Higher rent to cover renovations: reaching record levels

Landlords doing major renovations on their rental properties this year should expect the worst. If the trend continues, the rent-fixing rate set by the Régie du logement in 2018 for renovations made in 2017 may only be 2.1%, compared to this year’s rate of 2.4%.

The Government of Quebec’s rule to set rent prices gives rental property owners the same rate of return on renovations as they would get from a bank for a guaranteed investment, plus one percentage point. However, the interest rate for this safe investment type has dropped to 1.1% since February. Adding one percentage point to “encourage” renovations means the government would only be allocating 2.1% to owners next year.

Amortization over 46 years

Consider the example of a $5,000 renovation done this summer. If the tenant rejects the rent increase in 2018, the court will examine the invoice and would only grant a monthly rent increase of $8.75 ($5,000 at 2.1% divided by 12 months). At this rate, it would take the owner 571 months, or 47 years, to get back all the money spent. The return has slowly been extended from 8 years in the 1980s, to 41 years this year. The situation seems likely to continue its downward spiral.

In light of such a preposterous state of affairs, CORPIQ has noted that an increasing number of owners who have completely renovated a unit are leaving it vacant for a full year. This allows them to ask for a rent amount that truly represents the fair market value, which the new tenant will not be able to contest. It is high time the government abolishes section G of the lease and revises the rent-setting criteria.

Updating rent-setting criteria is one of the main issues CORPIQ is working on. The organization is keeping the pressure on Municipal Affairs Minister Martin Coiteux, who faced questions on the subject at the National Assembly in April. His answers can be read in the Proprio magazine, which CORPIQ members will be receiving later in June.