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Navigating Rent Reductions

Navigating Rent Reductions

What are landlords’ obligations to tenants when it comes to dealing with Covid-19 lockdown-prompted rent reductions going forward?

By: Property Investor Team

1 December 2020


My girlfriend and I have been living in the same rental for almost two years and it has largely been smooth sailing. We run our own catering business and have struggled to pay full rent since the first lockdown. It is taking much longer than anticipated to recover. We have spoken and agreed via text with our landlord in June that we could pay a reduced amount until further notice.

Our landlord hasn’t raised it with us since but we are worried that they may lift the rent now that the rent freeze has finished. Does the landlord have to give us notice before lifting the rent back to the normal amount? Can they do this at the same time as increasing the rent?


Landlords are not required to agree to a rent reduction by law. However, landlords may reach an agreement with their tenant if they choose. Any agreement you reach with your landlord in regards to a rent reduction should be recorded in writing, and signed by both parties. Your landlord should ensure you have a copy of this agreement before the rent reduction takes effect in case any disputes arise.

Generally, the agreement should include the start and end date for the reduced rent, a date when the rent reduction will be reviewed by the landlord or an agreed event or similar upon which rent will return to normal. It’s unclear whether this information was included in your agreement. We recommend that you go back over any messages to make sure you understand the terms of the agreement.

While it may be daunting talking to your landlord about this issue, we recommend contacting them and letting them know your situation. If your landlord is agreeable to continue with the rent reduction for a longer period, you should have this formalised through our FastTrack Resolution.

Landlords are not required to give notice if a rent reduction period has ended. Once the timeframe has ended in the agreement, the rent will generally be reinstated back to the original amount.

If rather than just reinstating the rent, the landlord looks to increase the rent then the landlord is required to give at least 60 days’ written notice for a rent increase. The notice must be served in writing, say how much the rent is increasing by and the day the increased rent is due. The landlord should keep a copy of the notice.

Since August 12, 2020, there are new rules for rent increases that you should be aware of. The Tenancy Services website has an online tool to help you understand what these rules and which one will apply to your situation. - Steve Watson

Utilising Lack Of Lvrs


I don’t have any intention of investing in another property in the short term. However, I will want to at some stage so I am wondering if I should be doing anything with my existing mortgages with the LVR rules currently not being in place. I have one rental property with one bank which is worth about $750,000 with a mortgage of $450,000 and my home is with a second bank. My home is worth about $1.1 million and has a mortgage of $800,000.


I would strongly recommend using the time with the LVR rules being off to load the additional debt (up to 80%) on to the rental property. Then bring this equity back into your home by reducing the mortgage there. It is very unlikely that when the LVR rules return you won’t be able to leverage to at least 80% on your home. So it makes sense to have the equity stored there for future investment purposes. - Kris Pedersen

Restructuring Ownership


For the last seven years I have owned and lived in my own house and I have very little mortgage left. Let’s assume I have none for this exercise and the value of the house is $1 million. Now I wish to purchase another house and I am thinking of going up to $1.4 million. But I need to borrow the entire amount because I wish to keep my existing house as an investment.

I was thinking of just creating two separate bank/loan accounts one for my investment in which I will show a borrowing of $1 million (note it is mortgage free at present) and another account for the remainder of the loan, which would be $400,000. Reasons todo that would be to enable me to claim expenses against the rental income of the investment property. Is this illegal given my current house is mortgage free? And, if so, would a trust setup be better for this?


This is a common question, and you are right to seek advice because, unfortunately, you will not get the outcome you seek simply by setting up two separate loan accounts.

If you were to do as you plan, the interest you pay on the $1.4 million of new borrowing will not be deductible because you will be viewed as having borrowed that money to buy the new home. Whether it is secured against the existing home or in an account that you designate as relating to the rental will not alter that fundamental fact.

Instead you should restructure the ownership of the existing property. There are a couple of options here. You could transfer it to either a trust or a company, but the key point is that you sell the property at market value from you personally into the new rental entity. The trust or company then undertakes the borrowing of $1 million (equivalent to market value) to buy the property from you. This way the entity that buys the existing home can claim the interest on this borrowing as deductible because it is seen as having borrowed that money to buy a property that is producing rental income.

I recommend that you seek specialist advice. There are tax consequences beyond getting a favourable outcome on the deductibility of interest, and you should also consider the best ownership structure for the new home. Often a family Trust is advisable in these circumstances as it can provide you with good asset protection and the foundation of an effective estate plan. - Matthew Gilligan

Pool Care Responsibilities


I am renting a property which has a swimming pool. In the property listing the photos were of a lovely clean pool. The tenancy agreement says the tenant is responsible for all the pool cleaning and maintenance. I have been in the property for just over a month and have had to ask the landlord about the pool a couple of times. That’s because the pool water was dark green with lots of leaves and sticks in it. He changed the subject so I decided to start cleaning it up for the summer.

I didn’t mind putting the work in to clean it and I didn’t mind putting the chemicals in. But now the filter has broken down and a few other things are broken. I am willing to pay for someone to travel down to me and give me advice and pay for more chemicals. But I feel the landlord should pay for the things that are broken down. Can you give me some advice about this?


Generally, a tenant is responsible for maintaining the cleanliness of a swimming pool. The Residential Tenancies Act requires that a tenant “keep the premises reasonably clean and reasonably tidy” (section 40). It follows that to keep swimming pools free from green algae will require the addition of pool chemicals from time to time, and these are regarded as a tenant’s cost.

However, the owner of the property is providing a pump to circulate the water. It is a normal part of a swimming pool facility, and it is part of the property. If the pump stops working the swimming pool water cannot be maintained in a chemical balance. The cost of maintaining the pump and repairing any breakdown is part of the owner’s responsibility to “provide and maintain the premises in a reasonable state of repair” (Section 45). - Bernard Parker

Subdivision Taxes


We purchased a 675m2 property about two years ago. Our intention is to subdivide and build a rental house on the back of the property as a long-term investment and for us to stay in the main house in the front. Would we have to pay tax on any of the properties if we had to sell one of them say in five years or 10 years? We are not property traders/developers. We just want an investment for our future.


Section CB12 taxes gains derived for the development or division of property where more than minor work is done to achieve this within 10 years of acquisition. The bar is very low on what work is considered minor.

However, there is an investment exemption in section CB23 where the work has been done to enable the taxpayer to derive additional rent. There is also a residential exclusion in CB17 that functions where the work is done to enable the taxpayer to live on the land. If you intend relying on these exclusions it will be necessary to walk the talk. - Mark Withers