Would commercial rent control protect small businesses in Canada?

Strolling down 12th Street in New Westminster, B.C., it's easy to see how the area's small independent businesses and mom-and-pop shops reflect the city's diversity.

African beats play in a bustling barbershop while a restaurant serves Caribbean roti next door. Grocery stores are stocked with international goods. On one corner, a cozy Balkan deli sells delicacies and snacks like homemade pitas and bean stew.

"It's just a really unique place in the city," saidTasha Henderson, a councillor in New Westminster, a city located about 15kilometressoutheast of downtown Vancouver.

She says the area's predominantly locally owned shops provide a sense of communityfor visitors and owners alike. Much of the street hasn't been redeveloped in decades, and is comprised of older, mostly single- or two-storeybuildings that allowcommercial tenants to pay lower rents.

But Henderson worries the charm of areas like these is becoming harder to sustain in Metro Vancouver and other areas of B.C., amid rapid development, increasing land valuesand rising commercial rents.

She's one of several people now calling for a form of commercial rent control to limit how much landlords can charge or increase rents.

Albert Kamba, who owns the Salon Elegant barbershop on 12th Street, says he's seen around a 60 per cent increase in rent since 2006. Although the area has long been more affordable, he worries about rising costs and keeping services affordable.

"We're scared a lot it's tough," said Kamba while working on a fade cut for a client of 15 years.

Nearby, Catalyst Kinetics has recently moved to 12th Street after being priced out of its previous space in neighbouring Burnaby, B.C. The health-caregroup, which includes chiropractors, physiotherapistsand other practitioners, had its rent double twice within 13 years, saidCEO Graham Duthie.

It's been "a very difficult road," he said.

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Should there be commercial rent control to support small businesses?

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A B.C. councillor hopes to see commercial rent controls as a tool to protect small local businesses from soaring rents and preserve the vibrancy of neighbourhoods.

Henderson says commercial rent control would be one tool to protect small businesses in B.C. from the risk of being priced out, so that the vibrancy of neighbourhoods like 12th Street could be preserved.

In a 4-2 vote in February, New Westminster council passed a motion by Henderson asking the province to "provide local governments with the legislative authority to enable special economic zones where commercial rent control and demo/renovation policies could be applied."

Henderson suggests these zones could give culturally significant areas like 12th Street protection similar to that afforded to heritage sites. The motion states while the province regulates annual rent increase for residential tenants, no similar policy exists for small businesses and community-serving organizations.

"Why are we allowing landlords to pass down the cost to small businesses who are owned by families in our communities who want to live, work and play in the city? We ought to support them," Henderson said.

Henderson's motion was endorsed at the 2024 Lower Mainland Local Government Association annual general meeting in May and will now be submitted to be considered and debated at the Union of B.C. Municipalities (UBCM) convention in September, B.C.'s Ministry of Housing said in a statement.

The province will review all resolutions endorsed by UBCM's membership, the ministry said.

Pressures on small businesses

Figures from the British Columbia Restaurant and Foodservices Association show just how difficult it's becoming to operate an independent business in thatsector alone.

Over 50 per cent of foodservice and hospitality businesses are unprofitable, a nearly five-fold increase since 2019, according to a January report by the association.It also found restaurant bankruptcies increased by 48 per cent over 10 months.

Rent increases, pandemic-related debtand increasing property taxes areamong the reasons driving the challenges.

In B.C. provincial data is not available on average commercial rent increases for businesses. Experts note it can be difficult to track commercial rent increases as these arrangements are often private and can vary substantially.

According to Statistics Canada, average retail rent has increased by 6.5 per cent in Canada and by 3.7 per cent in B.C. between the first quarter of 2019 and the second quarter of 2024.

This retail data, however, looks at a wide range of retail properties from shopping malls and strip malls to neighbourhood businesses.

The province says it acknowledges the pressures on businesses but currently has no plans to introduce specific zones with commercial rent control.

But calls for such measures are growing.

In May, Toronto city council passed a motion calling on the Ontario government to implement commercial rent control among other relief measures.

The motion, presented by Coun. Josh Matlow, states how a "lack of protection has resulted in neighbourhoods losing far too many of their favourite stores and restaurants in favour of chains that can afford higher rent."

In Toronto, the average commercial/retail lease rate went up almost 32 per cent between 2022 and 2023,according to data by the Toronto Regional Real Estate Board.

CBC News has contacted the Ontario government for comment but has yet to receive a reply.

Issues with rent control

Others are wary about the idea of commercial rent control, saying there's a fine balance between protecting the needs of landlords and tenants.

Commercial rent control could lead to more selective landlords and less retail space for small businesses, says Damian Stathonikos, president of the Building Owners and Managers Association of British Columbia.

He says landlords may decide not to invest in retail spaces with commercial rent control because they can't charge for a return on their investment. This could limit available retail spaces and lead to poorly maintained buildings, he said.

"[Commercial rent control] is a drop in the bucket. The root of the problem really comes back to how expensive it is to run a small business these days," Stathonikos said, citing labour costs, material feesand rising property taxes.

In many cases, small businesses end up covering property taxes as part of their operating costs, he said. That can add even more financial pressure for tenantsin older, single-storey businesses especially in regions experiencing high redevelopment because properties are taxed based on their future development potential, which far exceedstheir current use.

In New Westminster, the average business building paid around $32,181 inproperty taxes in 2024.

The province says it's working to reduce taxes for small businesses with measures like anew law last year that offers property tax relief to qualifying small businesses facing development potential. Municipalities can now set a lower rate and choose the percentage of the land value to be taxed.

Defining a small business can be also difficult, says Stathonikos. While mom-and-pop stores are locally owned, so too are many chain-restaurant franchises.

"I think that's really sometimes the nuance of deciding, well, who would this commercial rent control apply to?"

'As a landlord, we need to find a balance'

Stathonikossays most landlords want their tenants to succeed and it's important to find balanced solutions beyond rent control.

At Catalyst Kinetics on 12th Street, some of those balanced arrangements are being made.

Sharp snaps of nailguns fill the air as CEO Graham Duthiewatches the new home of his business come together.

The group scoured properties for years before the end of its previous lease in Burnaby, Duthie said. Business partners and lenders eventually helped them buy a more affordable location on 12th Street, saving the company.

As renterturned landlord, Duthie hopes to keep rentaffordable for the three tenants in the building a dog groomer who's been there for 55 years, a mother-daughter-owned restaurant, and a Domino's.

"As a landlord, we need to find a balance. We want to be able to support them. I think we owe it to the community, " said Duthie.