For anyone that isn’t aware, the proposed amendments to the NSW Residential Act have now passed both Parliament Houses and, pending the NSW Governor’s Assent, they will soon become law. This process will take a few more months to complete and will involve the drafting of new Residential Tenancy Regulations as clearly, a lot more detail is necessary.
In terms of the process, it should be noted that the NSW Residential Tenancy Act is reviewed every 8 to 10 years and follows a generally tedious and lengthy bureaucratic process. To put things into perspective, the current NSW Residential Tenancy Act and NSW Residential Tenancy Regulations became into effect in 2010!
The end-to-end process takes anywhere between 2 to 3 years, during which time consultation is sought from various industry bodies and the public. Given how hard it is to amend legislation – especially when it relates to Real Estate which is always contentious – it is important to get things right as the next opportunity will not come around for almost a decade, leaving it in the meantime to tenants, landlords, property managers and Tribunals to sort out! Not pretty…
Acts and Regulations get amended every 10 years. Regulations are a supporting set of legislation that support the Act and their purpose is to provide a lot more detail.
On first look, the now introduced amendments continue the general trend set already in Victoria and soon to be followed in Queensland, in which the key focus is further protection of tenants – and seemingly little support for landlords. The proposed amendments aren’t necessarily targeting property managers and landlords “doing the right thing” but obviously not everyone is, which means that – as is normally the case – because of the few, everyone is disadvantaged.
Before I go any further, I should point out the good news! The good news is that in the NSW reforms there are 2 key absences from the reforms introduced in Victoria:
- no changes to the ‘90 days no grounds termination rule’, and
- no changes to clauses on pets (reminder that in Victoria landlords will no longer be able to reasonably refuse tenants having pets).
Not touching the current no grounds termination and pet rules is a major relief
There is no doubt in my mind that having the ability as an investor to get your property back when you need to – even if you have to wait 90 days, and having the final say on allowing a pet on your property or not, are both – simply put – a major relief. With regards to pets, I should clarify the following… Firstly, those close to me can attest that – having 3 cats of our own which we adore – I don’t have a problem with pets. Many times – as a landlord – I have been asked by my property manager if I’d object to having a house trained/suitable pet in my property and I have never ever refused the request. This is because in my experience, house trained pets cause no issues (never had any) and also because I know that people with pets, generally (not always) make great tenants. Of course not all pets are house trained and there have been many instances were pets are known to have caused damage to properties. Nevertheless, for me this isn’t a debate about pets per se, rather about a landlord’s right as the rightful owners of the property to have the final say in the process.
So what are the major changes introduced? Below is the list of the key changes as I understand them, and my verdict from a property manager/landlord perspective:-
1. Introduction of minimum standards for rental properties. This is a requirement to provide basic access to electricity and gas, adequate lighting and ventilation, adequate outlets for lighting and appliances, ensuring structurally sound buildings, adequate plumbing and drainage, connections to a water supply service or infrastructure for the supply of hot/cold water for drinking/washing/cleaning, and adequate bathroom facilities, including toilet and washing facilities (which allow privacy)!
My verdict: Fair for some – worrisome for others. Whilst there shouldn’t be any question whatsoever about ensuring a property has basic access to utilities, ventilation, hot water and plumbing, exactly what constitutes adequate lighting, and adequate outlets, can be subjective and a lot more clarification will be required. Additionally, the only person that can legitimately certify that a property is structurally sound, is an engineer – NOT a landlord or a property manager. Who, how and when should an engineer be involved, remains to be answered but it will come at a cost. I also foresee that this will be a bigger issue for older properties, especially those that are standalone, as for apartments, I suspect the responsibility will fall mostly onto the Body Corporate which at the end of the day is responsible for the structure.
2. Responsibility for landlords (not tenants) to repair smoke alarms, with big fines for failure to do so.
Verdict: Fair. Whilst there is some confusion in the current NSW Tenancy Act on who ultimately has this responsibility between tenants and landlords after the start of the tenancy – our view has always been that landlords should take charge. Not only do smoke alarms save lives, but proper maintenance also protects the interests of landlords. It is a long held belief of ours – and one that we make sure our landlords understand – that the small annual cost it takes to ensure that smoke alarms on their rental properties are in working order, is a well justified expense. I urge people to refer to the article below for more information on smoke alarm maintenance and best practice in NSW, which is what we’ve been advocating for a while now.
3. Removal of the option that currently enables landlords when tenants break a fixed-term agreement recover all costs up to and until either a new tenant is found OR to the end of the term (whichever is the less of the two). The changes limit break fees as follows:
4 weeks’ rent – when 75% or more of the lease remains
3 weeks’ rent – if between 50% and 75% of the lease remains
2 weeks’ rent – if between 25% and 50% of the lease remains
1 week’s rent – if 25% or less of the lease remains
Verdict: Unfair. First and foremost, the main issue I have with this amendment, is that it goes against the most basic form of legal agreement our society relies upon: the establishment of a contract. Contracts cannot commit fully one party, whilst allowing the other to exit with seemingly little damage. To understand the ramifications, let’s take as an example, a situation where a tenant on a year long lease, breaks their contract on the day after the end of the 6th month. In this example, a tenant would only be liable for 2 weeks’ rent. Two weeks’ rent will not cover the costs of advertising, photography or the lost rent until new tenant is found. In a slow market, a landlord could be out of pocket by thousands of dollars until a new tenant is found. Out of all the amendments introduced, this is probably the most unfair from a landlords perspective.
4. Domestic violence victims can now break a lease without incurring a penalty – regardless of if the perpetrator is a tenant or not. Also, introduction of heavy penalties to property managers when a tenant that has been a victim of domestic violence to be listed on a tenancy database.
Verdict: Unfair. On one hand I truly appreciate the hardships of victims of domestic violence and I don’t wish them on anybody. On the other, I can’t help but wonder why is the landlord the one that – yet again – bares the financial consequences. And it is not just rent at stake here… Domestic violence is sometimes accompanied by damage to the property. Whilst I understand that finding and holding the actual perpetrator – who may not even be on the tenancy agreement – accountable is not easy or cheap, some provisions must be put in place to cover landlords too. Sure landlord insurances may be able to cover some of these costs, but not all do.
5. Limiting rent increases for tenants on periodic leases to only once a year (no restriction at the moment).
Verdict: Fair [in the current environment]. Providing the landlord (if self managing) or their property manager is diligent on their rent reviews, reviewing and increasing the rent appropriately every 12 months, this will work in the current market. Having said that, this restriction may become a problem in the future, when demand outstrips supply putting upwards pressure on rents. When that happens – and by my estimations it will happen in the next 3 to 5 years given that new construction has halted in NSW – annual rent reviews will need to be right when they happen or else you will need to wait a whole year.
6. Stopping landlords from unreasonably refusing tenants from doing minor alterations.
Verdict: Worrisome. The example I have heard countless time is the ability for tenants to be able to put picture hooks up. Whilst that sounds innocent enough and whilst the tenant still needs to let the landlord know and the landlord not being able to “unreasonably refuse”, I can’t help but wonder what constitutes a “small alteration” versus a “medium size” alteration. Is it the size of the hooks OR the number of hooks? Or both? And that’s just one example. Unless the Regulations yet to come, clearly articulate what constitutes “minor alterations”, I foresee disputes and a lot of debate – which normally ends up in the landlord losing out whilst property managers desperately try to make sense of it all.
7. New powers for the Department of Fair Trading to grand rectification orders to force landlords to complete urgent repairs when requested by tenants.
Verdict: Worrisome. Whilst this is designed to force dodgy operators to complete urgent repairs they are ignoring, my worry is that dealing with what constitutes an urgent repair and truly understanding the facts is often not straightforward. Who will be put in charge and what prior industry experience they have, will go a long way to making this a success. Also, let’s not forget that Fair Trading has been set up to protect the consumer (who in this instance is the tenant), rather than the interests the landlords (who in this instance adopt the role of the “trade”).
8. Need for landlords to sign a formal statement that they have read and understood their rights and obligations, and have it acknowledged on the actual tenancy agreement.
Verdict: Fair. Landlords should know their rights and obligations, and it is the property property managers’ role to ensure they do and provide the necessary education AND self managing landlords to educate themselves. This is even more critical for the latter as understanding and educating yourself on the ins and outs of legislation is not easy. In fairness, if you decide to self manage your property, you need to put in the effort to know the Act and Regulations inside out, just as property managers need to. all in all, I have no problem with anything that forces landlords to become more familiar with the legislation, and understand what is required of them.
9. Ability for the landlords to give a termination notice to tenants when they haven’t paid – as well as rent – water, electricity, gas and oil, for longer than 14 days. Terminations requested from Tribunals because of non payment of water, are only valid if the landlord has requested payment within three months of the bill’s issue!
Verdict: Fair [but seems harsh for tenants]. No issue of course from a landlord perspective here, but on first look this sounds excessive as in theory a landlord could terminate a tenant for nonpayment of utilities after 2 weeks.
10. Tenants can now terminate their agreement if it is proven that they have been misled OR had certain facts concealed when they signed the tenancy agreement. This includes cases where the property is included on the loose-fill asbestos insulation register during or before the commencement of the tenancy without informing the tenant.
Verdict: Fair. No issue with this one. Property managers and landlords need to be diligent, transparent and honest with their tenants.
11. New requirement for tenants to be given a completed incoming inspection report at the time they sign a tenancy agreement.
Verdict: Fair. Incoming condition reports can be produced and provided without any issues. The only concern for property managers would be the scenario when a property is rented out before the previous tenant has exited the premises. This is sometimes [not often] the case, and in that scenario you would require to complete and supply the new tenant with the entry condition report, before you had the chance to complete the exit condition report of the previous tenant and deal with any issues arising.
12. Landlords and property managers need to supply new tenants with a copy of the by-laws before the tenant enters into a residential tenancy agreement for properties in a strata scheme.
Verdict: Fair. Tenants moving into a strata complex, do need to know their rights but also obligations right from the start, including how and when they can move into the premises and what is expected of them while living there. This is a practice we have adopted long ago. The only concern in our experience is that sometimes “extracting” those from some Strata Managers is an issue as they will either only grant the request to the owner (not property managers) or ask for a fee. Either way, not the end of the world and it is good practice.
13. Landlords can now access the property without the tenant’s consent to take photos or visual recordings, for the purposes of advertising the property for sale. It can only be once in a 28-day period and reasonable notice must be provided. Photos and footage though MUST NOT include the tenants’ possessions.
Verdict: Fair but I am not sure how practically one can take photos or footage for advertising without the possessions of the tenant living there in them.
There are others (such as a definition for separately metered premises and fines for database operators charging tenants fees for providing copies of their record) but these are the main ones reported.
So what is my verdict as a total package? On balance, given the ongoing and permanent anti landlord sentiment, I think the reforms are fair but a lot more work is needed to provide the required clarification. The successful implementation of the reforms will depend on how thorough the amendments to the Residential Tenancy Regulations 2010 will be. In my opinion, leaving the “no grounds eviction” and pets untouched, is a major win – and for that alone I am willing to accept the reforms as they could have been worse.
On balance the reforms are acceptable but a lot more work on the detail is required before final judgement can be passed.
As for the changes when they come in sometime in the middle of next year, I have no doubt they are going to bring a lot of pain, confusion and a lot more work for property managers, until things have settled and precedents set for Tribunals.
All in all, whilst tenants deserve protection and a safe place to live in, landlords too need to be supported just the same… Let’s not forget that Australia does need landlords and property investors – just as tenants need them – to provide housing for those that choose not or can’t afford it. Life as an investor isn’t easy and there are all sorts of pressures and risks on property investors.
My message to those about to embark on the drafting of the Regulations is this: Protect the tenants’ rights but make sure to be as equitable as possible to all parties involved.
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