As the Residential Tenancies Amendment Bill approaches its final reading in Parliament, we look at the changes that have seen the balance of power move firmly in the favour of tenants.

Never before in the short history of our property-owning democratic country has the tenant had so much power. Our current Government has done more for tenants rights than any in living memory. In the last three years of the Labour-led coalition, we have seen a gradual shift in the balance of power, so much so that we may see a new generation of renters that have no desire to own their own homes. This is not a complaint as to what the Government has done, it is merely an observation. Once the pending Residential Tenancies Amendment Bill passes and becomes law, tenants will have unprecedented powers to exercise their rights without fear of retribution or retaliation from the landlord.

Now, more than ever, being a landlord is fraught with risk and potential litigation if you do not know what you are doing. As an example, when I started in the industry we somehow were able to keep a tenancy agreement to two pages. Now, if you use the documentation provided by the bureaucrats at Tenancy Services for your Tenancy Agreement, you will have a 24-page document including the ridiculously long and onerous 13-page document for healthy homes compliance statement.

Has the balance of power swung too far?

Don’t get me wrong, I am all for the protection of tenants and I have long argued that every single New Zealand citizen should feel warm and safe in their own home regardless of whether they own it or rent it. The ideology of the left seems to want to see the country head towards a German model of renting, where tenants have far greater security of tenure. The average length of a tenancy in New Zealand is just over two years. In Germany, the average length of a tenancy is 11 years whilst approximately half the population happily rent. Germany also has rent control legislation and has successfully built enough property to meet demand and as such has controlled house prices.

Landlords will be scrambling to get their properties compliant with healthy homes.

Although many tenants will feel that they are at the mercy of their landlord, the reality is that tenants can put so many demands on their landlords and now they legally must deliver on these demands. Yes, much of our rental stock is still woefully inadequate and the probability of every property being compliant under the Healthy Homes Guarantee Bill by July next year is pretty much zero. However, over time, the quality of property will improve as more and more tenants will come to realise that they have nothing to fear and nothing to lose other than $20.44. The cost of an application to the Tenancy Tribunal.

When I first got into Property Management over 15 years ago, it was a case of the landlord telling you to jump and you said ‘how high?’. Now, it is almost the other way around. Most landlords are utterly oblivious to the impending changes that they are facing and also the risk of litigation through the Tribunal. Gradually though, they will become aware as more and more tenants will exercise their rights which will force landlords to comply with all types of property legislation.

Uneducated landlords at risk

Many experienced landlords are struggling with this. As the property market shows remarkable resilience post-COVID lockdown, many baby boomers may take the opportunity to sell rather than spend thousands of dollars to make their properties compliant with the Residential Tenancies Act and Healthy Homes regulations. In recent years we have seen the following changes that have impacted negatively on landlords.

  • The passing of the removal of the letting fee. Most owners who use a Property Management company will now pay for this whether it be as a one-off charge or increased management fees.
  • The passing of the Residential Tenancies Amendment Bill number two. This bill limits the liability of the tenant for accidental or careless damage though more importantly, it gave the Tenancy Tribunal power to refund rent to tenants who are renting unlawful residential premises.
  • The removal of negative gearing. This has impacted greatly on smaller landlords who own one or two properties as they no longer have the ability to offset their losses against their own income.
  • The passing of the Healthy Homes Guarantee Bill. This is gradually being implemented as landlords are having to ensure that their rental stock is complying with minimum standards set by the Government. Many landlords are slowly starting to wake up to this though expect to see the inevitable last-minute rush of landlords to try and get their properties compliant before the deadlines are reached.
  • The Residential Tenancies Amendment Bill is almost certainly going to become law, giving tenants a raft of tools to protect themselves and give them greater security of tenure. The removal of the no-cause termination is the most controversial of changes that are being implemented and is probably the single greatest shift in power from landlord to the tenant. We will also see an increase in the number of unlawful acts that tenants can claim for alleged breaches by the landlords through the Tribunal.

Tenants will no longer have anything to fear. They will be able to make any number of demands on the landlord and the landlord simply has to comply. The reality is that little has changed here other than the fear many tenants have had in terms of their security of tenure.

Although many tenants groups will continually argue that they are victims, the reality is that they now have plenty going in their favour.

  • If a tenant accidentally damages something, they are limited in their liability to a maximum of one excess claim on the insurance or four weeks rent (the equivalent of the maximum bond) whatever is less.
  • A tenant does not pay for rates or insurance of the property.
  • A tenant does not pay for maintenance on the property.
  • The landlord has to maintain the property and if the tenant requests that something gets fixed, the landlord must fix it.
  • If the landlord refuses to maintain the property, the tenant can exercise their rights through the Tribunal and seek damages. The landlord may even face work orders from the Tribunal that they must adhere to or face even further sanction.
  • The landlord must provide a property that is warm, dry, safe and compliant. This is a legal requirement and if the landlord does not do so, the tenant can again, seeking retribution through the Tribunal. This may even lead to a full or partial refund of rent.
  • The landlord must permit and facilitate the installation of fibre connections.
  • The tenant can request putting up fixtures and fittings and the landlord cannot deny this request unreasonably.
  • And in the very near future, a landlord must have a valid reason to end a tenancy or go through the ordeal of having to remove a tenant through the Tribunal for an alleged serious breach of the Residential Tenancies Act.
  • Tenants will also have name suppression on Tenancy Tribunal orders where they have been successful or proven to have done nothing wrong.
Getting rid of problematic tenants is going to become a lot more complex

If a tenant is living in a tired and run-down property, they can take the necessary steps to rectify the situation and a landlord has no option but to comply. If there is a hazard at the property and the tenant’s requests to fix issues go ignored, the tenant can get the issues fixed and invoice the landlord. If properties are non-compliant, the tenant can seek a full or partial refund of rent for the period that the premises were unlawful. 

And now, particularly in Auckland where we are looking at a massive oversupply issue of one and two-bedroom apartments, tenants have a glut of property to choose from. This will lead to rents slowly, but surely decreasing in our largest city.

As I said earlier, this is merely an observation, not an article as to whether it is right or wrong, but what I do fear is that many landlords are oblivious to the level of compliance and risk that they face if they do not play by the rules and ignorance is not a viable excuse. There are no longer any short cuts and there will be well-intentioned landlords who get burnt simply because they were unaware as to the level of compliance that they adhere to.

Throughout all of this change, my greatest concern is the ability of the Tenancy Tribunal to cope with the increasing number of applications it could face as tenants begin to exercise their rights. At the moment, the vast majority of applications to the Tribunal are made by the landlord and well over 70% of these have a component of rent arrears. However, as tenants realise that they literally have nothing to lose and everything to gain, we will see more and more tenants seek justice through the Tribunal system. No problems with tenants exercising their rights, however, some applications that we see going to the Tribunal are becoming increasingly aggressive to point that they become farcical and a waste of time and resources. A tenant will soon be able to seek up to $100,000 from the Tribunal, an increase of $50,000. Before this, any claim for $50,000 or more went directly to the District Court. 

Will Tenancy Tribunal cope?

Tenancy Tribunal does have the power to award costs against a tenant or a landlord if, in the eyes of the Tribunal, the application is frivolous or vexatious or ought not to have been brought to the Tribunal. This is seldom used though I would encourage the Tribunal to consider using this as a disincentive to parties who use such devious and outrageous tactics in an attempt to simply win money or get out paying for something that they legally have to pay.

In July, David was the keynote speaker at the Canterbury Property Investors Associations AGM. He talked about the pending changes.

As we embark on this world of increased tenant rights, it will be interesting to observe how the relationship between the landlord and tenant will evolve. What we have to remember is that both parties need each other to survive and a collaborative approach to renting will be far more productive than hurling insults across social media platforms. The media has an important role to play as well and over the last three years, we have seen a significant increase in reports on the renting sector as journalists scroll through Tribunal orders looking for the next story. 

However, I also believe that people will continue to invest in residential property, regardless of how far the balance of power may swing to the tenants. In this world and the current economic climate, where else would you put your money? Low-interest rates and the perceived low risk that residential property brings will always make this a viable option as an investment. As baby boomers leave the market, a new generation of landlords will emerge who have a greater understanding of their legal requirements and dare I say it, a far more liberal approach to the rights and responsibility of renters.

Getting the balance right is not easy and no matter what you do, there will be tenant and landlord groups will always want more. Property is a Kiwi obsession and I have no doubt that the rights of landlords and tenants will be a hotly debated issue as the General Election approaches.