BC’s Tenancy Notice Rule Changes

Effective July 18, 2024, British Columbia will increase the notice period (2 months moving to 4 months) required to be given to a tenant to vacate a property when a buyer intends to occupy it.

Beyond affecting landlord-tenant relationships and importantly for mortgage brokers, this extended notice period has unintended negative consequences for buyers who intend to occupy the property and finance their purchase.

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. 

Notice Period Extension

Starting July 18, the notice period required to be provided to the tenant will increase from two to four months, with the notice beginning on the date of the next rental period. For example, if notice is given on July 22 for a month-to-month tenancy that starts on the 1st of each month, the tenant is not required to vacate the property until November 30.

Compensation to Tenants

If the stated purpose for ending the tenancy (that is, the occupancy) is not fulfilled within a reasonable time after the effective date of the notice and the property is not used for that purpose for twelve months, the landlord (or the buyer who caused the notice to be given) owes the tenant an amount equal to twelve months’ rent.

Implications for Mortgage Approvals

The four-month notice period means that often more than 120 days will be required for the seller to provide vacant possession to the buyer. This has significant 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.

Unintended Consequences

Left unchanged, the unintended consequences could include fewer sellers renting out parts or all of their properties, fewer buyers being willing to purchase a property where a tenant has to be vacated, fewer offers being accepted if longer closing periods are required, more transactions collapsing at the last minute, lenders charging higher mortgage rates to cover increased risks, fewer transactions being financed, and ultimately less housing being constructed or available. 

This is all counter to the goal of increasing housing…