Rent increases and Clause F: Understanding the issues
Clause F may not have received much attention since its adoption, but in recent years it has become the topic of the day. In the context of the housing crisis and rent hikes, many people have felt wronged by this provision. But what is really at stake? What purpose does clause F serve?
Vistoo explains what it is, and gives you an overview of what it means for tenants and landlords.
What is Clause F?
Clause F is a provision that allows new property owners to increase the rent of their apartments without limits. This clause applies only if the property was built less than 5 years ago.
By way of comparison, rent increases that do not benefit from this clause are regulated by the Tribunal administratif du logement (Administrative Housing Tribunal), and the legal rate of increase is announced each year. With a few exceptions, landlords cannot exceed this rate. In 2023, the rate was 2.5%. The notice of increase must be sent 3 to 6 months before the end of the lease in cases where the lease is for 12 months or more.
However, rent for a property built less than 5 years ago is not subject to this limit. This means that if a tenant wishes to refuse the increase requested by the landlord, his only option is to move.
Historically, Clause F was introduced in the 1990s, in an economic context of higher interest rates. It's not a new clause, although we're hearing a lot more about it today! As we'll explain later, its purpose was to reassure property developers the growth of new rental housing.
Challenging the regulation
Although many have never heard about it, Clause F has been a major talking point the last few years. In a context where abusive rent increases are the order of the day, a number of testimonials have been published denouncing abuses by landlords.
Several groups and associations have lobbied to abolish this clause, including the Regroupement des comités logement et associations de locataires du Québec (RCLALQ). A measure proposed last year in Bill 37 came close to reducing the duration of the clause from 5 to 3 years, but this amendment was put on hold.
According to the Urban Development Institute (UDI), shortening the term would be more likely to result in substantial increases over 3 rather than 5 years. If you're a tenant, you may be wondering why this clause hasn't been abolished. There are 3 main reasons why it exists.
The principles behind Clause F
Given some of the seemingly abusive price increases, it might be easy to consider abolishing it. However, Clause F was introduced for three main reasons:
- to encourage developers to build rental properties;
- To mitigate risk-taking by owners;
- To allow the financial model to be adjusted between expectations and the reality of development.
By eliminating this clause, the first risk would be to see real estate developers move towards condos rather than rental real estate, which could result in deepening the housing crisis. As the Corporation des propriétaires immobiliers du Québec points out:
"Condominiums are subject to much lower risks, particularly when it comes to determining the costs associated with rental management."
Investing in real estate also involves a degree of risk-taking for the owner, linked to operating costs. It can be difficult to set a rent cost in advance, given the expenses that can vary between the start of a project and the end of its construction. Several factors have recently made costs even more unpredictable:
- Labour shortages
- Rising cost of materials
- Rising interest rates
Finally, a developer's expectations regarding development may fluctuate between the beginning and the end of a project, for example with regard to urban densification. Although the clause may allow prices to be too high, it serves above all to protect owners, who are also suffering from current economic conditions and need to make a return on their investment.
Promoting transparent communication
While Clause F divides tenants and landlords as well as political parties, it seems that the raison d'être of this measure is mostly misunderstood. Changes could well be made to offer better compromises while continuing to protect landlords and tenants.
For the time being, it's important to foster open communication between landlords and tenants. As a tenant, being well informed will help you make the right choices; as a landlord, being transparent will avoid nasty surprises for your tenants.
At Vistoo, we're sensitive to this reality. Whether you are looking to buy or rent, we've got the perfect house or multiplex for your needs, and we always advocate transparent communication about rental prices.