Housing Minister Phil Twyford says he wants to make life better for renters. But in doing so, will he make life unbearable for landlords?
The Government has released a discussion paper as a prelude to what will be a comprehensive reform of the residential tenancy market. The changes to be "discussed" come on top of a number of changes either in place or on the way, which include:
- Insulation upgrades.
- Removing the right of property managers to charge a letting fee.
- Limiting damages claims against tenants.
- New standards which are likely to include the installation of a fixed heating source, a ventilation method, and protection against draughts.
The new proposals up for discussion include:
- Removing the "no cause" right of landlords to terminate tenancies unless it is for a "specific and justifiable criteria".
- Increasing a landlords’ notice period to 90 days in all cases. Currently it is 42 days (6 weeks) where the owner or their family member requires the premises to live in, the property has been sold with vacant possession, or where it is required for employee housing. There are no plans to change the tenants 21 day notice period.
- Limiting rent increases to once a year (from six months currently), removing the practice of rental bidding, beefing up the rights of tenants to challenge rent they consider is higher than market rent, and requiring landlords to include a formula to show how they will calculate future rent increases. It seems there is no room for discussion on the 12 month limitation, given the reports says, "The Government is committed to limiting rent increases to once every 12 months to give tenants longer term certainty of their housing costs".
- Reviewing the rules governing fixed term tenancy agreements including giving the tenant the right to extend or renew their fixed term agreement or move onto a periodic agreement. It is also likely that the minimum duration for a fixed-term tenancy would increase, and two years is mentioned as an example.
- Increasing the rights of tenants to keep pets and make "reasonable" modifications to the property.
- Reviewing the regulations regarding boarding houses, and
- Introducing new tools and processes into the compliance and enforcement system.
Of these changes, the "no cause" clause is likely to be the most problematic for landlords. The effect is that a 90 day notice to vacate will only apply where the landlord:
- Intends to carry out extensive alterations, refurbishment, repairs or redevelopment of the premises and it would not be possible for the tenant to continue to live there while the work was being undertaken, or
- Intends to change the use of the premises, e.g. from residential to commercial, or
- If a person, such as a mortgagor, becomes entitled to possession and needs the tenant to vacate the premises to meet requirements relating to a mortgagee sale process.
- Where these situations don't apply a landlord would need to obtain a Termination Order from the Tenancy Tribunal, which can only be granted in certain situations specified in the Act - like the rent is more than 21 days in arrears.
Making termination more difficult will not only be a problem for landlords. It could also become a problem for neighbours living near disruptive renters. This new provision would require a landlord to prove to the Tenancy Tribunal there are grounds for terminating. Often that proof is not available as complainants who are affected neighbours may not want to be identified.
Extending the notice period from 42 days to 90 days may also be problematic where a property is sold. This will complicate a sale and may make homebuyers less inclined to buy a rental.
Having longer fixed term tenancies will be welcomed by some landlords and tenants, but specifying a minimum term of two years will not. Market evidence suggests that tenants generally do not like leases longer than 12 months, mostly because their personal circumstances may change.
Extending the rental increase period from 6 to 12 months is unlikely to make a material difference to landlords. Most landlords hold the rent steady during a tenancy, and do so willingly when the tenancy-landlord relationship is a good one. The effect of this law change may work against a tenant as landlords will be more likely to schedule reviews annually and link the increases to metrics like inflation, rate rises, property value rises, and so on. It may also mean landlords delay making improvements to a property to coincide with a rent review date.
On the positive side, the discussion document does not propose a warrant of fitness for rental properties. It is being considered for boarding houses.
The reforms are unlikely to become law before mid-2020, just before the next general election.
Comment about the proposed reforms may be made in a number of ways:
- Online at research.net/r/rta-reform-survey
- emailing your submission to RTAreform@mbie.govt.nz
- posting your submission to:
- Residential Tenancies Act Reform, MBIE, PO Box 1473, Wellington 6140
- Submissions must be in by 5pm, 21 October 2018.
Frank Newman, an investment analyst and former councillor on the Whangarei District Council, writes a weekly article for Property Plus.