LD24-065

Landlord application · rent increase. Outcome: granted. A. The maximum allowable rent for the Rental Unit is as follows: Unit # New Rent (6%) Effective Date A $976.00 March 1, 2024 B $976.00 March 1, 2024 C $976.00 March 1, 2024

Order text

Orders of the Director of Residential Tenancy
Docket 23-952 February 28, 2024
Introduction
[1] On December 21, 2023 the Landlords filed (3) three Landlord Application to Request Additional Rent Increase (Form 9) (the “Applications”) with the Residential Tenancy Office (the “Rental Office”), pursuant to clause 50(1) of the Residential Tenancy Act (the “Act”).
[2] The Applications seek a rent increase above the annual allowable guidelines established by the Director of Residential Tenancy (the “Director”), pursuant to clause 49(2) of the Act. The Applications disclose the current rents, proposed rents and the effective dates as listed below.
Unit # Current Rent Proposed Rent Effective Date A $921.00 $976.00 January 1, 2024 B $921.00 $976.00 January 1, 2024 C $921.00 $976.00 January 1, 2024
[3] On January 22, 2024 the Landlords submitted into evidence 3 (three) Landlord Statement of Income and Expenses (Form 10s). The Officer will combine the three Form 10s and will be reflected in the Appendix “A” (the “Statement”).
[4] All documents (including the Tenant Notice of Annual Allowable Rent Increases (Form 8), the
Notice of Hearing and Evidence Package) were properly served to the parties in accordance with clause 100(1) of the Act.
[5] On February 15, 2024 a teleconference hearing was held at 11:00 a.m. before a Residential Tenancy Officer (the “Officer”). The Landlord appeared, representing themselves. A tenant appeared, representing themselves and another tenant had a representative. The third tenant did not appear and did not have representation.
Issue to be Decided
i. Are the Landlords entitled to an additional rent increase above the annual guidelines?
Summary of the Evidence
[6] The Landlords submitted 259 pages of documents into evidence to support and assist the Applications and the Statement.
Landlord’s Evidence and Submissions
[7] The Landlord testified that the Rental Unit is operating at a loss because expenses have continued to increase. The Landlord testified that the Rental Unit is not seeing a return on investment. The Landlord testified that the rents are below the market rate. The Landlord testified that she has contacted the snow removal contractor about the Tenants’ complaints regarding shoveling.
Tenants’ Evidence and Submissions
[8] One of the tenants submitted written submissions. The Tenants collectively argued that the Rental Unit had some repair and maintenance needs and that the cost of living is high for them as well.

Orders of the Director of Residential Tenancy

Adjustments to the Statement
[9] The Officer’s adjustments to the Statement are provided below and are reflected in Appendix “A” of this Order.
1. [Line 1 – Rental Income]
The combined rental income is $33,156.00. The additional rent increase would increase the rental income to $35,136.00.
2. [Line 4 – Interest Payments on First Mortgage]
The combined interest payments on the first mortgage is $9,635.49. The mortgage was used in purchasing the Rental Unit in 2020.
3. [Line 5 – Interest Payments on Second Mortgage]
The combined interest payments on the second mortgage is $1,806.69. The mortgage was used as a line of credit to assist in the closing expenses of the Rental Unit.
4. [Line 7 – Water and/or Sewerage]
The combined expense is $1,497.93.
5. [Line 9 – Insurance]
The combined expense is $2,685.54.
6. [Line 10/11 – Property tax]
The combined expense is $6,488.97.
7. [Line 12 – Management fees]
The combined expense is $1,074.12.
8. [Line 13 – Maintenance]
The combined expense is $2,320.50. This includes snow removal and lawn care.
9. [Line 14 – Capital Expenditures]
The Landlord included the depreciation cost of the Rental Unit. The Officer notes that clause 5(b) of the Residential Tenancy Regulations (the “Regulations”) defines “operating costs” as excluding depreciation costs. The Officer adjusts the capital expenditure line to include the furniture, fixtures and appliances cost of $8,000.00 with a (10) ten-year life expectancy and the paving cost of $6,500.00 over a (12) twelve-year life expectancy. The total annual write-off is $1,341.67.
10. [Value of the investment of the property]
The value of the Rental Unit is $420,000.00. This is the purchase price of the Rental Unit in 2020.

Orders of the Director of Residential Tenancy

Analysis
[10] The Applications are made in accordance with section 75 of the Act and is pursuant to clause 50(1) of the Act. When deliberating on the Applications, the Officer must consider the factors outlined in clauses 50(3) and (4) of the Act and section 4 of the Regulations. The prescribed law is as follows:
Factors (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.
Other factors (4) The Director may also consider (a) any other factor considered relevant by the Director; and (b) any other factor prescribed in the regulations.
Request for additional increase
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. (EC269/23)
[11] The Applications require the Landlords to prove, on a balance of probabilities, that they are entitled to an additional rent increase above the annual allowable guidelines. This means that the Landlords must provide the decision-maker with sufficiently clear, convincing and cogent evidence to establish their claim.
The Factors
[12] Regarding clause 50(3)(a), the Landlords provided the rents for the past three years.
[13] Regarding clause 50(3)(b), the Landlords provided documents into evidence to assist in establishing a change in the operating expenses in the Rental Unit over the past three years.
[14] Regarding clause 50(3)(c), the Statement’s income and expenses disclose that the Landlord are currently yielding a 1.5% return on investment. After the adjustments to the Statement (found in Appendix “A”), and the inclusion of the annual allowable and the additional rent increase, the return on investment would be 2.0%.
[15] Regarding clause 50(3)(d), the evidence establishes that the last rent increase happened in 2021 and no additional rent increased occurred.
[16] The Residential Property was not purchased in the past 12 months. The Residential Property does not fit into the Regulations additional factor for consideration.

Orders of the Director of Residential Tenancy

[17] The Officer concludes that the Landlords are entitled to an additional rent increase. The Officer comes to this conclusion after considering all the factors together. The Landlords have established that their operating costs have changed over the past three years (disclosed in the Statement).
Specifically, the Officer references an increase in interest payments, insurance and maintenance expenses. Further, the Landlords have established that the Landlords are not making a reasonable return on their investment. The factors weigh in favour of the Landlords’ additional rent increase.
Therefore, the Application is allowed.
[18] The Landlords are permitted to increase the rent by the annual allowable set by the Director in the amount of 3% and the Landlords are permitted to increase the rent by an additional 3% on the effective date set below. A total rent increase of 6% is allowed.
Conclusion
[19] The Application is allowed.
[20] TAKE NOTE: 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 rent for the Rental Unit is as follows:
Unit # New Rent (6%) Effective Date A $976.00 March 1, 2024 B $976.00 March 1, 2024 C $976.00 March 1, 2024
DATED at Charlottetown, Prince Edward Island, this 28th day of February, 2024.
(sgd.) Cody Burke Cody Burke Residential Tenancy Officer

Orders of the Director of Residential Tenancy

APPENDIX “A” Revised Statement of Income & Expenses (Form 10) Period "A" Proposal Allowed Rental Income Income (Line 1) $33,156.00 $35,136.00 $35,136.00 Arrears (Line 2) $0.00 $0.00 $0.00 Net Income (Line 3) $33,156.00 $35,136.00 $35,136.00 Expenses 1st Mortgage (Line 4) $9,635.49 $9,635.49 $9,635.49 2nd Mortgage (Line 5) $1,806.69 $1,806.69 $1,806.69 Fuel (Line 6) $0.00 $0.00 $0.00 Water & Sewer (Line 7) $1,497.93 $1,497.93 $1,497.93 Electricity (Line 8) $0.00 $0.00 $0.00 Insurance (Line 9) $2,685.54 $2,685.54 $2,685.54 Property Tax (Provincial) (Line 10) $6,488.97 $6,488.97 $6,488.97 Property Tax (Municipal) (Line 11) $0.00 $0.00 $0.00 Management Fee (Line 12) $1,074.12 $1,074.12 $1,074.12 Maintenance Fee (Line 13) $2,320.50 $2,320.50 $2,320.50 Capital Expenditures (Line 14) $1,341.67 $1,341.67 $1,341.67 Other (Line 15) $0.00 $0.00 $0.00 Total Expenses $26,850.91 $26,850.91 $26,850.91 Annual Net Profit $6,305.09 $8,285.09 $8,285.09 Value of Investment $420,000.00 $420,000.00 $420,000.00 Net Profit $6,305.09 $8,285.09 $8,285.09 Return on Capital Investment 1.5% 2.0% 2.0%

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.