LD24-427

Application · rent increase. Outcome: denied. I find that the evidence does not support the Landlord’s request for 5.3% rent increases for the Units.

Linked prior order: LR24-27

Order text

Orders of the Director of Residential Tenancy
Docket 24-633 December 19, 2024
INTRODUCTION
[1] The Landlord requests approval for 5.3% rent increases for the Units.
DISPOSITION
[2] I find that the evidence does not support the Landlord’s request for 5.3% rent increases for the Units.
BACKGROUND
[3] The Units are located in a six-unit apartment building (the “Residential Property”) that the Landlord purchased in 1979.
[4] On September 27, 2024, the Landlord served all the Tenants with Form 9 Landlord Applications to Request Additional Rent Increase (the “Applications”) and filed the Applications with the Residential Tenancy Office (the “Rental Office”).
[5] The Applications show the current rents, the proposed rents, the date of the last rent increases, and the proposed effective dates for the rent increases as follows:
Unit Current Rent Proposed Rent (5.3%) Date of Last Rent Increase Proposed Effective Date 1 $1,352.00 $1,424.00 January 1, 2024 January 1, 2025 2 $1,326.00 $1,396.00 January 1, 2024 January 1, 2025 3 $999.00 $1,052.00 January 1, 2024 January 1, 2025 4 $799.00 $841.00 January 1, 2024 January 1, 2025 5 $882.00 $929.00 January 1, 2024 January 1, 2025 6 $896.00 $944.00 January 1, 2024 January 1, 2025
[6] On October 28, 2024, the Rental Office mailed and emailed the parties notice of a teleconference hearing scheduled for December 3, 2024.
[7] On November 28, 2024, the Rental Office emailed an evidence package to the Landlord to serve to the Tenants without email addresses. The remaining Tenants were emailed an evidence package.
[8] A teleconference hearing was held on December 3, 2024, and a Landlord representative and two Tenants participated. One Tenant stated she did not get the evidence package but did not want the hearing delayed. After the hearing, the Tenant was emailed a copy of the evidence package and allowed to make further submissions. The other parties stated they received the evidence package and included all submitted documents. No additional submissions were received.
ISSUE
A. Does the evidence support 5.3% rent increases for the Units?
ANALYSIS
Adjustments to the Statement
[9] The adjustments to the Statement are provided below and are reflected in Appendix “A.”

Orders of the Director of Residential Tenancy

[Line 1 – Rental Income]
[10] The Landlord provided the 2024 rental income up to September 2024. The documentary evidence establishes the 2024 rental income will be $75,048.00. Line 1 is adjusted.
[Line 12 – Management Fee]
[11] The Statement discloses $12,083.72 for management fees. Clause 1(c) of the Residential Tenancy Regulations (the “Regulations”) limits management fees to the “actual cost of the management fee or 5 percent of the gross rental income for the previous year, whichever is the lesser.” In this case,
5.0% of the 2023 gross rental income was $3,752.40, and 5.0% of the 2024 rental income will be $3,951.28. Line 12 is adjusted.
[Line 15 – Other]
[12] The Landlord did not add the waste watch fee to the Statement. Line 15 is adjusted to $1,278.00.
[Value of the Investment in the Property]
[13] The Landlord purchased the Residential Property in 1979 for $77,000.00, and there is no mortgage.
The tax-assessed value of the Residential Property is $296,500.00. I find the tax-assessed value more accurate than the purchase price when determining the property’s current value and will use this as the property’s value.
[14] The Landlord has appraisals for the Units but does not want them to be a part of the evidence shared with other parties.
Reviewing the Factors
[15] To determine the Applications, I must consider and weigh the following factors in subsection 50(3) of the Residential Tenancy Act (the “Act”):
a. The rent history for the affected Units in the three years preceding the date of the Applications.
i. The Landlord provided the rent history for the past three years. The rent for the Units was last increased on January 1, 2024.
b. 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.
i. The Landlord submitted documents as evidence to assist in disclosing a change in the operating expenses over the past three years. In the three years that have been disclosed, the operating expenses for the Units, such as insurance and municipal property taxes, have increased. No capital expenditures were incurred for the Units.
c. The expectation of the Landlord to have a reasonable return on the Landlord’s capital investment.
i. After adjusting the Statement’s income and expenses, as shown in Appendix “A,” the Landlord is currently making a return on investment of 7.5%. With the inclusion of the requested additional rent increase, the Landlord would be making a return on investment of 8.8%.
d. The expectation of the Tenants that rent increases will remain within the annual guidelines.

Orders of the Director of Residential Tenancy

i. One Tenant opposed the additional rent increase.
[16] Subsection 50(4) provides that I have the discretion to consider any other relevant factor and any factor prescribed in the Regulations. The only other factor stated in the Regulations is that the purchase of a residential property should not require an increase in rent within the first year to achieve a reasonable return on the landlord’s capital investment. This factor is irrelevant because the Landlord has owned the Units since 1979.
Weighing the Factors
[17] I find the totality of the factors does not weigh in favour of an additional rent increase for the Units.
In coming to this conclusion, I note in particular:
a. In Order LR24-27, the Island Regulatory and Appeal Commission (the “Commission”) commented that a reasonable return on investment of 7.0% is appropriate when the landlord relies on the tax-assessed value of a property.
b. The Landlord is currently making a reasonable return on their investment of 7.5%. With the requested additional rent increase, the Landlord’s return on investment would be 8.8%.
This is higher than the 7.0% reasonable return on investment noted by the Commission.
c. No capital expenditures have been added to the Units.
[18] After considering and weighing all the factors and evidence, I find the factors do not support 5.3% rent increases for the Units. The Applications are denied.
[19] The Landlord may increase the rents by the 2.3% annual guideline set by the Director for 2025, effective January 1, 2025.
[20] This decision contains sensitive information, and the parties must preserve its confidentiality under subsection 75(3) of the Act.
IT IS THEREFORE ORDERED THAT
1. Effective January 1, 2025, the maximum allowable rents for the Units is increased by 2.3% as follows:
Unit Rent 1 $1,383.00 2 $1,356.00 3 $1,022.00 4 $817.00 5 $902.00 6 $917.00
DATED at Charlottetown, Prince Edward Island, this 19th day of December, 2024.
(sgd.) Mitchell King Mitchell King Residential Tenancy Officer

Orders of the Director of Residential Tenancy

APPENDIX “A” Revised Statement of Income & Expenses (Form 10) Current Proposal Allowed (2.3%) Income Rental Income at 100% (Line 1) $75,048.00 $79,025.54 $76,774.10 Vacancy Arrears/Losses (Line 2) $0.00 $0.00 $0.00 Net Income before expenses (Line 3) $75,048.00 $79,025.54 $76,774.10 Expenses 1st Mortgage Interest (Line 4) $0.00 $0.00 $0.00 2nd Mortgage Interest (Line 5) $0.00 $0.00 $0.00 Fuel (Line 6) $23,881.23 $23,881.23 $23,881.23 Water & Sewer (Line 7) $2,169.20 $2,169.20 $2,169.20 Electricity (Line 8) $2,167.88 $2,167.88 $2,167.88 Insurance (Line 9) $4,665.00 $4,665.00 $4,665.00 Property Tax (Provincial) (Line 10) $2,696.42 $2,696.42 $2,696.42 Property Tax (Municipal) (Line 11) $2,698.15 $2,698.15 $2,698.15 Management Fee (Line 12) $3,752.40 $3,951.28 $3,837.21 Maintenance Fee (Line 13) $9,418.98 $9,418.98 $9,418.98 Capital Expenditures (Line 14) $0.00 $0.00 $0.00 Other (Line 15) $1,278.00 $1,278.00 $1,278.00 Total Operating Expenses (Line 16) $52,727.26 $52,926.14 $52,812.07 Net Profit or (Loss) (Line 17) $22,320.74 $26,099.40 $23,962.03 Value of Investment in Property $296,500.00 $296,500.00 $296,500.00 Operating Income (Line 17) $22,320.74 $26,099.40 $23,962.03 Return on Investment (ROI) 7.5% 8.8% 8.1%
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.