Above the Cap: Raising Rent Above the Annual Limit

There is a built-in tension at the core of British Columbia’s residential tenancy regime. Section 32 of the Residential Tenancy Act (“RTA”) requires landlords to keep rental properties in a state of repair that meets health, safety, and housing standards. At the same time, section 43 of the RTA imposes strict limits on annual rent increases.

For landlords managing aging buildings, this tension creates a significant practical challenge. With the maximum allowable annual rent increase set at just 2.2% for 2027, the additional rental revenue generated by an ordinary rent increase may fall well short of the substantial capital expenditures required to maintain and preserve aging rental housing.

The RTA addresses this tension, in part, through the Additional Rent Increase for Capital Expenditures (“ARI-C”) regime provided for under section 23.1 of the Residential Tenancy Regulation. An ARI-C is not automatic. Rather, a landlord must apply to the Residential Tenancy Branch and establish its entitlement to the increase through an evidence-driven adjudicative process. In this respect, the ARI-C regime provides a mechanism through which qualifying capital expenditures that cannot reasonably be absorbed through ordinary annual rent increases may be recognized and recovered over time.

1. The Four Core Requirements of an ARI-C

An ARI‑C application is about proving that a specific capital expenditure meets four strict criteria.

i. The work must involve a major system or major component

Eligible work must relate to systems integral to the building’s function or safety such as structural elements, electrical or mechanical systems, roofing, waterproofing membranes, elevators, or generators.

In short, ARI‑Cs are not available for routine maintenance, cosmetic upgrades and minor repairs.

ii. The work must be necessary

The expenditure must have been undertaken for one of four reasons:

• to comply with health, safety, or housing standards;
• because the system failed, malfunctioned, or was at (or beyond) the end of its useful life;
• to reduce energy use or greenhouse gas emissions; or
• to improve building security.

In simpler terms, “nice to have” projects do not qualify.

iii. Timing matters: the 18‑month rule

For ARI‑C purposes, a capital expenditure is considered “incurred” based on the date of final payment, not when construction began or earlier invoices were issued. Payments or invoices made more than 18 months before the application do not invalidate a claim, provided the last payment for the project falls within the 18‑month window. This distinction is critical for large, multi‑year capital projects.

iv. The work must not recur within five years

The work must represent a long-term capital improvement. If the system or component is expected to require the same expenditure again within five years, it is unlikely to qualify.

2. How ARI‑C Applications Can Fail

Even when all four requirements appear satisfied, ARI-C applications can still fail if tenants establish one of two ineligibility arguments.

First, tenants may argue that the work was required because of inadequate maintenance by the landlord. For example, if deterioration was accelerated by neglect, the Residential Tenancy Branch may disallow some or all of the costs.

Second, outside funding matters. Any portion of the expenditure covered, or recoverable, through insurance proceeds, grants, rebates, or similar funding must be deducted from the claim.

While landlord must prove eligibility, tenants carry the burden of proving ineligibility.

3. Evidence Is Not Optional

Successful ARI‑C applications are generally built on documentation including:

• Engineering or consultant reports confirming failure or end‑of‑life condition;
• Maintenance and inspection records showing ongoing upkeep;
• Invoices, contracts, and proof of payment;
• Pictures;
• Information on useful life;
• Permits and project documentation.

4. A Practical Example

A 2024 Residential Tenancy Branch decision involving two 1970s high‑rise buildings in New Westminster demonstrates how these principles work in practice.

The landlord sought an ARI‑C for two projects:

• Replacement of a parking garage membrane (over $3.4 million); and
• Replacement of an emergency generator.

The application succeeded because the landlord checked every box. Engineering reports confirmed both systems had exceeded their useful life, by decades. Maintenance records showed monitoring rather than neglect. Final payments fell within the 18‑month window. Expert evidence established that replacements would last well beyond five years. Tenants failed to prove inadequate maintenance or outside funding.

The result was approval of an additional rent increase of $130.23 per unit per month ($29,171.52 per month), subject to statutory phasing limits.

5. Closing Thoughts

The ARI‑C regime is not a loophole in the rent‑cap system. It is a carefully structured process designed to address a difficult legal reality: landlords are required to maintain aging buildings, but only under precise and well‑documented conditions may those capital costs be passed on to tenants.

For landlords and property managers willing to do the groundwork, ARI‑Cs are a valuable tool for bridging the gap between regulatory rent limits and real‑world capital demands.

If you require additional information or further assistance, please contact Anil Aggarwal or a member of our Residential Tenancy Group.