Burnout: Why the Property Management industry is facing a crisis

  • Shortcuts by landlords and tenants exercising rights lead to a crisis within the industry

  • Well being and safety are major concerns as demands increase

“It’s getting ridiculous!” these are the comments I hear from an experienced Property Manager as I walk into the office of a company in Wellington. “I’ve had enough!” The business owner looks at me and asks ‘Is it just us going through this?” 

I answer her, “No, it's happening everywhere”.

A few hours earlier, I received a message from a client in the South Island. They were losing their best Property Manager. She has simply had enough. She was sick of dealing with landlords complaining about all the work that they are being forced to undertake and also dealing with tenants, many of which now had a sense of entitlement. ‘I’ve spoken to Tenancy Services and know my rights!” She wasn’t leaving for another job, she had simply had enough and the straw that broke the camel's back was a call from an abusive landlord. These are not isolated cases.

It is happening every day and our industry is staring down the barrel of a crisis. A crisis created by too much change happening too quickly leading to an increasing shortage of rental properties, with many small Mum and Dad investors leaving the market leading to an over-inflated increase in rents. A crisis self-created by the Property Management industry, as a deregulated industry, consumed by an oversupply of Property Management companies, undercut each other in an attempt to secure business. This has led to a drop in fees meaning that the Property Manager has to manage too many properties to make the business worthwhile, which in turn leads to staff feeling underpaid and overwhelmed with high staff turnover.

Do not get me wrong, tenants should stand up for their rights if they feel that they have been exploited. However, there are more and more cases of people exploiting the system. The abuse that comes with this has intensified and conditions for property managers have probably never been tougher. 

Many people are now leaving the industry and new people who enter the industry struggle to cope - shocked by the intensity of their role, they often leave after six months.

Greater demands on landlords following through to Property Managers

As rents have increased disproportionately due to demands placed on landlords by the Government, the demands of tenants have increased as well. This has played into the media's hands. Many tenants have highlighted their plight in the media, creating a victim mentality amongst many. Tenants have a far better understanding of their rights and are not afraid to exercise them. We have absolutely no issue with tenants justifiably standing for their rights and in many cases, we implore tenants to do so. However, we now have a situation where many tenants are exploiting the system, trying to secure a windfall $4,000.

In my time working within the Property Management industry, I cannot recall a time when conditions have been so bad for Property Managers working up and down the country. Many of them give their all, working in what can at times feel like a thankless industry. The demands of the job have increased dramatically over the last two years. This has largely been created by increased legislation and changes in the political landscape. However, there are other demands as well. 

As the rental crisis increases, our industry has come under intense scrutiny from the media as they lap up stories from Tenant Advocate groups and individuals trying to make a name for themselves. Journalists constantly seek news stories and troll Tenancy Tribunal orders, looking for shock stories which lead to more and more tenants looking to exploit the system.

Evidence of this is the tenant who recently won a Tribunal case due to the Property Manager insisting that the carpets of her rental needed to be cleaned. Is a case that is worth $90 in carpet cleaning really worthy of making national news?

Then we get a further crass piece of journalism from the Property Management industry’s greatest fan, Rebecca Stevenson. Yes, we all remember Rebecca, with her Spinoff article Why property managers are terrible – for everyone. This time, she makes the accusation that the only reason carpets are cleaned by Property Managers is so we can take our cut.

The sad case is, although there are always things that we can improve on, the Property Manager was doing what she believed was the right thing to do.

Then there is the abuse and sometimes, threats of violence.

The case in question led to abusive comments on social media and a very good Property Manager left feeling distraught. Yes, mistakes were made and it could have been handled differently, however, she was only trying to do the right thing by her owner. Making money was the last thing on her mind. Doing the right thing for the landlord and trying to protect the asset was all she was trying to achieve.

What wasn’t reported in the media was the sterling work this company does for their local community and the money it raises for charities such as Daffodil Day and Breast Cancer Awareness. But that isn’t newsworthy.

Threats of violence and abuse in our industry are getting worse.

Only a fortnight ago I listened to a Property Manager, telling me she had to put up the rent on a West Coast property after instructions from the landlord, only to receive a threat from an associate of the tenant warning that “she can expect a brick through the window of her family home.” Should anyone have to tolerate threats like that?

Earlier this year, I heard from an anonymous business owner who had her office set on fire allegedly by the tenant, after refusing to extend a tenancy due to the abuse one of her property managers received. This case is under police investigation.

Everywhere I go around New Zealand, I see the depressing signs of tired Property Managers who no longer have the energy, desire or will to deal with the increasing demands of the job. 

Landlords are putting more and more unfair demands on Property Managers as too many try to dodge and avoid or work around changes in legislation that leaves Landlords and Property Managers open to sanction. Some just simply bully their Property Managers into submission. Property Managers have spent years advising landlords on multiple occasions in terms of their legal responsibilities yet even at this late stage, many landlords still simply ignore these demands.

Then there is the incessant whining. 

“They won’t even turn the heat pump on! Why should I install it?”

“I’m putting up my rents by $40 a week!”

“Get them to clean the mould, they are creating it!”

In the near future, we expect to see more changes being announced in terms of protecting tenants, such as the removal of no cause evictions. But before Government announces this, we want them to stop and think.

It has been nearly two years since Natanya Campbell and her mum Wendy Campbell Rodgers were killed when they were making a property inspection in Northland.

Nothing has changed

In July 2017, Property Managers Wendy and Natanya Campbell turned up at one of their rental properties with contractor Jeff Pipe. Jeff had been instructed to install smoke alarms at the rental property to ensure that it was compliant under the Residential Tenancies Act. It seemed something wasn’t quite right as it is a little unusual for two Property Managers to turn up with a contractor for such a basic job. As they approach the property, the tenant, Quinn Patterson, opened fire on the party, killing both Wendy and Natanya Campbell and injuring Jeff Pipe.

The event sent shockwaves throughout the Property Management industry though unfortunately many, myself included, were not entirely surprised.

Now, nearly two years on from these tragic events, I ask myself have we actually learnt anything?

The simple answer is no. If anything, things have become worse and unfortunately, it would not surprise me if these tragic events happened again. 

So I finish with this. The average Property Manager in New Zealand knows that they will have to deal with conflict, it is unavoidable and part of the job. But abuse, threats and ridicule through social media is not in the job description. The number one priority of our industry should be to protect the thousands of people up and down the country who just want to do a good job. Look after them and they, in turn, will look after you.


Tenant selection turned into a lotto draw

  • Ill-conceived guidelines poorly thought out by Privacy Commissioner

  • Potential lotto draw for tenant selection created

As if we didn’t have enough to deal with!

Ten months on from the infamous story of the ‘KFC Test’ for tenants making the headlines, the Office of the Privacy Commissioner (OPC) dropped yet another bombshell on an industry that continues to find itself struggling to cope with the amount of change thrust upon it.

This month, without prior warning or involvement from industry organisations such as REINZ or IPMA, the OPC released new guidelines that Property Managers and landlords should adopt when selecting a new tenant.

Their advice, if followed to their recommendations, almost turns tenancy selection into a lotto draw. Want the property? Just put your name in the hat, don’t worry about it, you never know your luck.

As Bindi Norwell, CEO of REINZ stated, guidelines are good. However, there are discrepancies and she was also critical that as a body, they were not consulted with before the release of the OPC guidelines.

 

Tenancy selection could become as basic as drawing a number out of a hat.

Why do we have new guidelines?

Last year, as the letting fee ban was making its way through Parliament, Property Manager Rachel Kann made an oral submission to the select committee. When asked about how the Government could assist with tenants, her suggestion was around budgeting.  She stated that she identified the poor spending habits of prospective tenants. This information was provided to her on bank statements of prospective tenants provided to her when applying for a property. According to Rachel, KFC seemed to be more of a priority to some of her prospective tenants than paying fines and rent. Unknown to Rachel, NZ First MP Darroch Ball who sat on the select committee, was not impressed by her admission and in August last year, he released a copy of the recording of her submission to the media.

The news made national headlines and yet again our industry was projected into the spotlight. It also alerted to the OPC practices around tenancy selection and they naturally had concerns. Jon Duffy, Assistant Privacy Commissioner at OPC, highlighted in an article in August 2018 that landlords and Property Managers may be asking for too much information.

The consequences of this are a potential breach of the Human Rights Act and the Privacy Act. There are serious penalties for breaching both of these acts.

Unknown to everyone within the Property Management industry and apparently also to Tenancy Services,  OPC had been working on new guidelines that landlords and Property Managers need to follow when selecting tenants. When the guidelines were released on the 14th of May, it certainly raised more than a few concerns with some believing if followed to their recommendations, it turns tenant selection into a lotto draw.

"Privacy Principal One:- Purpose of collection of personal information

Personal information shall not be collected by any agency unless

(a) the information is collected for a lawful purpose connected with a function or activity of the agency; and

(b) the collection of the infortmation is necessary for that purpose."

What is in the new guidelines?

OPC released the guidelines to help clarify questions that they were receiving following ‘KFC’ gate, one wonders how many questions they received. However as is often the case, releases such as this sometimes bring up more confusion and questions rather than clarity.

GUIDE TO PRIVACY COMMISSIONER GUIDELINES

OPC has categorised three different groups as to what information you can collect before deciding whether you will select a tenant.

  • Always Justified
  • Sometimes Justified
  • Almost never Justified

They then go on to state the information that you can collect after you’ve selected the tenant.

What set alarm bells ringing was some of the items that fall into the never justified category. Many of which are commonly obtained.  Also, seeking income verification and or a credit check report is only sometimes justified. Try telling that to the landlord who had a tenant with a bad credit rating default on rent.

All of a sudden, the following items that are often stated on a Tenancy Application Form have become almost never justified.

  • Driver licence number (Drivers licence as proof of ID)
  • Nationality or citizenship (Passport as proof of ID)
  • Marital and family status (names of applicants include children)
  • Gender (look at the name and ID, pretty easy to figure this one out!)
  • Details about current accommodation
  • Employment history and status (looking here at the proof of income and stability)
  • Age (proof of ID and in contradicts section 14 of the RTA)

Look at the majority of Tenancy Application forms, particularly from the big companies such as TPS and Tenancy Tracker, if you are applying for a property to rent, you will always have to submit the information that is almost never justified.

Tenant selection will become increasingly complex if the new guidelines are enforced by Tenancy Tribunal

Confusion reigns as lack of consultancy hinder guidelines

Reviewing this, what is always or sometimes justified to be obtained by potential tenant conflicts with what is never justified to obtain. Let’s look at some examples.

Name and proof of ID: This is categorised as always justified.  you are free to ask for name and proof of identity. However, how can you verify someone’s ID if you cannot obtain the most common forms of ID?

  • You cannot ask for a Driver’s Licence number (an official form of ID)
  • You cannot ask for nationality or citizenship (that rules out passports!)
  • You cannot ask for age so this will rule out all forms of official ID.

Martial and family status: By filling out an application form, you will be naming who will be residing at the property and naturally, applicants will be by default, telling you if they have children or are married. Knowing the age of children is a default requirement for any prudent Property Manager and landlord as you should be stating how many people can reside at the property.

Current income verification: This is alarmingly only sometimes justified. To verify income, you will be either declaring that you are on a benefit, you are a student, or you will be providing a payslip. So, by doing this, you are by default obtaining someone’s employment status.

Name and contact information of current landlord: You are always justified in collecting information with regards to their current landlord, however, you cannot obtain information about the current accommodation and rent.

With regards to the later, you can imagine your conversation with the tenant’s landlord. How do you verify who the landlord actually is without checking the current address?

The prospective tenant could put anyone as their current landlord and you simply have to take the tenants word for it. By verifying that the landlord is who they say they are, you will be breaching OPC guidelines.

Credit check? only sometimes!

Amazingly, according to the OPC, a credit check on a prospective tenant is only sometimes justified. This, to me, seems ridiculously short-sighted. In the last 12 months, we have seen over 13,000 Tenancy Tribunal hearings and one-third of these involve rent arrears. If we did not do credit checks on prospective tenants, then this number would potentially increase. There is simply no point in putting a tenant into a property if they cannot afford to pay the rent and creditworthiness is a vital component of tenant selection.

Rent arrears management starts at tenancy selection. When I was first placed in a position to run a rent roll, arrears management were a real issue. Approximately 20% of tenants were in arrears meaning one in five tenants were behind on rent. We introduced two policies that helped reduce arrears.

  • Introduction of a zero tolerance to arrears. If you missed one week, we applied to Tribunal. No exemption.
  • Introduction of 100-point criteria around tenant selection. This was based on the following.
    • Proof of ID (now never justified)
    • Proof of Income, this is typical WINZ statement or payslip but you could provide a bank statement to verify income. (now never justified)
    • Verification of current address (now never justified)
    • Professional or current landlord reference (cannot seek information on current employment so now never justified)

The results of introducing this policy were stunning. Within 5 years of implementing these policies, in the final calendar year, we had collected over 99.7% of all rent due.

The importance of proof of income

I cannot stress the importance of verifying a prospective tenant’s income. This is not just for the landlord’s benefit; it is also for the tenants. There is no point in putting a tenant into a property that they cannot afford. The outcome can be financially and emotionally crippling for all parties involved. If you cannot verify their income then, we are not only exposing landlords to unnecessary risk, we are exposed tenants to the risk of bad credit and history in Tenancy Tribunal and losing their home.

Property Managers would work under the instructions that no tenant should be accepted for a property if the rent was more than 40% of their net income. If it was more than this, the tenants simply could not afford rent and by placing them into a property showed a lack of care and responsibility on behalf of the Property Manager for all parties.

By neglecting this policy, it would expose the company to litigation as we had not carried out proper due diligence in our tenancy selection process. Landlords with ‘Loss of Rent’ insurance policies would not be able to make a claim as we had been negligent in our tenancy selection and landlords would hold the company responsible. Rightfully so!

Application forms for tenants from Victoria, Australia are not justified according to our Privacy Commissioner. They ask for age, employment status, salary.

Getting the balance right

There is no doubt that guidelines will help landlords and Property Managers to implement best practice policies around tenant selection, however, a collective discussion involving all the industry stakeholders, whether they be private or public, would have been a far more favourable process. What we now have is confusion and uncertainty created unnecessarily so.

Yes, improvements can and should be made. This also involves how we obtain references. If you are providing a reference, how do you know prospective tenant gave permission allowing the landlord or Property Manager authority to do so? I’ve no doubt that there are breaches of the Human Rights Act and the Privacy Act when we do select tenants, however, this is probably more likely through negligence rather than anything more sinister. A collaborative approach would have been far more beneficial.

Now, we again have an industry looking at each other, scratching our heads and wondering where to go from here.

We have obtained Tenancy Application forms from Australia including their official application form from REIWA. We also have application forms from the UK to compare to see if we are asking for too much information. They currently are asking for exactly the same information as we are. So are they breaching current legislation as well?

OPC should have engaged the industry in designing these guidelines. The confusion that they have created could have easily been avoided.

Regards

David Faulkner

 


Who’s Liable when the Tenant claims? Property Manager v Landlord

  • This month we ask for clarification on who Tribunal should hold responsible for breaches by the landlord

  • Potential increase in tenant claims could lead to millions being awarded in exemplary damages

Who’s liable? It is a very simple question when a tenant makes a claim to Tribunal, yet somehow, no one seems to be able to give a definitive answer. When a Tribunal makes a decision in favour of the tenant, and money has to be paid to the tenant in way of compensation or exemplary damages, who is responsible?

Expect to see more tenants taking their landlords and Property Managers to Tenancy Tribunal post 1st July. The question we are asking is if they are in breach, who should pay?

For years now, I have followed decisions that come out of Tenancy Tribunal. They make for great case studies to use in training Property Managers. We read the documents to assess how the adjudicators came to their conclusion and how they interpret the law. However, in the years that I have researched cases, it seems like it is a lottery as to who has to front up with the penalty. It is more relevant now than ever, especially after the Tenancy Compliance and Investigation Team (TCIT) have made it perfectly clear who they are going after. They are targeting the Property Management companies and are of the belief that they should pay.

With the 1st July 2019 deadline approaching for insulating your rental property, we are expecting to see some opportunistic tenants waiting to pray on unsuspecting or simply pure arrogant landlords who haven’t ensured their properties are compliant and insulated to the new standard.

Tribunal cases set for an increase?

This could lead to a surge in Tenancy Tribunal cases as tenants, quite rightly, exercise their rights. The carrot of being awarded $4,000 in exemplary damages is a substantial one and I would encourage tenants to do so if their rental property is non-compliant. It’s not as if landlords haven’t had time, they have had three years to get properties insulated and ready. Yet clearly, we are not going to have our entire rental stock ready by 1st July 2019. We predict as much as 10% of rental properties will not be insulated and this is approximately 60,000 houses. That is $240 million of potential exemplary damages.

So before this deadline hits, we want to get clarity as to who should pay and we have a few questions that need answering.

  • Who is liable - the landlord, the Property Management company, or is it both?
  • Are decisions assessed on a case by case scenario, allowing the adjudicator to make the call on the day?
  • What is the protocol that adjudicators follow in making these decisions?

Let’s start with the first question. Who is the landlord?

The best place to start is to look at some of the key sections and interpretations within the Residential Tenancies Act.

We should all know that the Property Manager acts as Agent for the Landlord, it should state this on the Tenancy Agreement. But, what does that mean?

Section 2 of the RTA defines the landlord as follows.

“in relation to any residential premises that are the subject of a tenancy agreement, means the grantor of a tenancy of the premises under the agreement; and, where appropriate, includes—

  • a prospective landlord; and
  • a former landlord; and
  • a lawful successor in title of a landlord to the premises; and
  • the personal representative of a deceased landlord; and
  • an agent of a landlord

So, by signing a Management Authority with the owner of the property, the Property Manager becomes the agent of the landlord. Therefore, according to the RTA, the Property Manager becomes the landlord.

Straightforward enough, but does that mean that the owner of the property has abdicated all care and responsibility to the agent? Of course not, they are the owner of the property and therefore they are a business owner making them the principal of the business. This means they have responsibilities not just under the RTA but under many pieces of legislation including the Health and Safety at Work Act.

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A principal of any business cannot abdicate full responsibility to a third party and ultimately, they are responsible for the performance and compliance of the property. In the case of a Property Management company, they physically cannot make a landlord comply, as many are finding out trying to get a small percentage of landlords to insulate their properties without success. Along with all the other day to day tasks that a Property Manager undertakes, they also act as an advisor and consultant to the owner of the property.

The issues we have faced with insulation is a prime example. Most landlords with properties under management would have arranged/agreed for their properties to be fully insulated and compliant by now. However, there is a small percentage of landlords who simply have ignored requests from Property Managers. Why should a Property Management company face exemplary damages of $4,000 when they have done everything in their power to get the landlord to comply?

I have never been convinced that it should be the Property Management company who carries the burden when a landlord ignores a recommendation and potentially exposes the agent to risk. Sometimes I feel as though there is a temptation for adjudicators to target Property Management companies as they are an easy target.

We see many different cases where adjudicators make decisions on who is liable for damages award to the tenant.

However, I do also understand why TCIT would target Property Management companies. It will make them think twice about managing non-compliant properties.

In order to help us get some clarity into where the liability falls we have reviewed two cases where the Property Management companies are held jointly liable but for two completely different reasons. We also highlight a third case where the landlord is liable and not the Property Management company, even though both are named on the application. This highlights the inconsistencies that can occur in Tribunal.

Case History: Mendez-Gray v Jennes and Realty Link Taupo T/A LJ Hooker

One of the main reasons I feel that this is a major issue that needs resolving is because of the mixed messages we get out of Tenancy Tribunal. This case in particular highlights what needs to be stated on the Tenancy Agreement to remove the liability of the Agent and put it firmly with the Principal.

In the height of the Methamphetamine scandal, one case stands up and needs further examination.

In August of 2016, LJ Hooker had to pay Elena Mendez-Gray the sum of $6,788.44. The background of the case was that the landlord had seemingly known that her property was likely to be contaminated with Methamphetamine but had not disclosed it to the Property Management company. Subsequently, the tenants found out that it was over the legal limit set at the time of 0.5 micrograms. The tenant’s won the claim.

Adjudicator D Malcolm ordered both the landlord and LJ Hooker to pay the tenant.

However, in the order, Adjudicator Malcolm exonerates LJ Hooker of any wrongdoing. What LJ Hooker did wrong was that they declared themselves as the landlord on the Tenancy Agreement and not the agent for the landlord. The adjudicator then goes on to state that in common law, where a contract names the agent and discloses the principal, there is a prima facie rule or presumption that only the principal can sue and be sued. However, due to the fact that LJ Hooker did not disclose that they were acting as an agent for the landlord, this made them jointly liable.

Case History: Lovell v At Homes Rentals Ltd and Turner

In this case, At Homes Rentals Ltd and Turner had to pay Lovell $3,870.44 in exemplary damages and compensation for a number of breaches of the RTA.

The case was held in Tauranga in April 2018 and the adjudicator was J Smith. In the order, adjudicator Smith gives a lengthy summary on who is the actual landlord and who should the damages be awarded against.

In his summary, the adjudicator states that in common law the primary rule is that an agent who acts purely as an intermediary for a principal is not a party to the contract between the principal and the other party. In this situation, the agent cannot sue or be sued on the contract.

However, the adjudicator then quotes a section from the book Residential Tenancies: The Law and Practice by David Grinlinton.

“Often real estate agents manage the landlord's property, and in such case, proceedings would normally be taken in the name of the landlord rather than the agent. However, where an agent's name appears on the tenancy agreement as the landlord, the agent may be jointly and severally liable with the landlord, and proceedings may be brought directly against the agent. Such liability may be avoided by including the words "as agent for" or "on behalf of" (the landlord)".

The adjudicator then goes on to explain the definition of a landlord as stated in section 2 of the RTA. In the definition, we stated earlier the words ‘where appropriate’ appear. Smith argues that ‘where appropriate’ was specifically written to suit residential tenancy cases. So, where an agent signs a tenancy agreement for the owner and is fully engaged in the day to day management of the tenancy, the agent will usually be a landlord for the purposes of the RTA, particularly where the agent’s action or inaction is part of the tenant’s claim. In these circumstances, the agent may sue, and be sued by the tenant.

Clear as mud!!

Case History: Knowles v Blue Ribbon Realty Ltd and Jordan

In December 2018, the tenant of a Te Awamutu property won compensation as the landlord had failed to maintain the property as it was cold, damp and suffered from a mould issue. The carpet was rotting due to water damage and the tenant also provided evidence of gaps in the ceiling, letting in daylight.

Adjudicator Lang awarded $2,250 to be paid to the tenant by the owners of the property Magda and Brett Jordan and not Blue Ribbon Realty Ltd. In the final statement, Adjudicator Lang states that the party who is liable for maintenance failures is the owner of the property. Therefore they have to pay the sum award and not the agent.

Consistency and clarity required

This is no criticism about how adjudicators interpret cases, they will each have their own views and clearly, they will not always agree. However, from a Property Managers point of view, it is an area that certainly needs clarification so everyone knows where the liability falls moving forward. This surely is not too much to ask.

If a Property Management company faces exemplary damages of $4,000 post 1st July and that company has done everything in its power to get the landlord to comply, it could be a worthy exercise as an industry to invest in a bloody good lawyer. They could then to argue in an Appeal to the District Court that Tenancy Tribunal is wrong and all exemplary damages and compensation should be awarded against the principal. Even if the appeal failed, at least we would know where we stand.

Principal Tribunal Adjudicator Melissa Poole. It would be great to get clarification from her as to who is ultimately liable.

This is highly unlikely to happen but it is one way we could move forward and it would finally clarify who pays. No doubt, post 1st July we will find out how Tenancy Tribunal will rule and whether they will be consistent.

What we would recommend

I may not be a lawyer, but when you have researched a topic for a number of years, you do get to grasp a good basic understanding of how the RTA works. This, however, is an area I am still trying to find an answer to. I've even asked adjudicators after attending Tenancy Tribunal hearings if they can clarify who is liable. Hopefully, we can get clarity before the 1st of July kicks in.

What I believe should happen is as follows.

  • The common rules of basic law apply. The agent should be exempt from being sued by the tenant as they are acting as the agent. They are not the principal.
  • If the Property Management company is negligent in how they have operated, then this becomes a matter between the principal (the landlord) and the agent (Property Management company). The principal can then lodge a claim against the agent, ideally, through the Real Estate Authority.
  • The Property Managers will have to be licensed to represent the landlord as an agent.
  • Tougher penalties are required for exemplary damages. Penalties have remained the same for nearly a decade. Our opinion is that damages should be on a percentage of the annualized rent. This is much fairer as landlords who receive low rent income in places such as Invercargill face the same penalties as landlords who receive higher income in places such as Wellington and Auckland.
  • Tenant’s should also face a wider range of exemplary damages. There is nothing in the RTA that allows landlords to seek exemplary damages for willful damage to property or for serious breaches of the RTA such as assault. This should be included as it could be argued that the tenants have committed a criminal act.

As ever this is just an opinion piece and we welcome your feedback. Thanks for reading.

Regards

 

David Faulkner


Will the Rental Warrant of Fitness finally find a healthy home?

  • Will New Zealand follow suit of Wales and regulate landlords?

  • We believe the Rental Warrant of Fitness will be used as a tool to measure enforcement of Healthy Homes standards

After much discussion and debate, finally, we have the proposed standards announced for the Healthy Homes Guarantee Bill (HHG). The deadline will come a lot quicker for most landlords than what they will realise, particularly because any fixed term tenancies will have to comply within 90 days of a tenancy being renewed post 1st July 2021. We actually believe that it may not be achievable if landlords up and down the country do not act now and in particular with moisture barriers and insulation top ups.

However, what has yet to be decided is how the Healthy Homes Guarantee will be enforced and policed.

The Tenancy Compliance and Investigation Team (TCIT) are simply not going to have the resources to ensure that all properties comply with the HHG standards and an alternative tool for measuring compliance will have to be developed and implemented to ensure that landlords fulfil their obligations under the new standards.

This is where the Rental Warrant of Fitness (RWOF) will likely finally find its home.

Wellington introduced the voluntary Rental Warrant of Fitness scheme. Take up has been virtually zero

Whilst the dates have been confirmed for compliance, Government is still to decide on what documentation the landlord will have to provide to prove compliance. However, the obvious document to use will be the RWOF which was developed by Prof. Phillipa Howden-Chapman and her team at Otago University. The RWOF has been over a decade in the making and has been financed by public funding. It was developed due to the poor condition of many of our rental properties across the country and the obvious health concerns of people living in these properties. It has powerful support within the political circles both at a local and national level.

Wellington City Council launched a voluntary RWOF scheme after Mayor Justin Lester was elected nearly three years ago, though it has to be said, take up has been embarrassingly poor and the scheme can only be described as a flop. However, that is not to say that the scheme will not work or will not find a purpose if it is made compulsory. The HHG standards will have to be monitored and policed with implementation being registered, and the RWOF could be the perfect tool to do this.

How will the Rental Warrant of Fitness work?

 The RWOF manual makes a recommendation that rental properties will need to be assessed every three years and the concept is similar to the Warrant of Fitness you undertake for your car. At this stage, the RWOF covers 29 separate criteria and is a simple pass/fail concept, meaning that the property will have to clear every one of the 29 criteria to pass.

Although the criteria will have to amend slightly to cover off the Healthy Homes standards, it will become the perfect tool to cover off compliance of rental properties. Similar proposals are being made in the UK where we see more compliance around rental properties. Each property has to have an Energy Performance Certification (EPC) and this must reach a minimum standard in order to be rented out. On top of this, there has been a proposal that all rental properties undertake a ‘Property MoT test’ to tackle sub-standard rental properties. Here in New Zealand, we seem to follow similar trends in regard to the UK property legislation and we see no reason why this wouldn’t be the case here.

What the process may look like

  • At commencement date of standards, all rental properties will have to undertake the RWOF to assess compliance.
  • If they pass, a certificate of approval will be issued and displayed so any tenant or prospective tenant will see that the house is compliant.
  • If they fail, the landlord will be given a timeframe to ensure that the property comes up to standard or they will be in breach of Landlords Responsibilities and may face exemplary damages as the house will not be fit for purpose.
  • If the house continues to fail the RWOF, Tenancy Tribunal may issue a work order to ensure that maintenance is carried out so it will pass or else it will not be able to be rented.
  • Assessors will be trained, certified and registered. These potentially could be Property Managers though there may be issues around a ‘conflict of interest’ if they are managing the properties that they are assessing for compliance.
  • Every three years, a WOF will be undertaken which will include measurement of insulation to ensure that any degradation is identified and ‘top-ups’ are undertaken as and when necessary.
  • Tenanted properties that do not have a WOF undertaken will be ‘red-flagged’ and will be reported to the Tenancy Compliance and Investigation Team.

Should a national database of landlords be developed?

 The obvious issue that arises with the implementation of such a policy is how do you identify the rental properties? The likelihood is rogue landlords will simply just ignore the scheme and will take the punt that they will not get caught out. With an estimated 400,000 landlords in New Zealand, there will be obvious issues around monitoring and identifying everyone. If only a handful of landlords participate in the scheme, then it will lose all credibility as has been the case in Wellington.

One solution could be to have a national register of landlords who will either have to undergo some basic training under the Residential Tenancies Act or they will have to engage a fully qualified Property Manager.

Once they have undertaken the training, landlords will go onto the national register as will their properties. Property Management companies who manage properties for landlords will also have to register the properties under management as well.

Wales regulates landlords

There is a similar scheme that has been developed in Wales. Rent Smart Wales was set up in 2015. If you are a landlord or an agent for the landlord, you have to be licensed under the Welsh Assembly to operate and this means compulsory training.

Frank Webster from the UK explains how Rent Smart Wales works at the Generation of Change Conference

There are clear benefits to implementing such a scheme. This means that landlords are better educated and understand what their rights and responsibilities are, and the initiative seems to have had some success. If a landlord does not want to undertake the training, they simply engage a qualified and registered Property Manager to take on the responsibility. The upshot is that tenants will be better serviced living in better quality rental properties and cowboy operators will be identified and put out of business.

There are other benefits as well.

At the moment, there is limited data available to monitor the actual real-time number of rental properties in New Zealand. Such a scheme will mean that regulators will be able to identify potential issues around supply and demand for rental properties and whether there are any trends around lack of compliance. We will also be able to identify easily what percentage of the housing stock is in the private rental sector.

If a landlord fails to register under this scheme, they will face exemplary damages, though the penalties landlords face at the moment simply do not go far enough.

At the recent Generation of Change Property Management Conference in Wellington, the keynote speaker from England, Frank Webster highlighted that authorities in the UK now have the ability to fine non-compliant landlords on the spot with penalties of up to 20,000 GBP. In New Zealand, landlords face a fraction of this under the Residential Tenancies Act and some landlords will analyse the cost versus risk and simply not bother. If penalties were more aligned to the UK, then many landlords will see the risk being too great and will comply.

The Rent Smart Wales scheme could be the answer to regulating landlords

There is obvious concern that many landlords may just sell up, leading to a greater shortage of rental properties across New Zealand. This is already happening, leading to unprecedented rent rises in many of our centres. In some central suburbs of Wellington, median rents have increased by as much as 25% in the last twelve months. This is unsustainable and not healthy for the country.

Other risks are that landlords will choose to use platforms such as Airbnb as there are not the same legislation requirements that landlords have to abide by. Governments around the world are tackling the Airbnb conundrum as this is also contributing to a shortage of rental accommodation in other places around the world. Our Government will need to be decisive to ensure that we do not see too much stock moving to the short-term market. Taxation and limits around the use of Airbnb are ways that cities and countries are dealing with this issue.

Are we overcomplicating the issue?

Throughout all the hot air that comes from both sides of the debate, there is a simple question that seems to be ignored.

Is it too much to ask that every New Zealander lives in a warm, dry and safe home?

In our opinion, this should not be too much to ask. Every Kiwi should be able to live in a home that is warm and dry.

If you are a landlord who thinks otherwise, then in you should really sell up and put your money elsewhere. If you are a Property Manager, leave the industry and get another job.

In our opinion, the Government has got the standards right and any good landlord who maintains their property should have no issue in complying with the new standards. The timeframe may be an issue as most tenancies we see are fixed term, meaning that compliance will be closer to 2021 rather than 2024. We also would not be surprised to see longer fixed term tenancies being utilised more to take the pressure off landlords so they can comply by 1 July 2024.

Places like Dunedin or in the deep south may struggle, especially many of the old student properties and we have highlighted this in previous articles, but long term, New Zealand as a whole will benefit.

What we have to ensure is that compliance is effectively enforced, and this will not be easy to do. The whole credibility of the standards will be put at risk if we fail to enforce these standards and New Zealand’s most vulnerable citizens continue to live in substandard accommodation.

The Timeline to compliance

Type of tenancy or landlord
The date of compliance
Private Rental Sector
  • The rental property will have to comply with the standards within 90 days of the renewal or start of a new tenancy after 1st July 2021.
  • All other cases will be 1st July 2024
Boarding Houses
  • A single compliance date of 1 July 2021
Tenancies under Housing New Zealand
  • These tenancies must comply by 1 July 2023

The Standards for the Healthy Homes Guarantee Bill

Standards Requirements
Heating The minimum achievable indoor temperature must 18-degree Celsius. A fixed form of approved heating in living spaces
Insulation The minimum level of the ceiling and underfloor insulation must have a minimum thickness of 120mm
Ventilation Ventilation must include openable windows in the living room, dining room, kitchen and bedrooms. Also, an appropriately sized extractor fan in rooms with a bath or shower or indoor cooktop
Moisture Landlords must ensure efficient drainage and guttering, downpipes and drains. If a rental property has an enclosed subfloor, it must have a ground moisture barrier if it’s possible to install one
Draught stopping Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked.