Landlording in Canada. Michael Drouillard
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Property Maintenance and Secondary Suites
If two families live in a home, whose responsibility is it to mow the lawn, clean the gutters, and otherwise keep the home well maintained? If you live on the property with your tenant, minimize the chance of conflict by making all of that your responsibility.
But what if you don’t live on the property? What if you own an investment property that is rented to two or more families, several of whom live in secondary suites? This is where it gets complicated. None of the tenants have unrestricted exclusive access to the property and you cannot say that one tenant is responsible for property maintenance and the others are not unless it is agreed to in the rental agreement. (Most tenants won’t agree to mow the lawn for free.)
You could delegate these responsibilities to one of the tenants in return for a rent reduction. Have the tenant pay you the full rent each month, but give the tenant a cheque each month after he or she successfully attends to the duties. However, this could get messy. What if the lawn is mowed too infrequently? Resentment and animosity will build if you withhold payment. What if the tenant is injured while working on your property? Is the tenant legally considered your employee? Are you insured for such a liability?
The best advice I can give you is to contract these jobs out to others — hire someone other than your tenant to mow the lawn, clean the gutters, etc. Consider it a cost of doing business, one that is tax deductible.
Payment of Utilities
Secondary suites typically share electric or gas meters. Landlords usually expect secondary suite tenants to pay a percentage of the total monthly utility bill. Though reasonable in theory, this procedure has some foreseeable drawbacks.
The tenant might dispute the percentage of the bill assigned and complain about perceived excessive usage by his or her neighbour.
You might want your secondary suite tenant to pay 50 percent of the utilities, but some prospective tenants might try to negotiate a lower amount. They might say that they don’t plan to use utilities extensively and that it is unfair to be charged 50 percent of the bill. You could remain firm, but the prospective tenants might decide to look elsewhere for a rental. Or, they might accept the arrangement, complain frequently, and otherwise take up your time and energy every time they receive the utility bill. Or they might move out soon afterwards, leaving you with a premature vacancy.
The tenant might periodically fail to remit payment in a timely manner, thereby doubling your bill-collecting responsibilities.
If you have a utility split arrangement with your tenant, in addition to collecting the rent every month, you will have to send your tenant the utility bill. The laws in many provinces are not as strict for collecting utilities as they are for collecting rent. Your tenant might be allowed to take 30 days or more to pay utilities upon receipt of the bill. The utility company probably won’t let you pay the bill late every month without it adversely affecting your credit rating, so you will often be forced to pay the tenant’s portion of the bill while waiting for the tenant to remit payment. Do you really want to deal with this kind of work and uncertainty each and every month?
Some tenants might file a claim against you in court or arbitration demanding that they be allowed to avoid paying the portion of the utility bill that they agreed to pay in the lease.
The residential tenancy laws of most provinces contain provisions that protect tenants from having to pay for utilities that they don’t use. If your tenant believes that you overuse utilities, he or she could file a claim against you on the basis that the utility split arrangement forces him or her to subsidize your utility usage. There is often good cause for this kind of protection. If you subsequently installed a Jacuzzi tub or several window air conditioners for your own use and the bill increases by $100 per month, since the tenant pays 50 percent of all utilities, the tenant is being unfairly forced to pay for a service he or she doesn’t use.
Even if the claim against you is unsuccessful, what about the time and energy spent defending yourself? What about the negative feelings? You do not want to be on bad terms with people who live under your own roof!
How could you avoid all these problems? Calculate an estimate of utility usage by the secondary suite for the year and roll the average monthly cost into the rent. In other words, if you plan to rent the suite for $700 and estimate that your tenant will pay $75 per month for utilities on average, offer the suite at $775 with heat and electricity included. This way your prospective tenants will know up front where they stand with utilities.
This method is not without disadvantages. Because the tenant will not see the utility bill each month, there is a risk he or she will use utilities excessively or carelessly.
Try reducing this risk by taking pre-emptive measures, such as serving a notice reminding the tenant that the rent includes a reasonable use of utilities, but that substantial overuse could result in a rent increase. See sample letter on the downloadable forms kit that came with this book. Also, your lease agreement should have a clause prohibiting the tenant from installing any other major appliances or “energy eaters” such as second fridges without the express permission of the landlord.
Overwhelmed? You Don’t Need to Be!
Realistically assess the design weaknesses of your particular rental suite. Then take preventive, practical steps such as those suggested above. You will find disputes to be few and far between, your tenants will stay longer, and your time and energy will be saved for better things!
Chapter 3
HOW TO DETERMINE RENTAL VALUE
In this chapter, you will learn to:
• Determine the market value of your rental unit by examining the rent and features of competing rental properties and comparing them to your own. Do not base rent on the size of your mortgage payment!
• Compare your property to more than five others to get a sense of the market value.
• Consider permitting pets and smokers, but screen applicants carefully. Restrictions make it harder to find a good tenant.
• Offer a rental incentive in a weak rental market such as a rent reduction, move-in allowance, or one or a half month’s rent free.
• Rent the space unfurnished: Furnished suites are much more labour intensive, and often not worth the potential additional revenue.
Inexperienced landlords often base their rent on the size of their mortgage payment or other personal circumstances. This may appear reasonable, but it isn’t. Landlords must rent at prevailing market rates, whether the rent covers their mortgage or not.
Determine the market value of your rental unit by examining the rent and features of competing properties and comparing them to your own. Appraisers call this the “direct comparison” approach.
Buy newspapers and review online classified websites to see what kind of property is currently available. Rental property typically falls into four broad classes: Secondary suites, self-contained apartments, townhomes, and detached homes. The level of desirability and value follows that order as well. A two bedroom, 1,000 square foot secondary suite won’t normally rent for as much as a two bedroom, 1,000 square foot high rise apartment in the same neighbourhood. Restrict your analysis to rental property in the same class as your own whenever possible.
After looking at the ads in a few newspapers and online classified websites, you will notice a range of rental values for similar property. At this point, you may feel comfortable selecting a value within this range and seeing how it goes.
However, if