Starting next week on July 18, 2024, British Columbia will make it harder for landlords to ask tenants to leave when a new buyer wants to move in. This new rule is to protect renters from unfair evictions but might seem unfair to some landlords and make things tricky for people buying a home.
Conditions for Ending a Tenancy
The Residential Tenancy Act allows a seller to end a tenancy of a rental unit if the following conditions are met:
- The seller enters into an agreement in good faith to sell the rental unit.
- All sale conditions have been satisfied.
- The purchaser asks the landlord, in writing, to give notice to end the tenancy on one of the following grounds:
- The purchaser, or a close family member, intends in good faith to occupy the rental unit.
- The purchaser is a family corporation, and a person owning voting shares in the corporation, or a close family member, intends in good faith to occupy the rental unit.
New Rules for Ending a Tenancy:
- If someone buys a rental property, they can ask the tenant to leave if they or their family want to move in.
- The notice period required to be provided to the tenant will increase from 2 to 4 months, with notice beginning on the date of the next rental period.
- Tenants will also get two months of free rent if they are asked to leave.
- If the new owner doesn't move in within a year, they have to pay the tenant 12 months' rent.
Implications for Mortgage Approvals:
- Interest Rate Holds: Typically, interest rate holds are for 90-120 days. If that period expires, the rate hold expires. At the time the offer is entered into, buyers will not know the ultimate rate or payment they will be charged. Accordingly, they will not know if they can afford the new rate or payment.
- Approval Based on Current Rates: Buyers’ mortgage approvals will be based on the rate at the time of their mortgage application, which could change if interest rates fluctuate. An interest rate and approval cannot be "guaranteed" beyond 120 days, meaning a buyer who qualified for a mortgage initially may not qualify 120 days later. The buyer may be left unable to obtain the mortgage funds needed to complete the purchase.
- Owner-Occupied Purchase: A buyer approved by a lender for an owner-occupied purchase is not approved, except if an exception is made, to take possession of the property with a tenant in place. A tenant being present can prevent the lender from making the loan the buyer needs to complete the purchase.
- Insured Mortgages: For insured mortgages (putting less than 20% down), the presence of a tenant reclassifies the property as a rental from the lender's perspective. Insurers do not allow rental properties, leading to financing declines. This disproportionately impacts first-time buyers, who may find themselves unable to secure financing.
- Investor Impact: Investors experiencing cash flow issues due to rising rates will face additional challenges selling tenanted properties. Difficulty in accessing properties and the extended notice period reduce the appeal to potential buyers, exacerbating the housing supply shortage.
Potential Impact on Housing:
Some landlords might stop renting out their properties to avoid these complications. Buyers might not want to buy properties with tenants, leading to fewer homes being available. This could mean fewer homes being built or sold, which is the opposite of what is needed to help with the housing shortage.
