Small landlords bear brunt of chaotic rental scene

Up to 45 per cent of tenants did not pay rent April 1 as eviction ban and rent increase freeze comes into force across Western Canada

Western Investor
April 28, 2020

As the COVID-19 pandemic continues to devastate the Canadian economy, small landlords – who account for the majority of rental units in western cities – are being hammered particularly hard.

With evictions banned, up to 45 per cent of B.C. tenants in some buildings did not pay rent April 1 and about 30 per cent of all Alberta tenants also failed to pay rent on time. In Saskatchewan, 27 per cent of tenants did not pay rent April 1.

There are concerns May 1 could see similar scenarios right across Western Canada.

While large landlords, such as real estate investment trusts, may have deep enough pockets to weather the pandemic storm, owners of small apartment buildings and those holding rental condos and secondary rental suites often depend on rental income to cover their own mortgage payments, property taxes and other costs.

B.C. has banned rental evictions for three months, and its direct payment of $500 per month to landlords barely cuts it in Vancouver where the average monthly rent is the highest in Canada at $2,700, landlords say.

David Hutniak, CEO of LandlordBC, said that, with no potential for evictions, landlords have little  protection if a tenant refuses to pay.

“This is wide open to potential abuse,” Hutniak said.

“Two-thirds of landlords in Metro Vancouver are mom-and-pop situations,” Hutniak added. These owners are also struggling during the current crisis, he said.

According to a December 2019 survey by Canada Mortgage and Housing Corp., there are 67,000 rental condos in Metro Vancouver, and investor condos are a mainstay of the rental universe across Canada.

A survey of Vancouver landlords found that, in some buildings, nearly 50 per cent of  tenants did not pay rent April 1, according to Mark Goodman, a multi-family specialist with Goodman Commercial. 

Hutniak also noted a naïveté in the recommendation that landlords seek a mortgage payment deferral. 

“We have heard advocates speak about landlords getting mortgage deferrals so they can ‘pass those savings on to renters.’ But a mortgage deferral by a bank does not constitute any savings to the landlord. It has to be paid back with compound interest on the deferred amount.  In other words, interest upon interest,” zHutniak explained. Any deferred amount is added to the mortgage principal, whereas a landlord doesn’t have any security for deferred rent from a tenant, he noted, or from the loss of legal rent increases.

The Alberta government banned evictions for non-payment of rent April 1, suspended late fees for three months and froze rent increases for the duration of the COVID-19 emergency. Similar measures are in place in Manitoba and Saskatchewan.

Paul Jones, president of the Alberta Residential Landlord Association, told the Edmonton Journal that 30 per cent of tenants did not pay rent April 1 and many landlords are worried by the number of tenants simply walking out on leases.

It is up to landlords to work out relief with tenants, according to Louise Elsey, who took over as chief operating officer for Avenue Living Communities just as the pandemic hit. Within days, Calgary-based Avenue Living had voluntarily frozen rent increases and was offering tenants weekly payment options. Avenue Living has around 10,000 suites in 19 markets across the Prairie provinces, which it manages for investors.

“The COVID-19 crisis has certainly added an additional layer of pressure. There is a heightened level of responsibility to our residents, our staff and our investors,” said Elsey. The proactive stance appears to have paid off: Avenue Living reported April 27 that 92 per cent of tenants had paid their April rent.

Recommendations from landlord associations include an idea that governments offer some form of rental bank that would offer low-interest loans to allow tenants who would pay it back over time.

William Blake, a landlord who owns small rental properties in Alberta and British Columbia warned that  banning evictions is just delaying an inevitable wave of evictions as landlords will eventually need the money to pay taxes, mortgages and maintenance fees.

Frank O'Brien is the editor of Western Canada's biggest commercial real estate newspaper, Western Investor, as well as a contributing editor at West Coast Condominium, real estate contributor to Business in Vancouver and a regular media commentator on real estate investment.
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