BC’s New Tenancy Notice Periods To Impact Mortgage Approvals

The latest change in British Columbia’s housing policy, effective July 18, 2024, has left many small real estate investors in Vancouver and North Vancouver feeling frustrated and unfairly burdened. The new policy, which extends the notice period required to be given to a tenant to vacate a property when a buyer intends to occupy it, is part of an effort to protect renters from bad-faith evictions. However, it disproportionately favours tenants at landlords’ expense, causing unintended negative consequences for buyers who plan to finance their purchases.

Quick Outline of The New Conditions for Ending a Tenancy

Under the Residential Tenancy Act, a seller can end a tenancy if they enter into a good faith agreement to sell the rental unit, all sale conditions are satisfied, and the purchaser requests in writing to end the tenancy on specific grounds. These include the purchaser or a close family member intending to occupy the rental unit or a family corporation owner intending to do so.

Notice Period Extension Now Doubled

The new policy extends the notice period from two to four months. For instance, if notice is given on July 22 for a month-to-month tenancy, the tenant is not required to vacate until November 30. Additionally, the period for a tenant to dispute the notice has been extended from fifteen to thirty days. On top of the above requirements, the new property owner now has to occupy the home for 12 months, which is twice the amount of the previous rules. If this condition is not met then the landlord OR buyer will have to pay the tenant 12 months of rent. This punitive measure seems excessively harsh, penalizing landlords and buyers for circumstances often beyond their control.

Implications For Mortgage Approvals

The extended four-month notice period has significant implications for mortgage approvals:

1. Interest Rate Holds: Typically, interest rate holds last for 90-120 days. If this period expires, buyers will not know the ultimate rate or payment they will be charged, jeopardizing their ability to afford the mortgage.
2. Approval Based on Current Rates: Mortgage approvals based on current rates could be invalidated if interest rates fluctuate, leaving buyers unable to obtain the necessary funds to complete the purchase.
3. Owner-Occupied Purchases: Lenders may not approve a mortgage if a tenant is present, complicating the financing process.
4. Insured Mortgages: For insured mortgages, the presence of a tenant reclassifies the property as a rental, leading to financing declines. This disproportionately impacts first-time buyers.

Investor Impact

Investors already facing cash flow issues due to rising rates will find it even more challenging to sell tenanted properties. The difficulty in accessing properties and the extended notice period reduce the appeal to potential buyers, exacerbating the housing supply shortage.

Unintended Consequences

If left unchanged, these unintended consequences will result in fewer sellers renting out properties, fewer buyers willing to purchase tenanted properties, longer closing periods, transactions collapsing at the last minute, and ultimately less housing availability. This contradicts the goal of increasing the housing supply.

This policy, while well-intentioned, needs a reassessment to avoid punishing small real estate investors and further complicating the already challenging housing market in the North Vancouver / Vancouver area.