In 2018, Canada’s rental market yielded low vacancies, scant rental housing options, and fewer fixed-term leases. New regulations on the horizon will seek to restrict evictions. All that leads to one universal prediction: tenants are going to be staying longer. Whether that spells profitability or disaster for a landlord depends on whether the rental units are filled with responsible renters — or tenants from hell.
Tenant Screening – Focus on Fraud
Experts warn that tenant fraud — lying on rental applications, faking identity — is on the rise. Nearly half of these fraud schemes continue undetected for many months, and most are revealed only after the tenant stops paying rent. Income loss from fraud is particularly difficult to recover because the landlord does not know the person’s true identity and therefore can’t easily pursue legal action to collect the debt.
If tenants are to remain in a unit for several years, it is imperative for a landlord to screen applicants with a focus on potential fraud:
Require a photo ID before allowing a rental applicant to tour the unit;
Avoid using online rental applications. Meet the applicant first before providing the rental application online;
Verify the information on the rental application;
Check all references. Confirm that the references are talking about the same person;
Run a tenant credit check before leasing and watch for discrepancies, like a young applicant with a lifetime of credit;
Pay attention to contradictions in the applicant’s story, like driving a car not listed on the application, or information on a personal check that doesn’t match up; and,
Warn applicants in advance of completing the rental application that omitting or misrepresenting information may be crime.
It is important not to rush the tenant screening process. Never rent on the spot or without running a tenant background check. Given the state of Canada’s rental market, it is likely a vacancy will not last long. Even if the vacancy goes for a full month, on average the landlord stands to lose around $1,200. If a tenant from hell moves in and then defaults on rent or causes damage, that figure could easily climb to tens of thousands of dollars. One such tenant defaulted on rent and rendered the property uninhabitable in just ten weeks!
Tenancy Agreement – 2019 Updates
Marijuana legislation is the primary reason to update tenancy agreements in 2019. There are many reasons to restrict marijuana, including:
Increased fire danger;
Increased risk for mould and humidity damage;
Longer turnaround time when restoring units; and
Complaints from other tenants.
Any restrictions on smoking or growing marijuana in rental properties will need to be spelled out in the tenancy agreement, preferably before the next tenant takes possession. Existing tenants may agree to a marijuana addendum. Because each province has laid out its own regulations, the specific language should be crafted by an attorney who is familiar with these laws. Alternatively, local landlord associations may have professionally-prepared lease updates available to their members.
Provincial governments are seeking to increase the inventory of rental homes to offset the country’s low vacancy rate. Short-term vacation sublets can take long-term rentals out of play or drive up rents. As a result, landlords should expect to see more regulation of these sublets in the coming years.
Tenants may be confused about their rights to sublet the property to overnight guests. Landlords may want to consider including a guest policy and any specific limitations on short-term renters in the tenancy agreement in advance of any new rental regulations that might prohibit the practice or provide for fines against landlords who allow it.
Renovations and the Long-Term Tenant
One of the downsides of long-term tenants is scheduling property upkeep. It no longer is feasible to defer maintenance until the end of the year, when the tenant would otherwise move out. This also will become a concern for landlords who soon may be limited in evicting tenants to conduct renovations.
The tenancy agreement should be tailored to anticipate long-term tenants by incorporating a maintenance plan and alerting tenants that, should they stay, they are going to have to agree to suffer some inconvenience.
Routine property inspections should continue at regular intervals throughout the tenancy, regardless of how long the tenant stays, and the tenancy agreement should require tenants to accommodate any unscheduled repairs.
Eviction Limits — Brace for Delays
The process of evicting tenants in order to reclaim the property or renovate is only getting more difficult. New regulations requiring landlords to make renovations with tenants in place are likely to come to British Columbia. Additionally, Ontario is warning that a lack of adjudicators is slowing the eviction process. Landlords should screen tenants and manage properties as though eviction is not an option.
Recent cases, including a landlord who was sued after a tenant slipped on ice, carbon monoxide poisonings, and apartment fires, highlight the need to focus on tenant safety:
The tenancy agreement must spell out who is responsible for clearing ice and snow;
The property must be inspected regularly to identify and mitigate any hazards to tenants and guests; and,
Smoke and carbon monoxide detectors must be installed and tested frequently, at least as often as the property is inspected.
Tenants should be educated on safety, including emergency procedures. Also, point out common hazards. For instance, warn about using extension cords or portable heaters in the winter, and safe outdoor grilling in the summer.
Also, listen to tenant complaints about safety. Too often, tenants have flagged the hazard but the landlord acts too slowly to prevent injury — and income loss.
Privacy Rights and Tenant Screening
Privacy rights when it comes to tenant background checks made the news in 2018, with B.C.’s Privacy Minister leading the charge to restrict what information a tenant must provide to a prospective landlord. As housing becomes increasingly more difficult to secure, landlords across the country should expect to see more pushback from tenants who are having difficulty qualifying.
There are some basic rules a landlord should implement in tenant screening:
Always obtain consent to a tenant background check. Explaining why the landlord needs the information can make the process more palatable to tenants. The consent normally is included in the rental application above the signature lines;
Be careful that the questions on the application are relevant and necessary. Otherwise, tenants might skip over offensive questions, leaving the landlord to wonder if the tenant has something to hide;
It’s important to safeguard a tenant’s private information and prevent identity theft;
Avoid social media when screening tenants. These sources may reveal protected information, and are not always accurate; and,
Landlords must be careful when sharing information about tenants. Report bad tenants only to reputable sources — like credit bureaus. That can be accomplished at LandlordCreditBureau.ca, which maintains a tenant database.
Rent Caps and Cash Flow
Market indicators forecast low vacancies in 2019. However, rent caps, including the recently-reduced rent increase guideline in British Columbia likely will keep growth in check. That means landlords need to pay attention to cash flow.
Cash flow — or the lack of it — can impact not only the landlord’s bottom line, but also resale value of the property. Take steps to ensure on-time and reliable rent payments:
Sign up to Report Rent Payments to a credit bureau. This is the most effective tool landlords have to encourage on-time rent payments. Tenants who are late or default risk damaging their credit and rental history. Landlords can include the Notice to Tenant in the tenancy agreement to educate tenants on their responsibilities regarding rent payments — and the consequences of paying late.
Payment Options. Offer some flexibility by allowing tenants to pay by cheque, not only money orders, and look into automated or electronic options. Be careful when choosing those options because some methods, like PayPal, may allow tenants to choose when to send payments, which defeats the purpose. Also, restrict partial payments if possible, to avoid eviction delays and confusion.
Send Invoices. Tenants are accustomed to creditors sending bills and reminders. Do the same and avoid innocent late payments.
This post is provided by Tenant Verification Service, Inc., helping landlords reduce the risks of renting with fraud prevention tools that include Tenant Screening, Tenant Background Checks, (U.S. and Canada), as well as Criminal Background Checks, and Eviction Reports (U.S. only).
Click Here to Receive Landlord Credit Reports.
Disclaimer: The information provided in this post is not intended to be construed as legal advice, nor should it be considered a substitute for obtaining individual legal counsel or consulting your local, state, federal or provincial tenancy laws.