Docket A-009-99
Order LR00-01

IN THE MATTER of an appeal, under Section 25 of the Rental of Residential Property Act, by Valerie Stewart and Rachel Fitzpatrick (the Lessees) against Order LD99-172 of the Director of Residential Rental Property dated November 25, 1999.

BEFORE THE COMMISSION

on Tuesday, the 11th day of January, 2000.

Ginger Breedon, Vice-Chair
 Norman Gallant, Commissioner
 Arthur Hudson, Commissioner

Order

Participants

1.     Appellants:

Valerie Stewart (Lessee)
Rachel Fitzpatrick (Lessee)

2.    Respondent:

Carver Realty Ltd. (Lessor)
Represented by Orin Carver (Agent)

Reasons for Order

1. Introduction

The Appellants Valerie Stewart and Rachel Fitzpatrick are appealing Order LD99-172 (Exhibit E-9) of the Director of Residential Rental Property (the Director) issued on November 25, 1999. Their appeal is being made under Section 25(1) of the Rental of Residential Property Act R.S.P.E.I. 1988, Cap. R-13 (the Act).

Order LD99-172 approves rent increases of $200 per month for each unit in an apartment building at 162 Dorchester Street, Charlottetown, P.E.I. effective January 1, 2000.

In appealing Order LD99-172 the Appellants indicate in their Notice of Appeal (Exhibit E-10) that they disagree with the decision to raise the rent by 40% and do not believe current revenues are out of line with expenses. They also indicate they do not believe their current rents are being subsidized by the Lessor.

The Commission heard this appeal on January 6, 2000 at the Commission's offices in Charlottetown, P.E.I. Ms. Fitzpatrick and Ms. Stewart for the Appellants and Orin Carver, Agent for the Respondent were present for the hearing.

2.    Background

Documents from the Office of the Director of Residential Rental Property pertaining to the appeal were tabled at the hearing and identified as Exhibits E-1 through E-12. These documents had previously been circulated to the Appellants and Respondent.

The Appellants' position on the appeal can be summarized as follows:

While the Appellants have some questions about whether all the approved rent increase is necessary, they are mainly questioning the fairness of a $200 (40%) per month increase being applied in one step. They believe the Act is intended to provide a fair situation for both the lessee and lessor and they feel that if this is true, the increase should be phased in so as not to unfairly impact the lessees. The Appellants also question whether all or some of the payments on the mortgage on the property at 162 Dorchester Street should be part of the rental recovery from the lessees, if the money from the mortgage is not used to improve the building. They feel that if the money is not used for this purpose, the Respondent may be unfairly profiting from the approved rent increase.

The Appellants further express concern with the Director's decision to apply the $200 per month rent increase as a blanket increase across the three apartment units in 162 Dorchester Street. While they acknowledge that the rent has been the same for the three units in the past, the units are not the same and there should be some differentiation in the rents based on the size and amenities of the different units. They point out that, for an example, apartments #1 and #2 have heritage type features such as large windows, high ceilings, woodwork, etc. which apartment #3 does not have.

Finally, the Appellants contend that the magnitude of the approved increase is so large, it may force some of the lessees to seek alternative accommodation. They believe additional time should be given before the approved rent increases take affect, to provide these people with a reasonable opportunity to find other accommodation.

The Respondent's position on this appeal can be summarized as follows:

The Respondent believes the approved rent increases still do not fully cover the costs of owing and maintaining the apartment building, while providing fair return on the investment. He also believes that the rents on the units have been substantially subsidized by the Lessor over the past number of years, as is evidenced by the Lessor's Statement of Income and Expenses for 1998 and 1999 (Exhibit E-7.1) which shows substantial cash flow losses for those two years.

The Respondent supports the Appellants' position on the appropriateness of having some difference in the rents for the three units reflecting the differences in the units themselves. He notes that the original Application by Lessor for Approval of Rent Increase Exceeding Percentage Allowed by Regulation (Exhibit E-1) proposed different rents for each of the units.

The Respondent does not agree with the Appellants' position that additional time should be provided before the approved rent increases take affect. He feels that adequate time has already been available for any lessees who wish to change accommodations to do so before the increased rents are put in place.

3. Decision

After considering the tabled documentation and testimony, and reviewing the Act and Regulations and their application to the facts, the Commission confirms Order LD99-172 with some variances.

Section 23(8) of the Act provides direction on what factors the Director must consider in addressing a request for a rent increase greater than the annually established permitted amount.

23.(8) At the hearing both parties are entitled to appear and be heard and the Director shall consider the following factors:

(a)    whether the increase in rent is necessary in order to prevent the lessor sustaining a financial loss in the operation of the building in which the premises are situate;
(b)    increased operating costs or capital expenditures as advised by the lessor;
(c)    the expectation of the lessor to have a reasonable return on his capital investment;
(d)    such other matters as may be prescribed by the regulations.

In reviewing the Exhibits and taking into account the testimony at the hearing, the Commission is satisfied that the Director of Residential Rental Property appropriately considered the factors outlined in Section 23(8) and properly established the level of annual revenue to be received from the building at 162 Dorchester Street.

The Commission notes the concerns expressed by the Appellants in regard to the mortgage on the involved building and its impact on the revenue/rental requirements from that building. However, the Commission also notes that the mortgage is in line with the Provincial assessment on the building (Exhibit E-6.1) . As a result, it is really immaterial to the final calculation of approved rents whether the payments on a mortgage are part of the approved costs supporting a rental charge, or if it is a "…reasonable return on his capital investment" [Section 23(8)(c)], that is part of the approved rental charge.

The Commission recognizes the approved rental increases are quite significant and can appreciate the Appellants' position that they believe the increases should, therefore, be applied in stages. However, the Commission is also aware from the material provided to the Director by the Respondent that he has been incurring a significant annual cash loss on the building at 162 Dorchester Street. The Commission therefore has to support the Director's decision to apply the rent increases in one step.

The Commission, however, accepts the Appellants' position that the rent increases should not be applied as a blanket increase across the three apartment units. The Appellants in their testimony identified differences among the units which would justify some differentiation in the rents being applied to each unit. The Respondent also agreed with this position.

Following from the Commission's decision to confirm the Director's decision on the annual rental revenue to be obtained from the building at 162 Dorchester Street and taking into account the differences among the units, the Commission approves the following monthly rental increases for the three units.

 

Current Rent*

Approved Increase*

Total Rent*

Apt. #1 (1st Floor)

 $500 $225 $725

Apt. #2 (2nd Floor)

 $500 $200 $700

Apt. #3 (3rd Floor)

 $500 $175 $675

*Monthly Figures

 

 

 

In the absence of any other information on possible differences in rent for the three units besides that provided by the Respondent in his application for rent increases (Exhibit E-1), the Commission has adopted those differences in its approved rent increases.

The Commission has also given consideration to the Appellants' arguments that because the approved rent increases are so substantial, the implementation of them should be delayed to give the impacted lessees more time to find alternative accommodations if they choose to do so. While the Commission has some sympathy with the Appellants' position on this matter because of the magnitude of the increases, the Commission does not believe the Act provides it the power to delay properly approved increases. The intent of the Act is not to adversely impact a person's situation if that party has followed the proper procedures and obtained the required approvals/directions.

In this case, while Section 23 (10) of the Act provides that a lessor shall not charge or collect a rent increase pending the outcome of the application requesting the increase, once that outcome is decided, the lessor should not be adversely affected by the approval or appeal process if proper notice for rent increase has been given. The Respondent in a Notice of Increase in Rent of Residential Premises (Exhibit E-2) has provided proper notice to the affected lessees. The effective date for the approved rents, as indicated in the Notice, and as subsequently approved by the Director of Residential Rental Property, is January 1, 2000.

Any delay in the implementation of the approved rent increases would adversely affect the Lessor and continue to leave him in a position of losing money on the rental property. From the information provided to the Director for 1998 and 1999, the Lessor incurred substantial cash loses in at least those years which, arguably, have been to the benefit of the lessees occupying the apartment units. Therefore, further delay in applying the increases is not justifiable in this case.

IN THE MATTER of an appeal, under Section 25 of the Rental of Residential Property Act, by Valerie Stewart and Rachel Fitzpatrick (the Lessees) against Order LD99-172 of the Director of Residential Rental Property dated November 25, 1999.

Order

WHEREAS Valerie Stewart and Rachel Fitzpatrick filed an appeal dated December 15, 1999 against a decision of the Director of Residential Rental Property ;

AND WHEREAS the Commission heard the appeal in Charlottetown on January 6, 2000;

NOW THEREFORE, for the reasons given in the annexed Reasons for Order;

IT IS ORDERED THAT

1.    Rent increases are approved for the three apartment units located at 162 Dorchester Street, Charlottetown, P.E.I.;

2.    The approved monthly rent increases for the three units are as follows:

Apartment #1 (1st floor)                $225
Apartment #2 (2nd floor)               $200
Apartment #3 (3rd floor)                $175

3.    The approved rent increases will be effective on January 1, 2000.

DATED at Charlottetown, Prince Edward Island, this 11th day of January, 2000.

BY THE COMMISSION:

Ginger Breedon, Vice-Chair
Norman Gallant, Commissioner
Arthur Hudson, Commissioner

NOTICE

Sections 26.(2), 26.(3), 26.(4) and 26.(5) of the Rental of Residential Property Act provide as follows:

26.(2) A lessor or lessee may, within fifteen days of the decision of the Commission, appeal to the court on a question of law only.

(3) The rules of court governing appeals apply to an appeal under subsection (2).

(4) Where the Commission has confirmed, reversed or varied an order of the Director and no appeal has been taken within the time specified in subsection (2), the lessor or lessee may file the order in the court.

(5) Where an order is filed pursuant to subsection (4), it may be enforced as if it were an order of the court.