LD25-405

Landlord application · rent increase. Outcome: denied. I find that the current lawful rent for Unit 5 is $590.00 per month. [5] I find that the evidence does not support 5.3% rent increases for the Units. [6] The Landlords will increase each Unit’s rent by the 2025 annual allowable guideline of 2.3%.

Linked prior order: LR25-31

Order text

Order of The Director of Residential Tenancy
Docket 25-657 November 19, 2025
INTRODUCTION
[1] This decision determines five applications filed with the Residential Tenancy Office (the “Rental Office”) under the Residential Tenancy Act (the “Act”).
[2] This decision also determines the current lawful rent for Unit 5.
[3] The Landlords seek 5.3% rent increases for the Units, which is an additional 3.0% above the 2025 annual allowable guideline of 2.3%.
DISPOSITION
[4] I find that the current lawful rent for Unit 5 is $590.00 per month.
[5] I find that the evidence does not support 5.3% rent increases for the Units.
[6] The Landlords will increase each Unit’s rent by the 2025 annual allowable guideline of 2.3%.
BACKGROUND
[7] The Units are five rental units located in a five-unit building (the “Residential Property”) owned by the Landlords.
[8] On August 6, 2025, the Landlords filed five Form 9 Landlord Application to Request Additional Rent Increase (the “Applications”) with the Rental Office. Five Form 8 Notice of Annual Allowable Rent Increase and the Applications were previously served to the Tenants on August 5, 2025, and August 6, 2025, respectively.
[9] The Applications request additional rent increases as follows:
Unit Current Rent Proposed Rent 1 $684.00 $720.00 2 $594.00 $626.00 3 $738.00 $777.00 4 $684.00 $720.00 5 $850.00 $895.00
[10] On September 26, 2025, the Rental Office sent the parties notice of a teleconference hearing scheduled for November 6, 2025.
[11] On October 6, 2025, the Landlords provided the Rental Office with a Form 10 Landlord Statement of Income and Expenses (the “Statement”).
[12] On October 29, 2025, the Rental Office sent the parties an updated notice of a teleconference hearing scheduled for November 6, 2025.
[13] On October 31, 2025, the Rental Office emailed the parties a 47-page evidence package.
[14] On November 6, 2025, a Landlord, representing the Landlords, participated in a teleconference hearing. The Landlord stated that he received a copy of the evidence package and that all the submitted evidence was included. The Tenants did not participate in the teleconference hearing.
[15] After the hearing, the Landlords and a Tenant provided additional evidence, which was added to the record and provided to all parties.

ISSUES
A. What is the current lawful rent for Unit 5?
B. Does the evidence support 5.3% rent increases for the Units?
ANALYSIS
A. What is the current lawful rent for Unit 5?
[16] The evidence establishes that in 2023, the rent for Unit 5 was $577.00, and in 2024, it was increased to $850.00.
[17] The Landlord stated that the previous landlord had increased the rent due to renovations. The Landlord stated that the previous landlord had installed a new fridge, a new stove, a new bathroom sink, new light fixtures, a new thermostat, new kitchen cupboard hardware, a zone valve, and painted the Unit.
[18] Subsections 47(1) and (2) of Part 3 of the Act state:
A landlord shall not increase rent except in accordance with this Part.
The obligations of a landlord under this Part run with the rental unit and not the tenant.
[19] I note that the allowable rent increase for 2024 was 3.0%. Despite the Landlord stating that the previous landlord increased the rent as a result of renovations, I find that there is insufficient evidence that the previous landlord received authorization from the Rental Office, under Part 3 of the Act, to increase the rent from $577.00 to $850.00, which is an increase of approximately 47.0%.
[20] Therefore, I find that the current lawful rent for Unit 5 is $594.00 ($577.00 + 3.0% allowable increase for 2024) per month. The rent increase for Unit 5 will be further determined in this Order.
B. Does the evidence support 5.3% rent increases for the Units?
Additional Rent Increase – Factors to Consider
[21] To determine the Applications, I must consider the following factors in subsection 50(3) of the Act, which are as follows:
1. The rent history for the affected Units in the three years preceding the date of the Applications;
2. A change in operating expenses and capital expenditures in the three years preceding the date of the Applications that the Director considers relevant and reasonable;
3. The expectation of the Landlords to have a reasonable return on their capital investment;
and;
4. The expectation of the Tenants that rent increases will remain within the annual guideline.
[22] Subsection 50(4) states that I also have the discretion to consider any factor prescribed in the Residential Tenancy Regulations (the “Regulations”). The Regulations state that I 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. This factor is relevant because the Landlords purchased the property in June of 2025.
[23] I find that this factor alone weighs against the Landlords’ request for the proposed increases.

Clause 50(3)(a) – rent history for the affected rental units
[24] Clause 50(3)(a) requires that I consider the rent history for the affected Units in the three years preceding the date of the Applications.
[25] The evidence establishes that in 2024, the previous landlord of the Residential Property increased the rents for Units 1-4 by the allowable 3.0% for that year.
[26] The evidence also establishes that in 2024, the previous landlord unlawfully increased the rent for Unit 5 from $577.00 to $850.00. However, as noted above, the current lawful rent for Unit 5 is $594.00.
[27] I find that this factor is neutral with respect to the Landlords’ request for the proposed increases.
Clause 50(3)(b) – change in operating expenses and capital expenditures
[28] Clause 50(3)(b) requires that I consider a change in operating expenses and capital expenditures in the three years preceding the date of the Applications that I consider to be relevant and reasonable.
[29] The Landlord stated that because the Landlords only recently purchased the Residential Property in June 2025, they have not incurred all the expenses detailed on the Statement. The Landlord stated that the expenses detailed in the “Last 12-Months,” “Last Year,” and “Two Years ago” columns were the expenses incurred by the previous landlord. The Landlord stated that the expenses detailed in the Statement’s “Estimated” column are the expenses the Landlords expect to incur in the next 12 months.
Adjustments to the Statement
[30] I have adjusted the Landlords’ current and estimated rental income to reflect the current lawful rent for Unit 5 as $594.00 per month. The current income is adjusted to $39,528.00, and the proposed income is adjusted to $41,412.00.
[31] The Landlord stated that the Landlords’ estimated expenses are as follows:
a. Lines 5 and 6 (Interest payments on the first and second mortgages): These expenses have not been adjusted, as they are supported by sufficient documentary evidence.
b. Line 7 (Fuel): The Landlord stated that this expense is based on an estimate from his oil company ($10,800.00). I find that this expense is not supported by sufficient documentary evidence. I will therefore use the average of the previous landlord's expenses over the past three years to estimate future fuel expenses. I adjust this line to $9,620.76.
c. Lines 8 and 9 (Water / Sewerage / Electricity): The Landlord stated that these expenses are based on the average of three bills received since purchasing the Residential Property and factored over 12 months ($6,482.34). I find that these expenses are not supported by sufficient documentary evidence. I will therefore use the average of the previous landlord's past three years' expenses to estimate future water/sewerage/electricity expenses. I adjust this line to $5,968.87.
d. Lines 10 to 13 (Insurance / Property Taxes / IWMC fees): These expenses have not been adjusted, as they are supported by sufficient documentary evidence.
e. Line 14 (Property Management Fees): The Landlords claimed $0.00 for property
management fees. These expenses have not been adjusted, as there is no supporting documentary evidence.

f. Line 15 (Maintenance Expenses): The Landlord stated that this expense is based on an estimate of the future maintenance expenses planned for the Residential Property ($9,000.00). I find that this expense is not supported by sufficient documentary evidence.
I will therefore use the average of the previous landlord's expenses over the past three years to estimate future maintenance expenses. I adjust this line to $4,613.85.
g. Line 16 (Capital Expenditures): The Landlord stated that this expense is based on an estimate of the future capital expenditures planned for the Residential Property ($4,415.00). As no capital expenditures have been started or completed at the Residential Property since the Landlords’ purchase, I find that this expense is not supported by sufficient documentary evidence. I adjust this line to $0.00.
h. Lines 17 (Other – grass cutting and snow removal): These expenses have not been adjusted, as they are supported by sufficient documentary evidence.
[32] I note that some of the Landlords’ expenses have increased since purchasing the Residential Property, including first- and second-mortgage interest, as the previous landlord did not have a mortgage. There is also documentary evidence of water and sewer expenses incurred since the purchase of the Residential Property.
[33] However, I find that I do not have sufficient documentary evidence to establish changes in the Landlords’ other operating expenses and capital expenditures over the three years preceding the date of the Applications, as the Landlords have only recently purchased the Residential Property.
As noted, most of the expenses submitted as evidence were incurred by the previous landlord.
[34] I find that this factor alone weighs against the Landlords’ request for the proposed increases.
Clause 50(3)(c) – reasonable return on the landlord’s capital investment
[35] Clause 50(3)(c) requires that I consider the Landlords’ expectation to have a reasonable return on their capital investment.
[36] To determine the Landlords’ return on investment (“ROI”), I must first determine the value of the Landlords’ capital investment.
Value of Capital Investment
[37] In Order LR25-31, the Island Regulatory and Appeals Commission (the “Commission”) commented on the method and evidence required to determine the value of a landlord’s capital investment as follows:
[37] In our opinion, the goal when determining the value of the landlord’s investment is to arrive at a valuation that is both accurate and reasonable in the circumstances. A key factor in that determination is for the Commission to interpret what is meant by the term “capital investment”, as used in clause 50(3)(c). In our opinion, a capital investment is just that – the landlord’s investment in capital, which includes both the land and building (i.e. real property).
[38] … valuing a landlord’s capital investment will be on a case by case basis, with the goal being to ascertain the actual fair market value of the capital asset as accurately as reasonably possible based upon the evidence brought forward to the hearing officer or panel.

[50] In summary, the Commission finds that the value of capital investment used to calculate a landlord’s return on investment should be the full value of the landlord’s capital investment (being the real property) and should not be subject to a deduction of the outstanding mortgage principal.
[38] In 2025, the Landlords purchased the Residential Property for $471,595.16. The documentary evidence establishes that the Landlords have not added any capital expenditures to the Residential Property.
[39] As stated in Order LR25-31, valuing a landlord’s capital investment will be done on a case-by-case basis. In this case, I find that the evidence supports that the value of the Residential Property should be based on the recent purchase price, which is $471,595.16.
Reasonable Return on Investment
[40] In Order LR25-31, the Commission commented regarding a landlord’s ROI:
[53] … Where we have accepted that mortgage principal should not be deducted from the value of the landlord’s investment, we recognize that there should be some kind of “normalizing” in respect of how landlords choose to fund their investments. Therefore, we find that when calculating a landlord’s ROI, the financing costs of interest on mortgages registered against the property should not be included in the “annual operating expenses”.
[60] … based on previous Commission Orders, landlords are entitled to a ROI of at least 4% and, on a case by case basis, landlords may justify that a ROI of up to 7% is reasonable, based on the specific circumstances.
[41] Based on a value of $471,595.16 for the Residential Property, and excluding mortgage interest, the Landlords’ ROI is currently 2.2%.
[42] After including the proposed additional rent increases and the 2025 annual allowable rent increase, the Landlord’s ROI would increase to 2.6%. This is lower than the 4.0% to 7.0% range for a reasonable ROI.
[43] Even though the Landlords’ ROI is calculated using several of the previous landlord’s expenses, I find that, in this case, those expenses assist in ascertaining the “actual fair market value of the capital asset as accurately as reasonably possible.”
[44] I find that this factor alone weighs in favour of the Landlords’ request for the proposed increases.
Clause 50(3)(d) – expectation of tenants regarding the annual guideline
[45] Clause 50(3)(d) requires that I consider the Tenants’ expectation that rent increases will remain within the annual guideline. In 2025, the annual guideline increase is 2.3%.
[46] Only one Tenant stated that they disputed the proposed rent increases. The other Tenants made no submissions regarding the rent increases.
[47] I find that this factor alone is neutral with respect to the Landlord’s request for the proposed increases.

Weighing the Factors
[48] The Regulations state that I may consider that the purchase of the Residential Property should not require an increase in rent within the first year in order to achieve a reasonable return on the landlord’s capital investment. This factor is relevant because the Landlords only purchased the property in June of 2025.
[49] The Landlords have only recently purchased the Residential Property. I do not have sufficient documentary evidence to establish changes in the Landlords’ operating expenses and capital expenditures over the three years preceding the date of the Applications.
[50] Despite the Landlords operating below the 4.0% to 7.0% range for a reasonable ROI, I find that this factor alone does not outweigh the other factors.
[51] After considering and weighing all the factors and evidence, I find that the evidence does not support 5.3% rent increases for the Units and the Applications are denied.
[52] The Landlords will increase each Unit’s rent by the 2025 annual allowable guideline of 2.3%.
[53] This decision contains sensitive information, and the parties are required to preserve its confidentiality under subsection 75(3) of the Act.
IT IS THEREFORE ORDERED THAT
1. Effective December 1, 2025, the maximum allowable rents for the Units are:
Unit Rent 1 $700.00 2 $608.00 3 $755.00 4 $700.00 5 $608.00
DATED at Charlottetown, Prince Edward Island, this 19th day of November, 2025.
(sgd.) Mitch King Mitch King Residential Tenancy Officer

APPENDIX “A” Revised Statement of Income & Expenses (Form 10) Current
ROI
Proposed ROI Estimated Expenses Income Rental Income at 100% (Line 1) $39,528.00 $41,412.00 Other income (Line 2) Vacancy Arrears/Losses (Line 3) $0.00 $0.00 Net Income before expenses (Line 4) $39,528.00 $41,412.00 Expenses 1st Mortgage Interest (Line 5) $0.00 $0.00 $17,760.00 2nd Mortgage Interest (Line 6) $0.00 $0.00 $2,280.00 Fuel (Line 7) $9,620.76 $9,620.76 $9,620.76 Water & Sewer (Line 8) $5,968.87 $5,968.87 $5,968.87 Electricity (Line 9) $0.00 $0.00 $0.00 Insurance (Line 10) $3,284.00 $3,284.00 $3,284.00 Property Tax (Provincial) (Line 11) $1,356.00 $1,356.00 $1,356.00 Property Tax (Municipal) (Line 12) $1,003.44 $1,003.44 $1,003.44 Island Waste Management Fees (Line 13) $1,095.00 $1,095.00 $1,095.00 Property Management Fees (Line 14) $0.00 $0.00 $0.00 Maintenance Fee (Line 15) $4,613.85 $4,613.85 $4,613.85 Capital Expenditures (Line 16) $0.00 $0.00 $0.00 Other (Line 17) $2,070.00 $2,070.00 $2,070.00 Total Operating Expenses (Line 18) $29,011.92 $29,011.92 $49,051.92 Net Profit or (Loss) (Line 19) $10,516.08 $12,400.08 Value of Investment in Property $471,595.16 $471,595.16 Operating Income (Line 17) $10,516.08 $12,400.08 Return on Investment (ROI) 2.2% 2.6%
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.