The Secrets of a Landlord – Understanding the Vacancy Clause in BC
I’ve been a landlord for over 15 years, and I’m very fortunate to have had great tenants all throughout that time. Other landlords haven’t been so lucky. Over the years, I’ve heard from fellow real estate investors and have read stories in the news about tenants who trashed property, were consistently late on rent, or skipped paying rent completely. When I hear these stories, I consider myself pretty lucky that I’ve never had to deal with these tenant issues in any of my investment properties.
Screening Tenants
But is it really luck? From my observations, there seem to be two types of landlords: he ones who treat their investment like a business, and the ones who are scared of losing out on a month’s rent. The ones who treat their investment like a business conduct the necessary tenant background, reference, and credit checks. But the ones who are scared of losing out on rent will impulsively rent their property to the first person who is interested and might forego a thorough and proper screening. It’s the latter type of landlord that seems to end up with more horror stories.
Being a landlord is not an easy task. It requires dedication, an understanding of residential tenancy laws, and a fair bit of ‘people skills’ when dealing with tenants. But the upside is that when it’s done right, being a landlord can be a great way to earn passive income.
Rental Contracts
Besides proper tenant screening, the second most important task as a landlord is to write a proper rental contract. A well-written contract lists exactly what is included and what is not included with the rent, how long the tenancy is for, how much the rent is, when it is due, and how much is paid as damage deposit. You can also add an addendum to the contract to include rules like no pets, no smoking, no loud noises after 10pm and any other terms and conditions you see fit. Having this contract avoids disputes as everything is laid out in black and white.
Even with my years of experience as a landlord, I recently discovered some valuable information that all landlords can benefit from that prompted me to write this blog post. In the July/August 2016 issue of the Real Estate Investment Network REIN Life Magazine, former employee of the BC Residential Tenancy Branch, Giuseppe Pino Frustaci, explained a way to better control the outcome of your tenancy with what’s called the “vacancy clause”. (Click here to view the residential tenancy agreement here http://bit.ly/2bKFnSg.)
The Vacancy Clause
On page two, under 2. Length of Tenancy, it states when the tenancy starts and whether it is on a month-to-month basis or a fixed length of time. Most Landlords who want a long-term tenant, myself included, would check off b) for a fixed length of time (usually one year), and then we usually check at the end of this fixed length of time, i. the tenancy may continue on a month-to-month basis or another fixed length of time.
According to Giuseppe Pino Frustaci, if you choose the option that the tenancy may continue on a month-to-month basis or another fixed length of time, you have essentially given up your right to have a say on how your contract will continue. However, if you choose the vacancy option ii, which states the tenant must move out of the residential unit (and have the tenants initial), then you have given yourself a voice in the negotiation. You will get to choose whether the contract will continue on the same terms, different terms, or end if it’s a problem tenant.
Why the Vacancy Clause Matters
This will be extremely important to you as a landlord if market rents have skyrocketed massively like 10-15% in the past year and you want to charge according to market rent. The answer is, you won’t be able to as under the BC Residential Tenancy Act. The BC government only allows you a small percentage of rent increase (usually under 3.5% per year). I’ve seen many people who are under-charging for a tenant who has lived in the unit for 5+ years because their tenants get to ‘continue on a month-to-month basis’ and the landlord has no say in the matter.
The key in using the vacancy clause is to educate your tenant about what this clause means. You can explain to your tenants this this doesn’t necessarily mean they need to move out at the end of the term. It’s more of an opportunity to discuss what worked and what didn’t work during the tenancy period, and to renegotiate the terms or continue with the same terms.
If used correctly, the vacancy clause creates a level playing field for both parties to have a constructive conversation and come to an agreement that everyone can be happy with.
So there you have it. The next time you rent out your investment property in BC, whether it’s in Vancouver, Burnaby, Surrey, Kelowna or even as far as Fort St John, don’t forget to give yourself an “out” with the vacancy clause.
