Do you own recreational property in Kelowna or West Kelowna? Thinking of renting it to avoid BC’s proposed speculation tax, but still want to enjoy it yourself for some parts of the year?
You may be considering a fixed term tenancy agreement with a prospective tenant. Here’s a summary of what you need to know about BC’s Residential Tenancy Act and how it may limit your options for using your recreational property personally and avoiding the proposed tax.
Earlier this year, BC’s government announced that, as of 2019, second properties that are “qualifying long-term rentals”, which are rented out for at least six months in a year, in increments of 30 days or more, will qualify for an exemption from the speculation tax. Let’s set aside the ambiguity about what a “qualifying long-term rental” is (we expect that the BC government will release draft legislation regarding the speculation tax this fall) and consider the requirements of the BC Residential Tenancy Act.
Earlier this year, and in late 2017, BC’s government approved amendments to the Residential Tenancy Act that:
- changes when landlords can enforce “move-out” clauses in fixed term tenancy agreements;
- requires landlords to use their property for a period of at least 6 months if they end a tenancy for the purpose of personally using their property; and
- increases the compensation payable to tenants if a landlord ends a tenancy for a stated purpose, then does not use the unit for that stated purpose.
Now, if a landlord wants a tenant to move-out of the rental unit at the end of a fixed term tenancy, the reason must be indicated in the tenancy agreement and both parties must have their initials next to the move-out clause in order for it to be enforceable. The move-out clause will only be enforceable if the landlord, or a close family member of the landlord, intends in good faith at the time of entering into the tenancy agreement to occupy the rental unit at the end of the term.
Additionally, if a landlord ends a tenancy because the landlord, or a close family member of the landlord, intends to occupy the rental unit, the rental unit must be occupied by the landlord, or a close family member of the landlord, for a period of at least 6 months, or the landlord is liable to compensate the tenant in an amount equal to 12 months’ rent payable under the tenancy agreement. This means that a landlord cannot end a tenancy to occupy a rental unit and then re-rent the rental unit to a new tenant without occupying the rental unit for at least 6 months.
The key element in ending a fixed term tenancy for a landlord’s use of the property is the good faith requirement. According to BC’s Residential Tenancy Branch Policy Guideline, “a claim of good faith requires honesty of intention with no ulterior motive.” In dispute resolution, to prove good faith, the landlord must produce evidence that they have been truly using their property for personal use. However, if the tenant can produce conflicting evidence, such as an advertisement for new tenants or a short-term rental, then that evidence raises a question as to whether the landlord had a dishonest purpose.
Effectively, these provisions limit the manner that a recreational property owner can rent out their property and still enjoy it themselves. In order to meet the requirements of the speculation tax exemption and avoid any risk of liability for compensation to the tenant under the Residential Tenancy Act, there is only one sure option: a 50/50 use (rented out 6 months of the year and occupied personally for 6 months of the year).
Here are some scenarios that may create liability for a landlord to compensate a tenant:
Summer Use. The landlord rents to a tenant for 8 months on a fixed term, and then occupies the property continuously for a period of 4 months. In Kelowna and West Kelowna, this likely scenario is where the landlord rents to a student from September until April, and then occupies the property from May to August. However, the landlord is only occupying the property for 4 months, which does not meet the requirement for the landlord to use the property for period of at least 6 months under the Residential Tenancy Act. However, there may be an arrangement that can be made by the landlord and tenant to avoid issues.
Vacation Rental. The landlord rents to a tenant for a fixed term of 6 months, and then either:
- personally uses the property intermittently, alternating with short-term (nightly or weekly) vacation rentals for periods when the landlord is not using the property; or
- continuously offers the property for short-term rentals.
Because there is evidence that the landlord may have an ulterior motive for ending the tenancy in order to rent the property out on a short-term basis, this type of use is unlikely to meet the good faith requirements of the Residential Tenancy Act.