Wednesday, September 5, 2018

Mike Butler: What Twyford tenancies will do

Reforms that could make many tenancies unmanageable were proposed by one Minister on the day that the Prime Minister launched an advisory group in a bid to avert flagging business confidence.

There was no indication that Prime Minister Jacinda Ardern and Housing and Urban Development Minister Phil Twyford never considered any connection between the confidence of everyone involved in rental property, both landlords and tenants, and falling business confidence.

Twyford has 14 proposals, but the two that will make properties unmanageable for some, and this includes Housing New Zealand, are the end of 90-day no-reason terminations and the requirement to allow dogs.

There were 1,729,300 households in New Zealand in September of 2017, with 1,087,200 owner-occupied, 577,400 rented, and 64,800 provided free, according to Statistics NZ.

Rented properties include 61,861 state rentals (plus 1492 community group housing units and 643 emergency transitional dwellings). Therefore, presumably, there are 513,404 privately owned rental dwellings. The sector comprises $6-billion of total GDP.

We have two types of residential tenancy agreement – a periodic tenancy and a fixed-term tenancy.

A periodic tenancy may be terminated by the tenant by giving 21 days’ notice or by the landlord giving 90 days. A fixed-term tenancy rolls into a periodic tenancy at the end of the fixed term unless the landlord confirms that he or she wishes to fix a new term, or if he wishes to terminate it.

The proposals seek to abolish fixed-term tenancies and remove the landlord’s ability to end the tenancy by giving 90-days’ notice. That means tenants will remain until they wish to move.

Any issues that arise like non-payment of rent, damage to the property, or disruption of neighbours may only be dealt with by taking evidence to the Tenancy Tribunal to seek remedy.

This works well with unpaid rent. This does not work well with damage or anti-social behaviour because intimidation by anti-social tenants means that the owner may be barred from entering the property and neighbours may be frightened into silence.

The way of dealing with this, as suggested in the consultation questions, is for the landlord to issue a 14-day letter to the tenants asking them to refrain from the anti-social behaviour. While this approach may work for upstanding citizens who know the difference between right and wrong, it does not work for people who are in and out of jail for behaviour problems. The end of 90-day no-notice terminations would make a substantial number of properties immediately unmanageable, with the biggest group owned by Housing New Zealand. Some landlords could resort to direct action. Some tenants would arm themselves to resist.

Some proponents of these reforms think that only landlords will be affected and if they don’t like it they should either suck it up or get out of the business.

However, the first people affected are the neighbours of problem tenants, who most likely are also tenants. If the landlord is unable to manage behaviour, the neighbour is stuck with it, and they will either have to suck it up or leave, which is not so easy in a tight rental market.

Most landlords in New Zealand are the Mum and Dad types with one or two rentals, mostly stand-alone houses.

If the costs of being a landlord outweigh the benefits and if many landlords with one or two stand-alone houses decide to sell, it is likely that their properties would likely go to first-home buyers, thus reducing the number of properties available for rent.

How many would have to sell before the 513,404 privately owned rentals reduce to 250,000 or fewer? What would the “housing crisis” look like then?

The discussion document titled Reform of the Residential Tenancies Act 1986, downloadable from details the changes which are to:

1. Remove the ability for landlords to end periodic agreements without providing the tenant with a reason.

2. Extend the notice periods landlords must give tenants under a periodic agreement for other matters such as sale of the property or requiring the property for the landlord’s occupation from 42 to 90 days.

3. Make using a false reason to terminate a tenancy an unlawful act and subject to penalties.

4. Add as new grounds for termination of a periodic tenancy: (a) substantial repairs, (b) change of use, (c) end of lease by landlord to property owner, or (d) mortgagee sale.

5. End fixed-term tenancies, or provide tenants with a right to extend their fixed-term agreement, or specify a minimum length (such as two years) for a fixed-term agreement.

6. Give tenants the right to undertake repairs and bill the landlord.

7. Compel tenants to use installed heating and ventilation systems.

8. Allow tenants make minor modifications to a rental property such as hanging pictures, putting up shelving, affix furniture or appliances to a wall, or plant a vegetable garden, either requiring a 21-day request, or as of right. Tenants must reverse modifications at the end of tenancy, with failure to do so becoming an unlawful act.

9. Allow pets, with the tenant’s liability for damage by a pet capped at the level of the excess of the landlord’s insurance, with four options –either (a) specify in law where a landlord could decline a request for a pet, or (b) specify that a landlord could not unreasonably refuse such a request, (c) allow a pet bond or carpet cleaning requirement, or (d) clarify the obligations on tenants to remove any doubt that pets may not cause nuisance.

10. Stop rental bidding by either prohibiting landlords or property managers from asking for rental bids, or prohibiting the request and acceptance of rental bids.

11. Limit rent increases to once every 12 months.

12. For boarding houses, either (a) introduce a self-certification system with penalties for those who fail to self-certify, or (b) introduce a warrant of fitness for boarding houses and their operators.

13. Either (a) enable MBIE officers to access the common spaces and offices of boarding houses for compliance checks at any time, or (b) grant MBIE the power to audit boarding house tenancy records, or (c) enable MBIE to take representative complaints of breaches against landlords to the Tenancy Tribunal.

14. Enable enforceable agreements between a landlord and MBIE that sets out (a) the circumstances that led to a breach, (b) the steps a landlord needs to undertake to remedy the breach, and a time frame and consequences for failing to adhere to the agreement, or (a) enable MBIE to issue improvement notices that would alert the party of a breach, and (b) provide them with an opportunity to rectify the breach within a specific time period without further penalties, or (c) enable MBIE to issue infringement notices.

These changes don’t come out of the blue. There has been a raft of legislative changes since 2010 which includes:

1. Amendment of the Residential Tenancies Act 1986 in 2010 to cover boarding houses and to include unlawful acts.

2. Introduction in 2015 by Inland Revenue of a “bright-line” capital gains tax test for the sale of residential rental property. Properties sold within two years of purchase attract this tax.

3. A further amendment of the Residential Tenancies Act in 2016 to require smoke alarms as well as ceiling and underfloor insulation.

4. Yet another amendment of the Residential Tenancies Act to prohibit letting fees. This is currently before a select committee. Letting fees cover the cost of letting a tenancy.

5. The Healthy Homes Guarantee Act 2017 which allow for minimum standards for insulation, heating, ventilation, draught stopping, drainage, and moisture ingress even though no standards were included in the bill. The amendments will come into force on July 1, 2019, and compliance will be required before July 1, 2024.

6. The Residential Tenancies Amendment Bill (No 2), currently before Parliament, which makes three groups of amendments to the RTA related to contamination, liability for damage to rental premises caused by a tenant, and tenancies over rental premises that are unlawful for residential use.

7. Extension of the bright-line test from two years to five years for any agreement to purchase residential property on or after March 29, 2018.

These years of apparent punitive action may lead private landlords to conclude that investment in rental property is no longer profitable and that the Government is waging a war on them. The latest move may appear as the last straw, and they decide to sell and move on.

The problems associated with these proposed reforms appear not apparent to the earnest Minister who has had no demonstrable experience in the world outside of politics and charity work.

Born in 1963, Philip Stoner Twyford founded Oxfam in New Zealand in 1991, directed advocacy for Oxfam International out of Washington DC from 1999-2003, and entered Parliament as a list MP in 2008.

Twyford was criticized for alleged racism when he produced statistics claiming that Chinese foreign buyers were disproportionately buying up real estate in Auckland.

In May of this year, Twyford was dismissed from his Civil Aviation portfolio after making an unauthorized phone call on a domestic flight as the plane was taking off, a violation of national civil aviation laws. Twyford also offered to resign as Transport Minister but his resignation was turned down by Prime Minister

If you are a landlord or a tenant, it is worthwhile speaking your mind. The Ministry of Business, Innovation and Employment seeks written submissions by 5pm on Sunday, October 21 2018.

1 comment:

RAYMONDO said...

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