Encyclopedia
Loss-to-lease
The gap between the rent tenants are paying under current leases and current market rent.
For example: Hypothetical: a building with older leases below market has a loss-to-lease that a buyer hopes to recover on renewal. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you buy an apartment building where many rents are below what new tenants pay. That gap is loss-to-lease. You plan for the income to rise only as units turn over, within the rules that limit rent increases for existing tenants.
What I’d tell a friend
Loss-to-lease is potential, not income. Check what the law and the leases actually allow before counting on it.
Why it matters to you
It's where a buyer sees upside and a seller argues for a higher price. That upside only exists if the leases let rents rise and the tenants stay, so check expiry dates and renewal terms before paying for it.
How to use it in your deal
Buyers should calculate loss-to-lease for each tenant, then look at when leases expire and whether renewal options limit increases. A big loss-to-lease is only valuable if you can capture it, so check renewal terms, tenant health and market conditions. Sellers often highlight loss-to-lease in marketing; check their market rent assumptions against real comparable leases.
Lenders usually underwrite current rents, not potential. Owners should plan renewals to capture market rent where possible. In residential buildings, rent controls limit increases for existing tenants, so loss-to-lease may be capturable only at turnover.
Price the property on today's income plus a realistic share of the upside, not all of it, and factor in vacancy, leasing costs and tenant improvements needed to reach market rent. A tenant paying far below market may also be a tenant who'll leave at renewal, which brings downtime. Ask the seller for recent renewals in the building to see how tenants actually responded.
Mistakes I see
Overestimating market rent. Ignoring renewal options. Assuming increases are immediate.
In BC and Vancouver
Lease terms govern; the Residential Tenancy Act limits residential rent increases.
Official sources: Commercial Tenancy Act (BC Laws) · Residential Tenancy Act (BC Laws)
What it means
Loss-to-lease is the difference between what current tenants pay and what the space could rent for at market rates today.
It is often highlighted in sale listings as upside for a buyer.
What to watch
In BC residential rentals, rent increases for existing tenants are limited by provincial rules, so the gap may close slowly. Check the current rules with a BC lawyer before you count on the increase.
For commercial leases, the gap closes only at renewal or a new lease, so look at lease terms and expiry dates.
Questions to ask before you sign
- What's market rent?
- When do leases expire?
- Are renewal rents fixed?
- Can I capture the gap?
Keep reading
Related terms: Market rent, Renewal option, Rent roll, Value-add
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.