlord stated Line 12 as $4,488.00 for Year 2 for management fees. Subsection
1.(c) of the Residential Tenancy Regulations (the “Regulations”) states:
“management fee” means the actual cost of the management fee or 5 per cent of the gross rental income for the previous year, whichever is the lesser.
5% of the gross rental income for Year 2 will be $2,448.00. Line 12 is adjusted to $2,448.00.
3. [Value of Investment in the Property]
The property was purchased in 2022 for $450,000.00, which makes the value of investment as $450,000.00.
Analysis
[9] The Officer is bound to consider the factors set out in the Act and the Regulations. The factors for reviewing rent increases above the allowable percentage are set out in subsections 50.(3) and (4) of the Act and section 4 of the Regulations which state:
50.(3) The Director shall consider the following factors, as applicable, in deciding whether to approve an application for a rent increase under subsection (1):
(a) the rent history for the affected rental unit in the three years preceding the date of the application;
(b) a change in operating expenses and capital expenditures in the three years preceding the date of the application that the Director considers relevant and reasonable;
(c) the expectation of the landlord to have a reasonable return on the landlord’s capital investment;
(d) the expectation of the tenant that rent increases will remain within the annual guideline.
50.(4) The Director may also consider
(a) any other factor considered relevant by the Director; and (b) any other factor prescribed in the regulations.
4. For the purposes of clause 50(4)(b) of the Act, the Director may also consider that the purchase of a residential property should not require an increase of rent within the first year in order to achieve a reasonable return on the landlord’s capital investment.
[10] With regard to sub-subsection 50.(3)(a) of the Act, the Officer finds that the Landlord has provided the rent history for the past two years for the Residential Property. The third year is not applicable.
The last rent increase was in 2022 for both sides of the duplex. This factor assists the Applications.
[11] With regard to sub-subsection 50.(3)(b) of the Act, the Officer finds that based on the adjusted Statement and the documentary evidence, the Landlord’s operating expenses have increased,

Orders of the Director of Residential Tenancy

such as fuel, water and sewer, electricity, taxes, and other expenses. This factor assists the Applications.
[12] With regard to sub-subsection 50.(3)(c) of the Act, the Officer finds that the Landlord is currently operating at a Return on Investment (“ROI”) of 3.5% and the proposed increase, which includes the 3.0% allowable rent increase for 2024, would yield an ROI of 4.1%.
[13] With regard to sub-subsection 50.(3)(d) of the Act, the Officer finds that the Tenants did not have any submissions regarding the rent increase.
[14] With regard to section 4 of the Regulations the Officer finds that this section does not apply to the Applications.
[15] The Officer finds that based upon all the factors set out in the Act and the Regulations that the Landlord is entitled to an additional rent increase. Therefore, the Applications are allowed.
Conclusion
[16] The Applications are allowed.
[17] The Officer notes that this decision contains sensitive information of the Landlord and that the parties are required to preserve its confidentiality pursuant to subsection 75.(3) of the Act.
IT IS THEREFORE ORDERED THAT
A. The maximum allowable monthly rent for the Residential Property, including the 3.0% allowable rent increase for 2024, and additional rent increase, is as follows:
Unit Rent Effective Date 61 $2,115.00 January 5, 2024 63 $2,210.00 January 5, 2024
DATED at Charlottetown, Prince Edward Island, this 8th day of December, 2023.
(sgd.) Mitchell King Mitchell King Residential Tenancy Officer

Orders of the Director of Residential Tenancy

APPENDIX “A” Revised Statement of Income & Expenses (Form 10) 2022/2023 Proposal Allowed Income Rental Income at 100% (Line 1) $48,960.00 $51,900.00 $51,900.00 Vacancy Arrears/Losses (Line 2) $0.00 $0.00 $0.00 Net Income before expenses (Line 3) $48,960.00 $51,900.00 $51,900.00 Expenses 1st Mortgage Interest (Line 4) $4,394.00 $4,394.00 $4,394.00 2nd Mortgage Interest (Line 5) $0.00 $0.00 $0.00 Fuel (Line 6) $1,454.53 $1,454.53 $1,454.53 Water & Sewer (Line 7) $830.42 $830.42 $830.42 Electricity (Line 8) $3,831.11 $3,831.11 $3,831.11 Insurance (Line 9) $3,628.66 $3,628.66 $3,628.66 Property Tax (Provincial) (Line 10) $2,540.00 $2,540.00 $2,540.00 Property Tax (Municipal) (Line 11) $1,701.08 $1,701.08 $1,701.08 Management Fee (Line 12) $2,448.00 $2,448.00 $2,448.00 Maintenance Fee (Line 13) $9,731.17 $9,731.17 $9,731.17 Capital Expenditures (Line 14) $851.80 $851.80 $851.80 Other (Line 15) $1,958.00 $1,958.00 $1,958.00 Total Operating Expenses (Line 16) $33,368.77 $33,368.77 $33,368.77 Net Profit or (Loss) (Line 17) $15,591.23 $18,531.23 $18,531.23 Value of Investment in Property $450,000.00 $450,000.00 $450,000.00 Operating Income (Line 17) $15,591.23 $18,531.23 $18,531.23 Return on Investment (ROI) 3.5% 4.1% 4.1%

Orders of the Director of Residential Tenancy

NOTICE
Right to Appeal
This Order can be appealed to the Island Regulatory and Appeals Commission (the “Commission”) by serving a Notice of Appeal with the Commission and every party to this Order within 20 days of this Order.
If a document is sent electronically after 5:00 p.m., it is considered received the next day that is not a holiday. If a document is sent by mail, it is considered served on the third day after mailing.
Filing with the Court
If no appeal has been made within the noted timelines, this Order can be filed with the Supreme Court of Prince Edward Island and enforced as if it were an order of the Court.