Evicting the Vacate Clause: What BC’s Changes to Fixed Term Leases Mean to Landlords and Tenants

On October 26, 2017, the British Columbia government introduced Bill 16, the Tenancy Statutes Amendment Act. Bill 16 aims to address a longstanding complaint from renters in BC’s hot rental market: use of the “vacate clause” by landlords in fixed term leases to circumvent BC’s annual rental increase cap.

The rental increase cap is the maximum percentage amount that landlords are allowed to raise their tenants’ rent each year. This cap is set by the BC government annually and has ranged from 2.3% to 4.3% over the last ten years. However, owing largely to low vacancy rates, market rental prices have increased by an amount greater than the cap, particularly in Vancouver and Victoria.

Some landlords circumvent the cap and maximize the profit they receive from their tenants by using a fixed-term lease with a vacate clause. This is accomplished by the tenant and landlord agreeing to a lease in which the tenant agrees to vacate the rental unit after a fixed term, typically one year. After this term elapses, the landlord will allow the tenant to stay in the rental unit, but only if the tenant agrees to sign a new lease. As the cap does not apply until a lease is at least a year old, the landlord can set whatever rent the tenant will accept for the new lease. If the tenant does not accept this rent they will have to vacate the rental unit and the landlord is free to rent it at whatever price the market will bear. In practice, this has resulted in tenants being left with little choice but to accept substantial rent increases which are far above the annual cap.

Bill 16 attempts to stop landlords from circumventing the cap by prohibiting landlords from requiring that their tenants vacate after a fixed-term lease is at an end. Instead, the fixed-term lease automatically becomes a month-to-month lease after the fixed-term has ended, and any future rent increases are subject to the cap.

While the general elimination of the vacate clause is the major implication of Bill 16, landlords and tenants alike should note two other important provisions of Bill 16 as it relates to fixed-term leases.

First, the elimination of the vacate clause is not absolute. Bill 16 allows the government to make regulations specifying certain circumstances in which vacate clauses are still permissible. While these circumstances will not be known until Bill 16 and any accompanying regulations become law, the BC government has identified two situations in which it would continue to allow vacate clauses: when a person seeks to rent their home while they are absent from it for an extended period due to work or travel, or when a tenant is subletting their rental unit for a set period of time.

Second, once the changes in Bill 16 become law, they will apply to all pre-existing fixed-term leases, unless that lease is for a sublet or if the landlord, prior to October 26, 2017, entered into a tenancy agreement with a new tenant to replace a tenant who is required to vacate under an existing fixed-lease.

While Bill 16 is likely to be passed without amendments, the full extent of its impact will not be known until its accompanying regulations are revealed. If landlords or tenants have questions about their rights as a result of these changes or the structure of residential tenancy leases generally, they should seek legal advice.