Radical changes proposed to Residential Tenancies Act will provide more tools to Property Managers
Security of tenure may spell the end to the Fixed Term Tenancy
Almost twelve months on from the formation of the Government, the changes around tenancy reform in New Zealand are coming thick and fast. Make no mistake, radical change is coming and particularly around the security of tenure and protecting tenants. A case I dealt with recently highlights why tenants need more security.
I received a call from a Property Manager last week asking for some guidance. The situation arose after a tenant was given 90 days notice to end the tenancy.
This is a scenario that many Property Managers, including myself, have found themselves in and many of you reading this will probably be able to relate to this story.
The Property Manager explained to me that a tenant of a particular property was demanding and very ‘nit picky’ when it came to requesting maintenance. However, although this tenant could be demanding, he looked after the property and always paid his rent on time. The landlord who had six properties with this company could sometimes drag his feet in getting things fixed and responding to requests. After a number of requests for a variety of minor maintenance issues, the landlord had simply had enough.
“Give the tenant 90 days notice” was the instruction that came across. “OK” said the Property Manager. The Property Manager then notified the tenant who asked why he had been given notice. The Property Manager in this case correctly stated that they do not have to give a reason but she would ask the landlord.
The landlord responds “Tell him my sister will be moving in after Christmas”. “OK” responded the Property Manager.
After notifying the tenant, the tenant subsequently gives the landlord 21 days notice to vacate the tenancy and move out.
Then the landlord responds to the Property Manager. “Right, can you advertise for new tenants please?”
“Hang on! You just told me your sister was moving in.”
“Yes, things have changed and she may no longer need it”
What is the Property Manager to do? Tell the landlord no we can’t and risk losing 6 managements with an annual contract value of approximately $10,000? Or do you risk it and re-advertise the property and hope the tenant does not go after you for Retaliatory Notice? If found guilty this could leave the company exposed to exemplary damages of up to $4,000.
This is not an isolated occurrence and as more and more tenants start to find their voice and speak up for their rights, more and more landlords may leave themselves and their Property Managers at risk because they make bad, ill informed decisions based on a lack of knowledge and emotion.
Laws need to evolve and landlords have to accept it.
In New Zealand, our rental laws have just become outdated and we are finally catching up with the rest of the world. The reality is that there are plenty of landlords out there who abuse their power and hide behind the Property Manager expecting them to take the fall whilst they have no care of responsibility. This was highlighted in a recent Consumer report that highlighted Property Managers were much slower in getting maintenance organised compared with the landlords who self managed. This is not because Property Managers don’t care, it is because it is much easier for a landlord to say ‘no’ or ignore the request altogether when you have a Property Manager as a go between. When you have to deal face to face with the tenant, its a lot harder to say no.
I liken being a landlord to being a parent. No one admits to being a bad one but unfortunately in New Zealand, there are plenty of them. Whether through intent or pure ignorance of their responsibilities, many landlords get it wrong. Yes, the vast majority are good and try to do the right thing, but, like Property Managers, they can be let down by a small minority. Tenancy laws are not robust enough to deal with modern day renting and as about a third of New Zealanders now rent with many caught in the rental cycle for life, the Residential Tenancies Act has to evolve. Tenants need to be protected and looked after.
Tenants were given 90 days notice after this property hit the headlines for all the wrong reasons. The tenants rightly challenged this. No cause evictions will soon become a thing of the past. Good riddance I say.
As our Government approaches its first year anniversary, announcements of tenancy reforms are happening more and more as Phil Twyford’s masterplan starts to take shape. Between now and Christmas, we are going the see the following.
Proposed reforms to the Residential Tenancies Act announced in particular around the ‘security of tenure’, rent bidding and allowing tenants to have pets.
Stricter rules and regulations for operators of Boarding Houses with likely introduction of a Warrant of Fitness.
Standards and timeframe around the implementation of the Healthy Homes Guarantee Bill criteria.
Residential Tenancies Amendment Bill No.2 and Abolishment of Letting Fee Bill will become law.
And yes, the elephant in the room, there will be some announcement as to whether our industry will become regulated.
The Fixed Term Tenancy may go
The removal of ‘No Cause’ notice on periodic tenancies where the landlord can give the tenant 90 days notice without reason is the right thing to do. Yes, you will get the odd occasion where tenants who are a nuisance to society with anti-social behaviour may abuse the situation if it is not managed properly. However, situations like this will be rare and overall, this change will be to the betterment of New Zealand and it is long overdue.
The proposed reforms will scrap the 42 day notice period for family members moving into the property or vacant possession when the property sells. All notice periods to end a periodic tenancy will extended to 90 days under normal circumstances. More importantly, the landlord will also have to provide a valid reason to end the tenancy. Not liking a particular tenant isn’t a valid reason.
A potential victim of the removal of ‘No Cause’ 90 day notice is the Fixed-Term tenancy. The government have certainly done their homework around this, correctly identifying that if you have to give a valid reason to end a periodic tenancy, landlords will simply switch to Fixed-Term tenancies. With no reason required not to offer a renewal, the landlord retains control and the tenant may have to leave without good reason. As such three options have been proposed
Providing tenants with a right to extend their fixed-term agreement
This provides tenants with a right to extend or renew their agreement or allow tenants to move onto a periodic agreement provided that the tenant has not breached their obligations during the tenancy.
Specify a minimum length for a fixed-term agreement
This seems less practicable. There will be lots of situations where a landlord may want to rent his or her property out for a short period of time. Stating the minimum period may be too restrictive.
Remove fixed term tenancies altogether
This is the final option that has been muted as a way of dealing with the security of tenure and therefore, we will only see periodic tenancies. Landlords with properties catering for the student market around Universities will shudder at the thought of this suggestion. A tenant giving notice in July, half way through the student year could be disastrous with no rental income for six months being a real possibility.
The other unforeseen consequence of this is where a family has a holiday home. In many of the holiday hotspots, landlords offer fixed term ending around Christmas time so they can occupy the property for their Christmas holiday. This is common in places such as Wanaka. Requiring the property to have a ‘holiday’ is not a valid reason for giving tenants notice. It will be interesting to see the impact of the changes in markets such as this.
Looking across the ditch to Victoria, new rental laws have recently been passed which are very similar to what is being proposed in New Zealand. For Fixed term tenancies, landlords will only be able to end tenancies using an ‘end of fixed term’ notice to vacate at the end of a tenant’s first fixed term agreement. At the end of any subsequent fixed terms for that same tenant, the landlord will only be able to end the tenancy using one of the grounds specified in the state Residential Tenancies Act.
This reform aims to improve rental security and encourage longer term leasing arrangements between the parties, especially where a tenant has proven they can meet their obligations.
Tenants who receive an ‘end of fixed term’ notice will also be able to give 14 days’ notice to vacate the property at any time, rather than having to pay rent until the end of the fixed term. This will stop tenants missing out on new homes because they have to wait until the end of the fixed term, or paying double rent when they find a new home.
Who let the dogs out?
A long standing victim of the housing crisis isn’t just people, it’s pets. In fact, over three years ago, I wrote an article about the plight of families with pets looking for rental properties called ‘Gone to the Dogs’. From my own experience as a Property Manager, rarely did I have an issue in dealing with pet loving tenants. In fact on the contrary, I found pet loving tenants to be an absolute pleasure to deal with. So long as tenants provide evidence around registration of their dog, then having pets in rental properties should be a right of the tenant and not the landlord. A two year old child is just as likely to cause damage to a rental property, just leave them a set of crayons!
What we would recommend though is that landlords have the ability to ensure that carpets are commercially cleaned at the end of a tenancy along with treatment for fleas.
Why do we go to Tribunal for arrears?
A flow on affect from tenants feeling more secure could be an increase in tenants exercising their rights through the Tenancy Tribunal as there would be no fear of retribution. This would see a likely increase in Tenancy Tribunal hearings and longer wait time before you get a hearing. Tribunal has to operate quickly and fairly. Having unnecessary delays is unfair on both landlords and tenants. If there is a dispute and genuine concern about ongoing damage to a property then the landlord should be able to access tribunal quickly and vice versa for tenants.
One solution we have thought of is to remove rent arrears only applications from being heard in the Tenancy Tribunal.
This is the one area of renting which is straight forward and if a tenant is in arrears it is not a dispute. It is fact.
If the landlord or Property Manager can provide evidence that a tenant is more than 21 days in arrears and it is not in dispute then why should you have to go to Tenancy Tribunal to get a possession order? So long as there is no cross application then there is no dispute and possession should be granted without wasting the time of everyone involved.
Just think about the time that would be saved in Tenancy Tribunal.
Approximately 15,000 Tenancy Tribunal hearings take place every year
According to the reform discussion document, 90% of cases are lodged by landlords of which 75% are for rent arrears.
If the document is accurate this means that approximately 10,000 tribunal hearings will be for rent arrears.
Imagine the time saving if arrears disputes could be handled remotely without having to go to Tribunal. Once a tenant becomes say 21 days in arrears and evidence is provided then a possession order could be written up, sealed and the tenant would have to vacate the property within 7 days unless payment of the arrears is made.
In the UK, most tenancy disputes don’t even have a hearing. Parties submit evidence and a ruling is based purely on this. In today’s modern age with technology becoming so prevalent, it seems a complete waste of time and money to have to wait for a Tribunal hearing that in most cases the tenant does not even turn up for.
Other factors to discuss
The reforms are far and wide reaching. covering them all in this article would be akin to writing a book. Other factors that are in the document are as follows.
Outlawing rent bidding and reducing rent increases to once a year
Improving accountability for operators of boarding houses
Reviewing exemplary damages and assessing whether they go far enough
Look at the powers of MBIE to investigate severe alleged breaches of the RTA
Whatever comes of these changes, there is no doubt that tenant groups will become more confident about the future of renting with more power moving towards the tenant. Overall, as an industry I do not believe we have anything to fear - in fact I believe the reforms will make our job easier. Yes, there will be concerns around what happens with Fixed-Term tenancies but I have not seen anything in this document that I feel strongly opposed to. If anything, I do believe the changes will give more power to Property Managers as they will have more tools at their disposal in dealing with difficult clients whether they be landlords or tenants.
The concept of being a tenant has changed. It is no longer a temporary solution before you get your first house. For many, they do not have that luxury. I for one support many of the changes proposed.
Next thing to cover will be the standards around the Healthy Homes Guarantee Bill and regulation of our industry. Change is constant in business and in life and sometimes the amount of change we are dealing with can feel somewhat overwhelming. Rather than fight the inevitable, my belief is that we should embrace change and the companies that do this will thrive. In the case of tenancy law, it is change that needs to happen and long term, the nation will be better off for it.