LD24-060

Landlord application · rent increase. Outcome: granted. A. The maximum allowable rent for the Rental Units are as follows: Unit # New Rent (6%) Effective Date 2 $830.00 March 1, 2024 3 $830.00 March 1, 2024 5 $830.00 March 1, 2024 7 $841.00 March 1, 2024 8 $840.00 March 1, 2024 9 $830.00 March 1, 2024 10 $830.00 March 1, 2024

Order text

Orders of the Director of Residential Tenancy
Docket 23-944 February 23, 2024
Introduction
[1] On October 10, 2023 the Landlord filed (7) seven Landlord Applications to Request Additional Rent Increase (Form 9s) (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 2 $783.00 $830.00 January 1, 2024 3 $783.00 $830.00 January 1, 2024 5 $783.00 $830.00 January 1, 2024 7 $793.00 $841.00 January 1, 2024 8 $791.00 $840.00 January 1, 2024 9 $783.00 $830.00 January 1, 2024 10 $783.00 $830.00 January 1, 2024
[3] On January 12, 2024 the Landlord submitted into evidence the Landlord Statement of Income and Expenses (Form 10) (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 January 30, 2024 a teleconference hearing was held at 1:00 p.m. before a Residential Tenancy Officer (the “Officer”). The Landlord was represented by a representative (the “Representative”).
Two tenants appeared, representing themselves.
Issue to be Decided
i. Is the Landlord entitled to an additional rent increase above the annual guidelines?
Summary of the Evidence
[6] The Landlord submitted 8-pages of documents into evidence along with additional documentary evidence to support and assist the Applications and the Statement. The Rental Unit is situated in a 10-unit building (the “Residential Property”). The Application includes 7-units.
Landlord’s Evidence and Submissions
[7] The Representative testified that expenses have increased and that the rents are not covering the operational expenses of the Rental Unit. The Representative testified that the government grant for the Residential Property ended in 2020 and the Landlord was unable to renew the grant. The Representative testified that the Statement was completed with disclosing the entire Residential Property’s income and expenses.
Tenants’ Evidence and Submissions
[8] One of the tenants submitted a written submission.

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. The Officer notes that the Appendix “A” is adjusted to reflect 70% of the income and the expenses of the Rental Units.
1. [Line 1 – Rental Income] $96,965.00
The Officer finds that 70% of the rental income is $65,988.00. The additional rent increase would increase the rental income to $69,972.00.
2. [Line 6 – Fuel] $12,707.86
The Officer finds that 70% of the fuel expense is $8,895.50.
3. [Line 7 – Water & Sewerage] $2,015.04
The Officer finds that 70% of the water and sewerage charge is $1,410.53
4. [Line 8 – Electricity] $2,276.61
The Officer finds that 70% of the electricity is $1,593.63.
5. [Line 9 – Insurance] $11,988.00
The Representative provided additional evidence to assist the total amount expensed for insurance. The Officer finds that the correct expense is $8,315.00, and 70% of this expense is $5,820.50.
6. [Line 10/11 – Property Tax] $16,496.55
The Officer finds that 70% of the property tax expense is $11,547.59.
7. [Line 12 – Management fees] $9,752.41
Management fees are capped at 5.0% of the gross rental income pursuant to subsection 1(c) of the Regulations. The Officer finds that 70% of 5% of the gross rental income is $3,299.40.
8. [Line 13 – Maintenance] $75,093.26
The Representative provided additional evidence to assist in the expense breakdown. The Officer finds that $11,309.37 is expensed towards general maintenance, repair, snow removal and lawn care. The Officer finds that 70% of this expense is $7,916.55. The remaining balance is moved to Line 14.
9. [Line 14 – Capital Expenditures] $0.00
The Representative provided additional evidence as it relates to the repair and replacement of the Residential Property’s roof. The Officer finds that $63,783.89 is the total expense for the steel roof. The Officer finds that 70% of this expense is $44,648.10. The Officer takes the low end of the life expectancy of a steel roof (40 years) and adjusts Line 14 to $1,116.20 for an annual write-off.

Orders of the Director of Residential Tenancy

10. [Line 15 – Other Expenses] $11,008.47
The Officer finds that 70% of the “other” expenses is $7,705.93 which includes professional fees such as accounting and legal fees for the Rental Units.
11. [Value of the investment in the property] $0.00
The Representative provided additional documents to assist in the calculation of the investment in the property. The total market value assessment of the Residential Property by the Province values the Residential Property at $1,049,400.00 as of March 31, 2023.
The Officer notes that 70% of this value is $734,580.00.
Analysis
[10] The Application is made in accordance with section 75 of the Act and is pursuant to subsection 50(1) of the Act. When deliberating on the Application, the Officer must consider the factors outlined in clauses 50(3) and (4) of the Act and section 4 of the Residential Tenancy Regulations (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 Application requires the Landlord 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 Landlord must provide the decision-maker with sufficiently clear, convincing and cogent evidence to establish their request.

Orders of the Director of Residential Tenancy

The Factors
[12] Regarding clause 50(3)(a), the Landlord provided the rents for the past three years.
[13] Regarding clause 50(3)(b), the Landlord provided documents into evidence to assist in establishing a change in the operating expenses over the past three years.
[14] Regarding clause 50(3)(c), the Statement’s income and expenses disclose that the Landlord currently yields a 2.3% 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 yield a 2.8% return.
[15] Regarding clause 50(3)(d), the evidence establishes that the last rent increases happened in 2022 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.
[17] The Officer concludes that the Landlord is entitled to an additional rent increase. The Officer comes to this conclusion after considering all the factors together. The Landlord has established that its operating costs have changed over the past three years (disclosed in the Statement). Specifically, the Officer references an increase in electricity, property tax and capital expenditures. Further, the Landlord has established that an additional increase would provide what is considered below a reasonable return on investment. The factors weigh in favour of the Landlord’s additional rent increase. Therefore, the Applications are allowed.
[18] The Landlord is permitted to increase the rents by the annual allowable set by the Director in the amount of 3% and the Landlord is permitted to increase the rent by an additional 3% on the effective dates set below. A total rent increase of 6% is allowed.
Conclusion
[19] The Applications are 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.

Orders of the Director of Residential Tenancy

IT IS THEREFORE ORDERED THAT
A. The maximum allowable rent for the Rental Units are as follows:
Unit # New Rent (6%) Effective Date 2 $830.00 March 1, 2024 3 $830.00 March 1, 2024 5 $830.00 March 1, 2024 7 $841.00 March 1, 2024 8 $840.00 March 1, 2024 9 $830.00 March 1, 2024 10 $830.00 March 1, 2024
DATED at Charlottetown, Prince Edward Island, this 23rd 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) $65,988.00 $69,972.00 $69,972.00 Arrears (Line 2) $0.00 $0.00 $0.00 Net Income (Line 3) $65,988.00 $69,972.00 $69,972.00 Expenses 1st Mortgage (Line 4) $0.00 $0.00 $0.00 2nd Mortgage (Line 5) $0.00 $0.00 $0.00 Fuel (Line 6) $8,895.50 $8,895.50 $8,895.50 Water & Sewer (Line 7) $1,410.53 $1,410.53 $1,410.53 Electricity (Line 8) $1,593.63 $1,593.63 $1,593.63 Insurance (Line 9) $5,820.50 $5,820.50 $5,820.50 Property Tax (Provincial) (Line 10) $11,547.59 $11,547.59 $11,547.59 Property Tax (Municipal) (Line 11) $0.00 $0.00 $0.00 Management Fee (Line 12) $3,299.40 $3,299.40 $3,299.40 Maintenance Fee (Line 13) $7,916.55 $7,916.55 $7,916.55 Capital Expenditures (Line 14) $1,116.20 $1,116.20 $1,116.20 Other (Line 15) $7,705.93 $7,705.93 $7,705.93 Total Expenses $49,305.83 $49,305.83 $49,305.83 Annual Net Profit $16,682.17 $20,666.17 $20,666.17 Value of Investment $734,580.00 $734,580.00 $734,580.00 Net Profit $16,682.17 $20,666.17 $20,666.17 Return on Capital Investment 2.3% 2.8% 2.8%

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.