How to calculate a rent increase?
Over time, the expenses related to a building increase and the rent must also increase accordingly. Rent increases are normal and regulated by the Civil Code of Quebec.
At the time of the renewal of the lease, a lessor is free to ask a rent increase that he deems just and reasonable in his notice that he remits to his lessee. The lessee has the right to accept or to refuse that increase within one month following the receipt of the lessor’s notice. (Tribunal administratif du logement)
Changes can be made to the lease each year, whether they are a rent increase or other items such as access to parking or the right to have pets. These changes must be included in the renewal notice. Landlords making an increase must be reasonable and provide the tenant with proper notice in a timely manner.
What to base the increase on?
The rent increase is not determined randomly and requires the consideration of several factors. If you make the calculation “on the corner of a table”, don’t be surprised to receive questions from your tenant or worse, a request to fix the rent from him.
The Tribunal adjusts the rent based on the applicable income and expenses for the property during the relevant period (the calendar year preceding the lease). If applicable, it can also take into account the quality of services or the use of an accessory or dependency of the property or dwelling. (Tribunal administratif du logement)
Adjustment rates established by the Tribunal administratif du logement
In order to guide landlords in their calculations, the Tribunal administratif du logement (formerly the Régie du logement) establishes and publishes an average adjustment rate recommended annually for electrically heated dwellings (0.5% in 2021), unheated dwellings (0.8% in 2021) and dwellings heated with gas or oil (between -0.3% and -3% in 2021).
Obviously, these rates have their limitations and are not always representative of all situations. This is why adjustment rates for certain expense items have been established and may be applicable as needed.
Here are the published rates in 2021 for each item:
- Maintenance: 1.4
- Services: 1.9
- Management fees: 1.2
- Electricity: -0.3
- Gas: -11.3
- Oil and other energy sources: 1.4
- Net income: 0.6
- Capital expenditures: 2.3
These rates are applicable percentages, not recommended rent increases per se, and are therefore included in the overall calculation.
Major repairs and/or renovations
Have you made renovations for the purpose of increasing the value of your home? Don’t panic, these renovations can be taken into account when setting the rent. Significant increases can be made as a result of renovations or repairs to the following
- Building structure (e.g. heating system, roof, windows, plumbing)
- Dwelling (e.g. new bathroom, new floors)
- Common area (e.g. workout room renovations, common deck renovations)
- New facilities (e.g. pool, parking spaces)
These renovations and repairs are considered capital expenditures by the Tribunal administratif du logement, which also recommends a rate for them. Again, this rate may not be representative of all situations, so it may be adjusted.
Tribunal administratif du logement’s calculation tool
Don’t worry, you won’t have to calculate the rent increase without help. In fact, it is highly recommended that you use a rent increase calculator to avoid any kind of mistakes or conflicts. The Tribunal administratif du logement provides a complete calculation tool for landlords, which takes into consideration all the expenses of the building. The tool allows you to calculate an increase that is legitimate, while providing supporting arguments if necessary.
If you want to avoid disagreements, the proper use of this tool is the best way to protect yourself against a tenant complaint!
In order to determine the rent increase, the tool takes into consideration the following elements
- Building revenues
- Operating expenses of the building (ex: taxes, insurance, energy)
- Net income
- Major repairs and improvements to the entire building and the unit
The increase is calculated automatically with the amounts entered. The calculation is detailed and you can print a copy. Keep in mind that this simplified calculation includes amounts that are probably unknown to the tenant and that have not been verified by the Tribunal administratif du logement. Therefore, the tenant may have some questions and can still dispute the increase.
Please note: The tool does not take into consideration certain special situations (e.g., the implementation of a service that causes new operating expenses), which will need to be addressed in judicial fixation if necessary.
A tenant living in a building built five years ago or less, or whose use for residential purposes was changed five years ago or less, cannot contest a rent increase (see section F of the lease). If he or she refuses the increase, then he or she should move out.
In general, the Tribunal administratif du logement recommends an increase of 1 to 2% per year. Depending on the situation, landlords do not always rely on this and may consider other factors, such as the rent of other units in the area.
The golden rule: Make sure the increase is fair and reasonable!
Since the rent increase does not end with the calculation of the rent increase, Bloc Solutions has prepared some articles to guide you in the next steps:
To sum up
Be careful and take the necessary precautions to establish a fair, reasonable and justifiable rent increase. Be open to potential questions from the tenant about the increase. Rent increases are common and if done properly should be accepted and understood without issue.
Opt for the Bloc Solutions platform to ensure that you send a Tribunal compliant increase notice to tenants. Save time, eliminate the risk of error and simplify your rental management now!
Sources: Tribunal administratif du logement
