When does a Tenancy Start?
We were reading a tenancy issue recently about a tenant who paid the deposit, signed the tenancy agreement, the parties completed a move in inspection but then the tenants elected not to move into the unit. The tenant was requesting the deposit money be returned. Has the tenancy started? What do the landlord and tenant do in this situation?.
If a tenant signs an agreement and does not provide any financial commitment they could argue the tenancy has not started since they have not moved in. They have a contract but they have not executed it at that time. The standard tenancy agreements in BC state the date rent is due and the date the deposit funds must be paid by. Tenants can pay the rent prior to the date identified on the agreement, though legally they are not required to do so. The standard agreement also indicates a date to which the security and or pet deposits must be paid by. If a tenant fails to pay these deposits by this date it can be cause to terminate the agreement.
In today’s rental market we are renting properties to people who are agreeing to rent the property then the following month they move in. How can landlords ensure a tenant is committed to the unit and provide themselves with some protection. Cartref Properties practice is to arrange a time to sign the tenancy agreement and at that time we collect the security and or pet deposits if there is one. This creates an active agreement for both parties. What does that mean?.
When an agreement has been engaged it means both parties must follow the terms of the agreement, or follow the law to terminate the agreement.
If a tenant were to sign an agreement on November 15th to begin a tenancy on January 1st and pay the deposit funds on November 15th they have entered a tenancy agreement. If that tenant decides on December 8th that they are not going to be able to occupy the unit on January 1st as agreed upon they must provide notice to vacate or terminate the tenancy agreement.
The basic law in BC provides that a tenant provide the equivalent of a calendar month’s notice to vacate a tenancy agreement. The notice period depends on the date rent is due. If this tenancy required rent to be paid on the first of the month then the tenant would need to provide notice to vacate that included the entire month of January as part of their notice.
When a tenant provides notice to vacate both parties must meet to complete the move out inspection of the property to return the deposit funds to the tenant. The tenant must provide a forwarding address either on the inspection report or in another form if the tenant fails to attend the move out inspection. Landlords are required to return the deposit within 15 days to the tenants after the tenancy ends. Failing to do so could result in the tenant claiming double the amount of deposit owed. Often misunderstood in this process by tenants is that the 15 day time starts at the time the landlord is provided with their forwarding address.
What happens if a tenant signs a tenancy agreement and then elects not to move into the unit? Does a landlord give the deposit back? It depends. A landlord can choose to return the deposit or they can follow the law. They can request the tenant provide proper notice in accordance with the agreement. In this case the tenant is ending an agreement before the fixed term expires, and may be responsible to compensate the landlord for rent they were expecting to receive from this agreement.
In this situation the landlord has an obligation to mitigate their loss. If they were to find a new tenant at the same rent for January first then they would have no loss of income and would be required to refund the deposit funds. If they were unable to find a tenant until February 1st the landlord has an argument that the tenant should owe them rent for January. In this case they would either complete the move out inspection for where the tenant signs the form agreeing to forfeit the deposit funds to pay for the rent in January or the landlord would be required to file a claim with RTB to have a hearing to be granted permission to keep the deposit funds in lue of unpaid rent.
Landlords often misunderstand that they are only permitted to keep deposit funds if they have either the tenant’s permission or by an order from the RTB stating they have the right to keep the funds. If the landlords have neither of these they are violating the tenants right to have their deposit funds returned.
What you should do is communicate clearly to the tenant before they sign the tenancy agreement that by signing and paying the deposit funds both parties are engaging in the agreement and are now bound by the terms of the agreement. Landlords should only complete a move in inspection with the tenants at the time they are handing over the keys to the tenants. If a landlord performs the inspection with the tenant but doesn’t give them the keys on that day it could be argued the condition of the unit was not what was agreed upon and this could be a legitimate reason for a termination of the tenancy agreement.
Landlords should never hand over the keys to a tenant until the security deposit has been collected. After the tenant moves in if the deposit has not been paid it will be difficult to obtain this from the tenants. We often provide tenants a few days before the start of the month access when possible to make moving easier. We avoid more than a week when possible and if they want more than a week then we require payment of rent for those days.
When unsure what to do, follow the law.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
What is market rent?
What is market rent?
There are a number of terms used in the rental market, some of which are hard to determine their meaning. One term I find people missunderstanding is “Market Rent”.
What is market rent?
Let’s look at the BC lower mainland rental market.
When the housing market experiences a tightening of product versus the number of people looking for a property and the vacancy rate is low we hear governments saying they are going to build new products that will be below “market rent”. We hear tenant advocates requesting greater rent controls including that rent should not be permitted to increase between tenancies.
The problem is what is “market rent”? Market rent in simple terms is what the market will pay for the product or service being offered. Karl Marx explained capitalism in the terms of if it costs you $10 to make a product and the buyer is only willing to pay you $9 then you will not make a profit. The difficulty with rental house pricing is that market rent is a moving target.
In good times market rent increases and in slow times it decreases. The biggest problem is it moves faster than you can build a new product. When a developer, builder or government says they are going to build a new project that will be “below market rent” pricing by the time the project is finished the market rate has changed.
Before covid the market rates had gradually increased over time, which is the normal course of action in growing cities. When covid hit, which is an unusual world wide situation the rental rates increased dramatically. After multiple years and various government interventions trying to control the increase, and now the world wide economy slowing due to US tariff action, rental rates are declining rapidly back lower than pre-covid rates. The amount of product entering the rental market today is greater than the number of people seeking to rent a property.
If the “market rent” changes monthly depending on the amount of product available for rent then what is market rent? When a unit is rented in July for the current market rent, and then another comparable unit is rented in October for the current market rent which is lower than what it was in July this means the unit rented in July is now above market rent. Does this mean the people who were promised below market rent should have their rent decreased to an amount below the price of the unit rented in October?.
The same could be said for the scenario if this was the other way. If the unit was rented in July and the rent increased by October should the unit July be required to move up to the current market rental rate? Tenant advocates always argue that rental rates should not be permitted to change in between tenancies, yet they only want it when the rents are increasing. If the rental market rates decrease they argue that is allowed as that is the current market rent. If rents are not permitted to change when increased maybe that should be the case when the prices are decreasing. This obviously won’t work as the market won’t pay for an overpriced product.
Market rent as we mentioned at the beginning is the rate someone is willing to pay for the unit at the time it is being offered for rent. After it is rented it is no longer part of the “market rent” equation as the rental prices have changed, up or down. It would be great if we could develop a better system of tracking the market rent prices, meaning when a unit is rented this would determine the market rent at that time. Unlike the sales industry there is not enough tracking of this information effectively to collect this data. Statistics Canada distributes information on rental rates though by the time they produce the information they are months old and not reflecting the current market rent. A system which provides monthly reporting would provide better insight to what market rent actually is, or at least give a better comparison to recent rental rates in the market. We are a long way from ever achieving this type of information unless a better coordinated system of tracking rental properties is developed.
Cartref Properties when looking to help a new client reviews the current advertised rental rates and compares that to our recent rentals to determine where we believe the rental market rates are at that time.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
Why I disagree with rent being added to tenants’ credit ratings.
Cartref Properties rents to people from many walks of life. In today’s market we often rent to newcomers to Canada and many young people. These demographics are often what the rental market consists of.
One of the common phrases we hear from both of these groups is they have good credit and they have bought a car to develop their credit rating. I often apologise to them and say we are deceiving them in this manner. Let’s look at why we don’t think adding the rent to credit ratings will help tenants improve their ability to rent a property.
Today’s society has been convinced that we need a good credit score to obtain what we want in the world. A credit score is obtained by borrowing money and paying it back in a timely manner. What seems to be missed by many is the part they must “borrow money” to develop a credit rating. Borrowed money always includes interest which is an additional cost to the consumer. The perons who benefits the most from a person borrowing money is the lender.
How will adding the tenant rent to the credit rating system help tenants be approved to rent properties. If their previous rent payments are reported on their credit rating it will give landlords the opportunity to view their rent payments. This would be a benefit, only if the tenants pay their rent on time.
Currently the credit reports provide a number of other items on a report that provide insight to the person’s ability to pay their bills, including credit cards, car and personal loans, phone bills and many more.
How could it not help a tenant. If the applicant is not making payments on these items but is paying their rent on time, it may not be a benefit to their ability to be approved for renting.
I understand the argument is that some people don’t have loans, credit cards or cell phones for their credit rating. If they don’t qualify for these items they may not be a quality tenant. This leads to the issue with why rent on their credit report would not help. If they are not able to qualify for a loan or a credit card it means the financial institutions are not prepared to lend them money. This is what the credit report is all about, borrowed money.
Let’s look at why rent on the credit report is not needed. First we need to look at the purpose of a credit report in the process of renting. A credit report often is looked at by landlords with too much weight of how good a tenant is when trying to rent. A credit report offers insight into the person's ability to manage their money, or does it.
Let’s look at two potential applicants scenraions and decisde who would be a better fit.
Two couples both working, earning good incomes with rent equalling 30% of their income.
Couple A has a car loan each, two credit cards each, with balances owing on all of the cards. Each card has a 10K limit, two are maxed out and the other 2 have 3k balances on them. They supply a bank statement showing their account and their rent payment each month though the account each month goes into a short negative balance each month to make these payments. The credit report shows all the payments are being made each month on time and they have 100K in credit and 85% of it is being used. They have a good credit score.
Couple B has the same income level and ratio of rent to income. This couple has no car loans, one credit card each with limits of 10K each and no balances on them. They supply a bank statement that shows the rent being paid each month and the account has a balance of 80K at the end of the month. The credit report shows they have the same credit available of 100K and only 5% is being used. The credit report shows they have no payments but when payments are made they are paid on time. They have a good credit rating.
If you are a landlord, which one of the above would you prefer as a tenant?
Everyday we would choose couple B as the above information shows us they are better at managing their money, and they are prepared when something goes sideways. For couple A when one loses employment or can’t work for other reasons, they will struggle to make their payments and rent, may be one of those payments they stop paying regularly. For couple B if one loses their job or they can’t work they have money in the bank to pay their bills during negative situations.
If couple A had the same scenario above and one of the payments on their credit report was their rent payment, it would not change the situation of their ability to pay the rent. Even if a potential applicant didn’t have the car loans and credit cards but have no money in the bank it shows a low ability to manage their money.
The tenant selection process involves many things and the credit report is only a part of the process.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
The real cost of housing?
Our last few blogs have talked about the decrease in rental prices. What we did not discuss is why are the rental rates so high. Prior to covid rents were considered high, then covid hit. At a time when many people around the world were being asked to stay home, learning to work from home and then being laid off from their jobs, the housing sales market in Canada took off.
Housing sales and prices rapidly increased. How did this increase the rental market?.
In Canada and especially the Vancouver area a majority of rental properties are individual units owed by investors. What we saw were many owners electing to sell their rented properties to new buyers who were moving into the units.This created a large number of renters seeking a new place to live. Now that we are seeing a decline due to over supply will this trend solve the cost of renting and housing. The answer is no.
Why are rental properties so expensive?. It is our opinion it is the type of product being built.
Here are a few items we feel have increased the cost of rentals in BC.
One of the biggest factors increasing costs of properties in Vancouver are the amenities in the buildings. Many condos build various amenities including fitness rooms, pools, common rooms and guest suites. In recent years we have seen newer strata buildings adding more and more amenities to entice the owners to purchase the condos. Many buildings have added larger fitness rooms, common areas with BBQ’s, shared working spaces, basketball and or sport courts. The increasing quality of ammentines increases strata fees to maintain the building's amenities. With higher strata fees individual landlords need to have a higher rental price to make the renting of their property manageable.
Over the past few years we have also noticed purpose built rental buildings adding more higher end amenities similar to those found in strata buildings. The difference with rental buildings that have amenities and the strata building is that the income from the rent is the only source to pay for these amenities. In a condo building the strata can demand levies from the owners to pay for short falls. This creates a situation where the rental building needs to keep their rental prices higher to cover the costs of maintenance to these.
Another increased costs for rentals are the amenities within the units. Many units have high end appliances including laundry and kitchen appliances. With the increased demand for electric cars by governments, new buildings are being required to install electric charging stations in the parking garages including at each parking stall. This creates increased costs for developers when building new projects.
There was a time when rental buildings were built with shared laundry facilities, and many young people today have grown up with all the modern amenities and the same conveniences they had at home. Anytime we add more amenities to the unit and or building it increases the cost of building and maintaining the property.
This is not likely to change as long as developers have the decision to build what they want instead of what the market needs. The downturn we are in now is going to hurt many small investors over the next few years as prices decline to levels they are nto able to sustain for long periods of time. Municipalities should demand more affordable properties be built by developers, or not approve the development.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com
Limiting Immigrants
The last issue we will talk about on why rental prices are declining is immigration.
In 2024 the federal government due to political pressure changed the number of immigrants they were allowing to enter the country annually moving forward. In recent years the federal government has increased targets with most of these new immigrants being students.
When new people are entering the country they also need basic needs including housing. This is another factor that assisted in the increase in housing costs due to the increase in population. With the reduction in immigration numbers this decreased the number of people looking for places to rent particularly in the fully furnished market. The new immigrants coming from other locations, especially students, often look for furnished properties until they can secure employment and status in their new country. Combined with the restrictions on short term rentals the lesser number of students entering the market has had an effect on the furnished rental properties.
When the furnished properties are not able to rent to the short term or student market they move their products to the regular rental market increasing supply of product being offered for rent or they elect to sell their properties. Both of these factors create greater supply in the rental and sales markets compared to the current demand.
Many schools across the country have seen reductions in new foreign students which means areas near schools now have increased properties for rent creating downward pressure on rental prices in those markets. The lack of immigration and foreign students is just another factor pushing down the rental prices in BC.
Canada has always and will in the future have immigration in the country, it is just reducing the numbers back to amounts that allow the economy to absorb them effectively into society and is going back to a need based immigration system that was used effectively for many years. The reduction in the immigration will have an impact on the economy in many ways, not just in the rental housing market.
When will the reduction in rental prices slow or stop? This is a question no one can answer clearly. In the lower mainland of BC there are lots of developments still under construction and nearing completion. With each of these buildings completing they are adding more rental properties to the market. We are hearing many developers who were planning other projects have elected to delay future developments due to the current economic future. Developers are laying people off due to slow downs in developments. We anticipate the current developments will take two to three years to be completed. After the majority of these developments are completed we will see low numbers of new housing starts which at that time will have an effect on increasing the housing sales and rental market prices. When the sales market begins to increase in sales again then the rental rate decline will begin to settle. We anticipate we are going to see declining rental rates for another two or three years.
Need help managing your investment properties. Cartref Properties can assist you, call today to discuss your needs. You can find more information about us at: www.cartrefproperties.com