Should there be commercial rent control in BC for small businesses?

Simone Hogan/Shutterstock

Last week, New Westminster City Council approved a member motion calling on the Lower Mainland Local Government Association to lobby the Government of British Columbia to consider creating a new type of rent control to support businesses.

This would specifically be commercial rent control for the leases paid by small businesses — including restaurants, cafes, and retail — and community-serving organizations for their operations.

Essentially, small businesses and community-serving organizations would see similar rent creep protections that residential renters currently enjoy, with the provincial government capping the 2024 residential rent increase at 3.5%.

You might also like:

“The current structure of commercial leases doesn’t work. It’s unpredictable from lease to lease, and it’s not sustainable, given rising land values and speculation,” said city councillor Tasha Henderson, who proposed the motion, during the public meeting.

“As land values increase, thus does the equity that commercial landowners have access to. The expense proportionately increases for the landowners, and currently the costs are being downloaded to small businesses to cover, even though those businesses or community-serving organizations don’t have access to the equity that property owners enjoy.”

Henderson further suggests the provincial government could enact new legislation to provide municipal governments with the ability to create special economic zones where commercial rent control and demoviction/renoviction policies could be applied.

Over the last few years, after surviving the early pandemic challenges, businesses also had to endure steep inflation for the cost of goods, materials, services, and transportation, and rising labour costs due to the staffing shortages, but also drastic increases to their rents due to triple-net lease arrangements. Triple-net leases include property taxes and fees, insurance, and rent and utilities for the property.

The pandemic has only exacerbated these structural challenges that businesses face in BC’s business and economic climate.

For years, since prior to the pandemic, there have been calls for the provincial government to provide relief for businesses — particularly small businesses and non-profit entities — facing escalating triple-net leases due in part to rising property values from the “highest and best use” of the property.

Businesses are particularly being hammered by property tax levels that consider the redevelopment potential of the lot — the unbuilt floors of homes in the air space above the single-storey of retail, restaurants, and venues. The tax burden can be equivalent to an imaginary condominium tower.

Neighbouring rezonings and recent amendments to an area plan enabling more density can also have a major impact on these rent levels.

Additionally, these cost increases also come at a time of high borrowing costs and softened consumer spending, with skyrocketing housing and living costs coupled with some economic uncertainty. And in certain areas, some businesses face even greater operating costs from the high frequency of incidents of property damage and vandalism, and theft.

In recent years, there has been a growing number of small business closures in Metro Vancouver, including restaurants and cafes. Many small and independent businesses are family-owned operations.

Henderson cited a January 2024 report by British Columbia Restaurant and Foodservices Association (BCRFA) and Restaurants Canada, which warned that unrestricted rent increases from landlords risk pricing restaurants out of long-established locations, with commercial property taxes passed to the business tenants.

According to the campaign, over 50% of BC food service and hospitality businesses are unprofitable, representing an almost five-fold increase since 2019. Moreover, restaurant bankruptcies have soared by 48% in the last 10 months.

Henderson provided some specific examples of small businesses in New Westminster struggling to deal with sudden substantial hikes to their rents.

She says the Toronto-based property owner of The Thirsty Duck Pub at 606 12th Street has hiked the restaurant’s rent from $12.00 per sq ft to $30.00 per sq ft per month, while the new owner of River Market has hiked the rent of Vancouver Circus School from $17.00 per sq ft to $39.00 per sq ft per month in the middle of their program year, when they are unable to adjust without notice. According to the Vancouver Circus School, since its opening in 2005, it has educated over 14,000 students in acrobatics and aerials, and produced over 600 shows and events.

The canyon-wide difference in rental rates suddenly increases the operating costs of these small businesses by tens of thousands of dollars each month.

vancouver circus school river market new westminster

Vancouver Circus School inside River Market in New Westminster. (Vancouver Circus School)

For years, since before the pandemic, the idea of creating a split tax assessment, when calculating property taxes for small businesses and community-serving organizations, has been floated to provide positive benefits similar to what commercial rent control could create. Under a split tax assessment, small businesses and community-based organizations would see their property taxes, as a portion of their triple-net lease, decrease from removing the property’s “highest and best use” from the equation.

In 2019, the provincial government suggested it would take years to design and plan the policy framework for a split tax assessment.

Another added cost for business operations in BC is the provincial Employer Health Tax, which has been in effect since 2019 and seen criticism from the business community.

Last month, as part of the 2024 provincial budget, BC Minister of Finance Katrine Conroy announced that the exemption threshold for the Employer Health Tax will be substantially expanded from the current threshold of businesses with annual payrolls of $500,000 to $1 million.

This doubling of the exemption means significantly more small businesses will be exempt from paying the Employer Health Tax. It is estimated that 90% of businesses will now be exempt from the tax. Furthermore, businesses with payrolls between $1 million and $1.5 million will continue to be partially exempt and see a decrease in Employer Health Tax obligations.

You might also like: