Should clause F be changed?

This week, I’m going to talk about clause F, which you know from the lease agreement. Many tenants in Quebec are subject to this clause.

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It’s important to understand the history of the clause, where it came from, and why it was introduced in the rental sector. Clause F was adopted by the government more than 30 years ago to reassure developers of new rental housing and to reduce their risks. This was done in the early 1990s, when interest rates were higher.

In the first two decades after its creation, there was little talk about clause F, probably because this was a period of relatively low and stable interest rates. Market and construction conditions also followed a relatively predictable curve for investors.

But in the last three or four years, an average of 20,000 rental units per year have been built in Quebec, so many more rental units are subject to clause F than before. In addition, construction costs, including materials and labour, have exploded in the last three years. And over the past 12 months, interest rates have risen very rapidly, at a pace never before seen in Quebec and Canada. These circumstances make it necessary for landlords to use clause F to adjust rents to market conditions, which are very volatile and painful in the first few years after construction.

Remember that clause F essentially allows landlords not to be subject to the annual rent adjustments recommended by the Tribunal administratif du logement in the five years following the construction of a rental unit. This obviously poses many challenges, particularly for tenants who need predictability in their rent and are also suffering the impact of what has been happening in the past three or four years. This reality led the government to introduce Bill 37 last year, which aimed to reduce the term of clause F from five to three years. You will not be surprised to learn that CORPIQ opposed this decision, mainly because reducing the term from five to three years would add to the pressure for much larger increases in the early years of a lease. Such increases would have a very negative impact on tenants’ wallets and would not solve the problem raised by the opponents of clause F.

CORPIQ would like to explain why it is in favour of maintaining clause F

It’s to give investors in the rental market an advantage over those in the condo market. Condos are subject to much lower risks, particularly when it comes to setting rental management costs. In addition, cost stabilization is a more critical issue in the rental market than in the condo market, as owners of rental housing are subject to higher fees from more sources. For these reasons, CORPIQ supports the maintenance of clause F and reminds the government of the reason for the clause. Its relevance in the current period of imbalance between supply and demand and, in turn, in the rental market, should not be overlooked. In fact, retaining clause F would provide greater predictability and minimize risk for developers and landlords building new housing in the coming years.

In these financially unstable times, the housing industry is under pressure, and for CORPIQ, clause F in a way reduces the risk and increases risk taking in the rental sector in Quebec. That’s why CORPIQ’s position is important for the industry. We will continue to work to remind people of the value—and especially the impact—of clause F on the rental landscape in Quebec.