When it first dawned on DLC’s Fernando Zilli that COVID-19 was about to attach itself like an anchor to the Canadian economy, his first thought was for the welfare of his clients. His second concerned the tenants in his rental properties.
Now that the coronavirus pandemic has shocked the economy into virtual paralysis, mortgage brokers and other real estate professionals who own investment properties have been forced to confront the issue of income disruption from dual angles, their own and that of their renters. It’s a difficult time, particularly for agents and brokers whose minds are already fully occupied with keeping their businesses afloat.
One of Zilli’s renters was working as the manager of a store in a mall in Victoria, BC, prior to the COVID-19 outbreak. Now, with zero income to rely on, she and Zilli have had to discuss their options while she waits, like millions of other Canadians, for her employment insurance to kick in.
While rent deferrals are a short-term option, Zilli says landlords like himself should be looking for mid-term solutions. He suggests a potential two-lease option, where a tenant who is paying, for example, $1,450 a month in rent, would sign a six-month lease where the rent would be reduced to $1,100, and then follow that up with six months where rent will be increased to $1,600.
“Rather than lose rent, I’d rather be guaranteed a certain amount of rent,” he says.
For many tenants, rent deferral will be the only option. It sounds like a simple solution, which is why John Vo of Spicer Vo Mortgages in Halifax says landlords have to lay out for their renters exactly what deferral entails.
“If you need to defer part of your rent payment, I can do that, but do keep in mind it’s a deferral and not a forgiveness,” he says. “So if you defer, when you’re back up and running, it may add some added pressure. If you wanted to leave your lease at the end of the term, you might not be able to because essentially your term is extended.”
According to investor and Pemberton Homes realtor Vanessa Roman, rent deferrals should not be sealed with a handshake. It’s a legal agreement and should be treated as such.
“If your tenant is facing economic challenges as a result of Covid-19, have them sign a Rent Deferral Agreement,” she says. “This agreement should outline the conditions of the rent deferment and when the deferred rent will need to be repaid. It should also ensure the tenant has applied for [British Columbia’s] $500 provincial rental supplement, which is sent directly to the landlord, and any other government programs later announced to help tenants pay their rent.
Roman also encourages landlords to keep detailed records of all conversations they have with their tenants during this time.
“Some options during the COVID-19 crisis are to record video and telephone conferences with your tenant – be sure to get your tenant's permission to record first – or to communicate in writing through emails or letters,” she says.
Pandemic or no, the keys to a successful landlord-tenant relationship remain honesty and compassion. To get through these next few months, Zilli urges real estate investors to show an abundance of the latter.
“Even after this is settled, if my tenants still can’t get their job back, I still want them to be able to afford their monthly rent,” he says. “At the end of the day, if the tenant’s successful, the landlord’s usually successful too.”