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Reform Worries

Reform Worries

The Government recently announced its much anticipated tenancy law reform proposals and landlords are not happy about them. Miriam Bell finds out why.

By: Miriam Bell

1 January 2020

It’s been hit after hit on the policy and regulation front for investors in recent years. From the extension of the bright-line test; to new rules around the ring-fencing of rental losses; to the Healthy Homes minimum standards, it has all made the business of being a landlord much harder.

Yet the body blows just keep coming. Sure, the capital gains tax proposal ended up being ditched by the Government.

But now the Government has released its long-awaited tenancy-law-reform proposals. And, to many landlords, those proposals not only bear out their worst concerns, but represent another round in the war against them.

The Proposed Reforms

Associate Minister of Housing Kris Faafoi announced the raft of proposed changes to the Residential Tenancies Act (RTA) in November. He says both renters and landlords will benefit from the proposed reforms.

One major proposal is that landlords wouldn’t be able to end a periodic tenancy without a reason. That means they wouldn’t have the ability to issue “no cause” 90-day notices. Instead, there would be a few specific reasons under which such a tenancy can be terminated by the landlord.

These reasons include the intention to sell within 90 days of the tenant leaving the property, major renovation or repair work which would leave the property uninhabitable, or plans to change the use of the premises.

Landlords could also end a periodic tenancy if they have issued three separate 14-day notices to a tenant within a 90-day period for antisocial acts, or if they have given notice a tenant has been at least five working days late with their rent within a 90-day period. However, the landlord would need to apply to the Tenancy Tribunal for a hearing about such matters.

Another big change is that fixed-term tenancies would automatically become periodic tenancies at the end of the fixed term. This would apply unless the landlord and tenant agree otherwise, the tenant gives notice, or the landlord gives notice using one of the specified reasons.

Under the proposed reforms, rent increases would be limited to once every 12 months and the practice of “rent bidding” would be banned. Requests from tenants to reassign a fixed-term tenancy to another tenant would have to be considered and landlords couldn’t unreasonably decline. Also, tenants would be allowed to make minor alterations to rental properties, like adding brackets to secure furniture against earthquake risk, installing visual fire alarms and doorbells, and hanging pictures.

Additionally, MBIE will be empowered to issue notices to landlords to comply with RTA obligations without first having to obtain a Tenancy Tribunal Order, and the financial penalty levels which the Tribunal can award will be increased to a maximum of $100,000.

‘It will put people off doing something about disruptive, antisocial tenants in rental properties. Problem tenants will just stay and the neighbours will suffer – or leave’ – PETER LEWIS

According to Faafoi, the changes are balanced and will provide certainty to both the one-third of New Zealanders who rent and landlords about their respective roles and responsibilities.

Termination Concerns

However, landlords don’t believe the proposed reforms are balanced. In fact, they are up in arms about the bulk of them – and in particular about the plan to abolish 90-day “no cause” termination notices.

Much of their concern revolves around tenants who exhibit consistently antisocial
behaviour. Under the reforms, to end the tenancy of such a tenant it would be necessary to state the reason in the notice and apply to the Tribunal with three examples over three months.

That would require the presentation of proof of behaviour and landlords say that would be difficult as such evidence usually comes from neighbours and most don’t want to provide it as they will be identified and that worries, or scares, them.

Auckland Property Investors’ Association vice president Peter Lewis says that’s understandable. “If you were living beside a bunch of feral and threatening gang members would you want them to know you’d complained about them?

“Currently, that can be avoided. But if this change goes through it will put people off doing something about disruptive, antisocial tenants in rental properties. The problem tenants will just stay and the neighbours will suffer – or leave.”

He says there is evidence of this in some Housing New Zealand (HNZ) properties because HNZ’s sustainable tenancies policy means they don’t issue 90-day notices to tenants whose antisocial behaviour is affecting neighbours.

“This change would not just be felt by landlords, but by the general public – that’s owner-occupiers and other tenants who happen to live near antisocial tenants. They will all be at greater risk from bad tenants because landlords will not be able to remove them, unless a neighbour is prepared to stand up and provide the necessary evidence.”

It’s worth pointing out that, contrary to popular belief, landlords do not want to remove tenants unless they have to, Lewis says. “It is simply not logical for landlords to kick a good tenant out and lose the income from their rental for no reason. There’s always a reason for terminating an agreement.”

Investor Nick Gentle, who runs iFindProperty, believes the Government is trying to solve the problem of people getting turfed out of their homes repeatedly when those properties are sold but they have got it wrong “As a property owner, I’m going to
become a whole lot more risk intolerant when it comes to who I rent my properties to and, unfortunately, that’s likely to impact on more vulnerable people. I’m sure other landlords will do the same.

“It’s not about being malicious but you have to be able to protect your property. By instituting this change, the Government will make it easier for landlords to sell their rentals rather than get tenants, who they potentially can’t get out, into them.”

Staunch Opposition

Lewis and Gentle are also staunchly opposed to the proposal to automatically roll over fixed-term tenancies to periodic tenancies at the end of a fixed-term agreement. They both think it will have a very negative effect on the student rental market which revolves around fixed-term agreements.

But Quinovic Property Management’s Bernard Parker is particularly worried about this proposal, which he thinks removes control of the property from the landlord.

Further, it is not clear how it would work in practice as fixed-term tenancies are often fixed for a reason and this would complicate many agreements, he says. “Fixed-term tenancies provide certainty to everyone involved and there’s always the flexibility to extend one.”

Parker is not keen on the proposal that tenants should be able to reassign a fixed-term tenancy to another tenant either. “In a situation where a tenant wants to move on and they find someone to take over the tenancy, a landlord doesn’t know anything about them.

That’s not fair because careful tenant selection is important and landlords should have the right to select who will be living in their property.” No-one spoken to for this article was keen on the idea of greater powers being given to MBIE which would allow them to compel landlords to make changes to their property without a Tribunal order.

Lewis says it means MBIE would become their own judge and jury. “They‘d be imposing penalties for non-compliance with no external check on their judgments. This would be a very draconian system and would seem to be at odds with our normal democratic legal processes.”

Some of the proposals – notably the move to ban rent bidding – have been greeted a tad more warmly. Lewis says that limiting rent increases to no more than an annual basis and allowing tenants to attach minor fixtures and fittings seem reasonable.

Despite this, most landlords see the proposed reforms overall as very antagonistic behaviour from the Government towards them. In Gentle’s view, there’s likely to be collateral damage to the rental market down the track as a result.

“I’m not sure what the Government is expecting from landlords. But price rises and selling off properties are likely over the long term and that’s not good in a market struggling with a supply shortage.”

* The proposed reforms are not law yet. They’ll be drafted into a Bill to amend the RTA, which will be introduced to Parliament in the first part of next year. Landlord advocates are urging anyone who is concerned about the implications of the reforms to make their views known to MPs as the Bill goes through parliamentary process. Until the reforms become law, the existing RTA regulations still apply. ■