Unlawful dwelling case highlights the risks to landlords

Tenancy Tribunal ruling is a wake-up call as landlord tries to contract out of their responsibilities

As we face a year of unprecedented change, a small but highly important law change last year will have a major impact on landlords and Property Managers and we are not talking about Healthy Homes or insulation. Back in August 2019, we witnessed the passing of the Residential Tenancies Amendment Bill No 2. Although this bill is better known for changes to tenant liability following the Osaki case, the passing of this bill witnessed another significant change. It gave the Tenancy Tribunal jurisdiction to make rulings on any premises used as a place of residence including unlawful dwellings. Sleepouts, converted garages and additional dwellings on land without a separate title all fall into this category. There are many landlords who have extra dwellings such as self-contained sleepouts which will also likely have consent. However, can a landlord rent out a separate dwelling that is on a title with another property? And are landlords able to contract out of RTA?

If we follow the ruling made in a recent Tenancy Tribunal case, apparently the answer is no.

Lobarinas v Zhan: Trying to contract out of the RTA and what constitutes a tenant?

A great example of this change in legislation is the complex Tenancy Tribunal case of Lobarinas (Tenant)  v Zhan (Landlord) which took place in December 2019. This recent case highlights the significance in the changes of legislation and provides an excellent example of how a landlord attempting to contract out of the Residential Tenancies Act (RTA) simply backfired.

The background of this Tribunal case is as follows.

  • The landlord (Ms Zhan) rented out a separate dwelling which was attached to the main dwelling which Zhan lived in. This was not done under a Residential Tenancies Agreement but instead done as a House Sharing Agreement meaning that Ms Zhan was attempting to contract out of the RTA.
  • Zhan argued that the occupant (Mr Lobarinas) was not a tenant but instead a flatmate.
  • Zhan collected a bond but failed to lodge it with Tenancy Services.
  • Zhan gave 42 days notice to Lobarinas as her daughter was coming to reside at the premises over the Christmas period.
  • The extension to the dwelling was consented but not as a separate household or title.
  • Lobarinas lived in the separate dwelling without access to the main household. The dwelling also had a separate meter for electricity. 
  • Lobarinas argued that he was a tenant and not a housemate and the notice that the landlord gave him to vacate was incorrect.

The case brings a number of alleged breaches of the RTA and some interesting questions. Alleged breaches include renting out an unlawful dwelling, giving incorrect notice to vacate, failing to lodge the bond, a breach of quiet enjoyment and contracting out of the RTA. 

When is a household unit an unlawful dwelling?

This case becomes more interesting as it asks and establishes the following three key questions.

  • When does a person residing in property become a tenant?
  • What is an unlawful residential dwelling?
  • Can a landlord contract out of the RTA?

Lobarinas argued that he was induced to enter into a ‘House Sharing Agreement’ in an attempt by the landlord to contract out of the RTA. However, because Lobarinas lived in a separate household unit and there were no shared common facilities, he was a tenant and not a housemate. Therefore, the notice he had been issued to vacate was invalid and the normal provisions of the RTA applied.

The adjudicator agreed with Lobarinas and awarded damages against Zhan. Adjudicator Hogan correctly concluded the following breaches had occurred.

  • Lobarinas was, in fact, a tenant and not a housemate. This is because the premises was separate to the main dwelling. Lobarinas never had access to and could not share the facilities of the main dwelling. Therefore there were two separate dwellings on the one title.
  • The RTA defines residential premises as “any premises used or intended for occupation by any person as a place of residence, whether or not the occupation or intended occupation for residential purposes is or would be unlawful”. This was Mr Lobarinas’s home and as such, the RTA applied. 
  • Although the extension had consent, it did not consent as a separate dwelling. The title showed only one dwelling. Because of this, the adjudicator ruled that this was an unlawful residential premise.
It is essential that landlords have the correct consents in place before they rent out their properties. Tribunal has been given plenty of power.

This meant that Zhan’s attempt to contract out of the RTA had failed. For Ms Zhan to continue to rent out the separate dwelling in the future, she would have to obtain consent from the local council as there was a change of use to the premises. This is stipulated under section 115 of the Building Act

It could have been worse!

It could have been worse for Ms Zhan. The adjudicator could have issued a work order against the landlord to get consent but chose not to do so. This brings into play an entirely new section of the RTA. Section 78A is about orders that Tenancy Tribunal has the ability to make in regards to unlawful dwellings. A worst-case scenario here could have been that Zhan would have had to have paid rent back to the tenant and Tribunal could have issued a Work Order meaning that the landlord would have to go to the council to get the correct consent. They could have also had to pay significant money to the tenant in exemplary damages as the landlord had breached their responsibilities and had committed a prohibited transaction which is a breach of section 137 of the RTA.

This did not happen. The landlord only had to pay $2,055.44 which was made up of general damages for stress and quiet enjoyment, compensation for two invalid vacate notices and exemplary damages for failing to lodge the bond. 

What probably helped Ms Zhan was that Lobarinas indicated to the adjudicator that the premises were in fact very comfortable. The adjudicator explained to Ms Zhan that she could use a House Sharing Agreement but this meant that any occupant must have full access to the entire premises and not just the separate dwelling. As things stand, the premises could not be rented out again until consent had been issued.

Click here to view the case

Lessons to be learnt

In conclusion, there are multiple lessons for landlords and Property Managers when examining this case. If you have a converted sleepout or a separate dwelling that you want to rent out, you must ensure you do the following.

  • Make sure the premises have the correct consent and are on a separate title. Section 45.1(c) of the RTA states that the landlord must comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the premises. Therefore if the premises do not have consent the landlord is in breach of their responsibilities. Penalties for this are not insignificant and are only going to increase when proposed changes to the RTA are passed and become law.
  • You cannot contract out of the RTA. Section 11 of the RTA states any attempt to enter into an agreement between a landlord and a tenant that is inconsistent with the RTA will have no effect. Also, by writing clauses into a Tenancy Agreement that are classed as prohibited transactions, the landlord is potentially committing an unlawful act.
  • As there was a Tenancy Agreement in place the landlord had given incorrect notice to the tenant as the daughter to Ms Zhan was only temporarily staying at the premises. It was not their principal place of residence. They had also failed to lodge the bond within the appropriate timeframe. 
  • You can get a housemate but you cannot restrict them to a separate dwelling, they must have use of the entire premises.
  • If the landlord wants to put it on short term accommodation platforms such as Airbnb or Bookings.com, then they are free to do this as the RTA would not apply. However, expect local authorities to become more diligent with policing and taxing these accommodation providers as the increase in Airbnb is contributing to a shortage of stock.

So, can a landlord contract out of the RTA?

The simple answer is no. If you are going to rent out a dwelling, always ensure that you have the correct consents to do so. If you are unsure, do not rent it out without proof. Getting it wrong can be a costly mistake with dier consequences for both Property Managers and landlords.

I am often critical of the Tenancy Tribunal process and around inconsistencies that we see in some of the orders, but in this case, I think the adjudicator got this correct. This case is a great example of what can go wrong when you take short cuts. Don't get caught out.


The Good, Bad and Ugly for 2019

Government intervention the theme of the year as we take our traditional look at the last 12 months.

It hasn’t been an easy year for anybody associated with our industry. In terms of renting in New Zealand, 2019 continued where 2018 left off. Changes in legislation. Landlords complaining about too much state intervention and tenants complaining about high rents and a shortage of stock.

Don’t expect too much to change in 2020 as this Government tries to implement all of its election promises before we all head to the polling booths again.

Anyway, it is time for us to take a look back on what was another eventful year for our industry as we take our now annual review of the year which includes the good, bad and ugly for 2019.

The Good

The Call For Change Campaign: It has been difficult to find any real positives in a challenging year, but the launch of A Call For Change campaign launched by REINZ back in September in an attempt to regulate the Property Management industry has probably been the best. On the last count, nearly 80 agencies, Property Management companies, advocacy groups and community organisations are now supporting this. 

The launch of 'A Call For Change' was our highlight of 2019 but more needs to be done.

There is no doubt that since Bindi Norwell was appointed as CEO of REINZ, there has been a real focus by the organisation to raise the profile of Property Management. For the first time ever, REINZ has appointed a resource who is solely dedicated to Property Management in Jo Rae, the Head of Property Management. 

In the past, people have been critical of REINZ with their attitude and apparent lack of dedication to Property Management. There may have been some validity in this argument in the past, but no one can accuse REINZ of paying lip service to the industry now. REINZ has showed renewed focus and long may it continue.

It hasn't all been positive however around the campaign. It desperately needs to keep the momentum going and there is a risk that it could run out of steam as other things become a focus or a priority for REINZ. The campaign has also been discredited by PROMINZ, the newly branded Property Management Institute of New Zealand, after their President, David Pearse called the campaign a ‘Cunning and devious plan’ designed to promote REINZ Property Managers. This was during an interview held on Radio New Zealand Morning Report programme.

Listen to the Morning Report interview with Bindi Norwell and David Pearse

Some of Mr Pearse’s comments have been nothing short of outrageous. He was also quoted in the New Zealand Herald stating “Real Estate agencies gave poor service because of their greed and making property managers into slaves by having them manage up to three times the number of properties that they can effectively manage." Comments such as this only damages our industry further, and if someone is going to make comments like this, they have to back it up with facts and not solely their own personal opinion. For the campaign to get further momentum, PROMINZ would be doing our industry a service by putting their support to this campaign. I'm sure A Call For Change was not designed to be a 'REINZ are better than the rest' campaign, the greater good means all organisations should get behind this regardless of what you are a member of.

That aside, the industry slowly but surely is starting to find a voice. As an industry, we manage over 40% of the 600,000 rental properties and this number will only continue to grow. 

Although new Associate Housing Minister Kris Faafoi has initially ruled out the regulation of the industry, I for one am confident that they will recognise the importance of having some structure and regulation around Property Management. Over a quarter a million of residential dwellings are now under the management of a Property Manager so surely it is only a matter of time before the change actually does happen.

Other mentions: 

The rise of Proptech: Property Technology companies or Proptech as it is more commonly known is a hugely exciting development for our industry. Many are headed by young entrepreneurs who are challenging the status quo. At our conference that we held with Palace in March, Michael Abbott, the CEO of Palace said that the Property Management industry was in its infancy. Those comments stuck with me as we are finally starting to learn how to use the data our industry creates. I for one wholeheartedly agree. Also, you have to give credit to the Privacy Commissioner who listened to the criticism of their original guidelines and reformed them to give more clarity as to what you can and cannot ask for when selecting a tenant.

The Bad

Swamp House Tribunal Decision: Remember the ‘Papakura swamp house?’

We reported on the dilemma of tenants Dawn Robbie and Cameron Taylor last December. This young couple with their two daughters rented their three-bedroom property in Papakura. Unknown to them when they rented the property, blocked drains and malfunctioning stormwater lead to an ankle-deep swamp under the property and an unusable flooded yard every time it rained.

Underneath the infamous Papakura Swamp House. Atrocious conditions for the tenants to tolerate.

Their 11-month-old daughter at the time had serious health issues and was admitted to the ICU unit in Middlemore Hospital due to severe bronchitis that was brought on by mould in the property. All of this for $520 a week in rent.

The Tenancy Compliance Investigation Team took the landlord to Tenancy Tribunal on behalf of the tenants and even went to the lengths of getting the tenants to sign an NDA so they could not talk to the media about the case.

They finally had their day in Tenancy Tribunal in November 2019 and this looked a straight forward case. The landlord had clearly breached their responsibilities due to the flooding and damage caused by the flooding. The tenant's health had been severely affected by the poor condition of the property and compensation was certainly due. Tribunal agreed yet the sum of money paid out to the tenants was pitiful for what this couple had to tolerate. Compensation of $4,000 and exemplary damages of only $1,000 were awarded to the tenants. The latter was only 25% of the maximum penalty that could be awarded by the adjudicator. Why so little?

When you read the decision which is available online it leaves you scratching your head and asking yourself has justice really been served? You also have to question the ability and judgment of the adjudicator. Adjudicator Benvie makes reference to Boarding House legislation which is utterly irrelevant. Then the adjudicator defends the decision by saying that the landlord did not intentionally commit the breach. This is ridiculous. According to Adjudicator Benvie, the landlord must deliberately flood the property to be liable for the full amount of exemplary damages. As if a landlord is going to do that!

Mr Raj, the landlord, knew it was an issue for an extended period of time and simply did nothing about it. He should have had the book thrown at him. In this case, the punishment nowhere near fitted the crime.

Watch the video about the Papakura swamp house. When you see what the tenants had to tolerate, $5,000 seems like a slap in the face.

Other mentions:

Leaving insulation to the last minute has caused a number of problems for many. The lessons we have to learn from this as we tackle the Healthy Homes is not to leave it to the landlords as many of them simply will not get it done. Also, a shortage of rental stock continues to be a major issue. The current Government promised to eradicate poverty and made housing it’s number one priority in its election campaign of 2017. They even went as far as asking that the then National Government declare a 'National state of emergency' due to the housing crisis. However, people on the waitlist for public housing has now reached 14,000. This has more than doubled since the Coalition Government came to power. Many of these families are now falling into the private rental sector. The approach of targeting landlords has backfired and I still do not see any state of emergency being declared.

The Ugly

Property Managers continue to face risk and abuse: With property, there is always lots of emotion. For landlords, in many cases, it is their nest egg and they may have previously lived in the property meaning that they will have a strong emotional attachment to the property. For tenants, it is their home and many are paying over-inflated prices for a second hand and substandard product.

With this, the financial pressure that is placed on both landlord and tenant has grown in large down to Government policies. The pressure leads to aggression and abuse as Property Managers often become scapegoats to problems that they cannot control. Other factors that have led to the rise in abuse are Property Managers simply trying to educate landlords on what they need to do to have a compliant property. Many landlords do not like it as the costs associated with compliance continue to hurt margins. This will only continue as we inspect the thousands of rental properties for compliance with the Healthy Homes Standards.

Tenants can also be abusive and we have heard of direct threats of violence to Property Managers. Social Media also does not help. Tenants and their associates vent and sometimes become abusive online. This is gutless but unfortunately, it now comes with the territory. 

More needs to be done to protect Property Managers from abusive clients and a ‘zero tolerance’ approach should be taken by our industry. This is where the 90-Day No-cause termination has its place. There is simply no need for the removal of this as tenants already have plenty of rights to protect them from being evicted unfairly.

It has been over two years since our industry was rocked by the shooting of two Property Managers in Northland. Has anything changed?

I cannot help but feel that we have failed to learn lessons from the tragic events of two years ago when two Property Managers were shot dead by a tenant. Property Managers walk into difficult situations all the time and the job can almost feel more like being a social worker rather than a Property Manager. As the financial burden of renting continues to see more and more families forced into desperate situations, Property Managers are often treated poorly. If it becomes too hard to move on antisocial tenants, this will only get worse. 

More needs to be done in this area going forward particularly if we are to attract and retain good people within the industry. Leaving the 90-day no-cause termination as it is, is a step in the right direction.

Other Mentions:

Anti-social behaviour seems to go unpunished if you are a tenant of Kainga Ora, the organisation that was formerly known as Housing New Zealand. The soft friendly let’s all hold hands together stance that the Government has taken to tenants in state-owned properties is starting to cause some grievances. Recently I received a call from a Hamilton Property Manager seeking advice as they have tenants wanting to break a lease due to their neighbours, Kainga Ora tenants fighting in the street every weekend and threatening neighbours. These gang-affiliated tenants look like they are going to staying for a long time as pleas to Kainga Ora have fallen on deaf ears. There was not a lot I could offer in assistance.

Dealing with tragedy and why our industry does not get the recognition it deserves

2019 has seen some horrendous events in our country and too many families have been struck by tragedy in the last 12 months. The Christchurch shooting was particularly disturbing. As a country, we felt like we lost our innocence on that fateful day in March. Christchurch Property Managers have had to deal with tragedy and disaster in the past following the earthquakes but one Property Manager from Ironbridge won the hearts and minds of all at the LPMA Conference. 

Not long after the shooting, a Property Manager found a tenant hiding whilst doing a routine inspection. This tenant had been in one of the Mosques when the shootings took place and were clearly in a distressed state. The tenant was terrified and in desperate need of help. The Property Manager went above and beyond in helping this tenant. They made sure that the tenant got the support they needed and spent time reassuring the tenant that they would be ok. It is a shame as I cannot remember her name, but it highlights the qualities that we know our industry has. It's funny how stories such as this do not get mentioned in the media.

Make sure that you take good care of yourselves over the holiday period. Have a great Christmas and we will see you in 2020. 

Signing off for 2019

 

David Faulkner


The Residential Tenancies Act Reform Survey: Results

We have had over 300 responses to our RTA Reform survey. Thank you to all who took time out to complete the survey. The result showed that the majority of people surveyed want the 90-day no-cause to remain whilst the Property Management industry should be regulated.

Approximately 50 landlords and over 250 Property Management employees took the survey.

Unsurprisingly, the vast majority of people surveyed want the 90-day no-cause to remain. Out of the small group that did say no, 85% of them worked in the Property Management industry.

Over 75% believe that tenants names should appear on Tribunal orders, even when they make the claim. 10% of Property Managers believe that tenants have the right to remain anonymous when the tenant claims.

This was split with no obvious majority. This question always creates a lot of debate. Of the 25% who are not sure, one can suspect that they will be ok but under a strict criteria.

This was very interesting to see. Over 60% of people who completed the survey believe that exemplary damages do need to increase. 63% of Property Managers believe they need to increase.

Again, another question that split opinion. There was no difference in the voting between landlords and Property Managers.

Tenancy Tribunal could become very busy with the introduction of the 90-day no-cause terminations. We believe it needs a lot of work to modernise, but what did you think? Well, only 3.5% believe that it works fine. Most of you are split between it works ok but needs modifying or it needs a lot of work. 11% believes it needs a massive overhaul and it is completely broken.

Onto regulation. Overall, the vast majority want to see the industry regulated. This is a similar story between landlord and Property Manager.

And when it comes to Property Managers, they overwhelmingly believe that landlords should undertake some basic training if they are to self manage. Just under 50% of landlords believe that this is a good idea.

COMMENTS BY PARTICIPANTS

Over 100 of you told us what you thought about the reforms and naturally, many were not happy. In particular, the 90-day no-cause was hotly disputed and commented on. Some landlords are saying that they are going to sell up. Only time will tell if that will be the case.

READ OUR COMMENTS FROM THE SURVEY

Thanks to everyone who participated in the survey.


Carbon Neutral Property Management. Is it possible?

  • We look at the likelihood of achieving a net-zero carbon industry by 2050

  • The government needs to help landlords and we have ideas on how this could work

‘Ok boomer!’ How big is the carbon footprint that the residential rental sector in New Zealand leaves behind and more importantly, how do we reduce it? I am not attempting to offend an entire generation of landlords here, but the comments from Millennial Green MP Chloe Swarbrick after she was heckled by an MP during her speech to Parliament earlier this month have certainly grabbed attention, so I thought I’d try the same approach.

Behind the rhetoric, the disdain and all the media scrutiny that the now-infamous comments received, the attention deflected away from a significant bill that was passed in early November that will have a major impact on every business in New Zealand. This includes the Property Management industry and we will have a monumental challenge in front of us if we are to achieve its target. A net-zero carbon footprint for our industry.

On the 13th of November, Climate Change Response (Zero-Carbon) Amendment Bill was passed. This means that by the year 2050, New Zealand will have a net-zero carbon footprint. What does this mean for renting and Property Management in New Zealand? By my calculation, I will be 78 years old so hopefully, I will still be here to witness it. I certainly expect my kids and future grandkids to be around to see it happen.

Ever since Jacinda Ardern became Prime Minister, I have argued that many of the changes her Government are making around the residential rental sector are motivated partly by reducing the carbon footprint of rental properties. What was it she said in the lead up to the last election? 'Climate change is my generation's nuclear-free moment'. 

Who can blame her, it is an easy target? The condition of housing in the rental sector is notoriously poor and trying to keep your rental home warm in winter can be a costly exercise. The bigger the cost, the larger the carbon footprint. For Labour, targeting landlords is easy as many of them will not be Labour voters and it plays into the hands of their support base as well as coalition partners the Green Party. Not only is it costly to run a typical rental property, but the carbon footprint will be substantial. Probably a lot more than your typical owner-occupied property. What percentage of rental properties will have double glazing or have solar panels? I would be surprised if it was more than 1%.

Landlords have had a lot to grumble about recently, and many feel with some justification, especially after the latest set of proposed reforms announced by Associate Housing Minister, Kris Fafooi early this month. All of a sudden, getting rid of bad tenants just got a whole lot harder. However, as an industry, we have to accept the fact that the carbon footprint rental properties leave behind needs to be reduced and we need to start having serious conversations about how we can do this. For all of the apparent landlord bashing that many claims this Government has been guilty of, few can complain about that the Healthy Homes standards we are currently working towards. 

The Healthy Homes standards, for all of its faults around implementation and timeframe, is a step in the right direction towards building a more sustainable and healthier industry. Better insulated homes with less costly heating appliances will certainly help, but what more can be done?

One company leads by example

Natalie Wendell is leading the charge to make Property Management carbon neutral.

One company is certainly trying to make a difference. In September at the LPMA Conference held in Auckland, Natalie Wendell, the General Manager of Wendell Property Management spoke at length about their commitment to build a more sustainable and environmentally friendly industry. Her husband and head of LPMA New Zealand, Ashley Giles, also shared his insights into this in a recent interview we did with him before the conference. They are clearly committed to making a difference, Wendell Property Management makes a bold statement on their website with the aim of being completely carbon neutral by 2020. Not much time to get that done! However, it is refreshing to see a company within our industry making such a commitment. We all have to start somewhere.

So what does a carbon-neutral Property Management business look like? It can clearly happen, but who pays to make the properties more environmentally friendly and what else is involved to make it possible?

Firstly, you can look at your own footprint as an office and a company. The paperless office is a bit of a buzzword and I have yet to walk into an office without seeing lots of paper on desks but realistically, there is no reason why anything really needs to be printed. Digital signatures are becoming more and more common and widely accepted within the industry. There is no reason why Tenancy Agreements, Bond forms and Management Authorities need to be printed. Surely even the Tenancy Tribunal will move into the 21st century and move away from printing ream after ream of photographs and turning up with three printed copies of evidence.

Other things that can be done in your office are things such as installing solar panels and LED lights. This will also go a long way to reducing your footprint. Change the company car to EV’s rather than drive around in petrol vehicles is also a great way to reduce emissions. Wendell has already done this which is a great statement to make. 

Maybe one day, we will see Property Managers rushing to inspections and viewings on E-Scooters!

Natalie Wendell's tips on a more sustainable industry

  • Provide tools so people can assess their own usage. Click on FutureFit to assess your carbon footprint.
  • Moving your Property Managers to EV's has greater savings on fuel consumption.
  • When renovating, look at restrictions about the materials that you use and look for more sustainable and energy-efficient appliances
  • Encourage longer tenancies as they are better all round for everyone. Less movement means less carbon footprint
  • Waste management in rental properties. Ideas such as worm farms are a fun way to educate tenants and reduce landfill

What about the properties?

All of these small commitments to reducing your own carbon footprint will help, but the real issue is with the properties that we manage. It has been hard enough trying to get all of our landlords to invest in insulating their properties and we are going to spend the next two years battling with some landlords around the implementation of healthy homes standards. Can you imagine the response when a millennial Property Manager calls the baby-boomer landlord to inform them that their student rental in Dunedin leaves too big a carbon footprint and they had to reduce it? I suspect the response would be less than diplomatic!

With over 600,000 rental properties accommodating over one-third of the population, trying to make all these properties carbon neutral will take a monumental effort and it will also need a collective buy-in. Try getting every baby-boomer landlord to start investing in solar panels and double glazing for their rental properties. See how far you get before you start seeing them either sell up or move to another company. Getting a collective buy-in, will be nigh on impossible, especially whilst the majority of rental property is owned by the Boomers. This is why we need to start discussing how we do this now. All the issues that this Government has faced in terms of dealing with Kiwibuld and the housing crisis are not going to go away anytime soon as a lack of builders, expensive materials, costly and time consuming resource consents, as well as the current condition of the majority of rental stock are all issues that we will have to contend with for decades to come.

Millennial landlords will probably be more receptive to change, after all, it is their generation that is going to have to live with the effects of global warming. The reality is however, we simply cannot wait till the Boomers depart and leave it to the next generation of landlords. So what can be done?

Doing our research and talking with Wendell, the typical property in New Zealand will use approximately 8,000 to 10,000 KwH per year. Getting this down to zero is not going to happen in the short term but as an industry, we should be looking at ways we can reduce the usage. As it is highly unlikely that landlords will start retrofitting houses with double glazing, LED lights, solar panels and wind turbines, what can be done to help convince them that doing some or all of this is not only a good idea, but there are incentives to get them to do so?

Subsidise landlords to invest in renewable energy

As Christmas approaches, I cannot think too many landlords will be wanting to send Jacinda Ardern a Christmas Card. Many think that the Government is trying to force landlords out of the market. However, we need good landlords more than ever as what the last two years have demonstrated is that if you target landlords with extra compliance and cost, all you do is drive up rents and reduce the stock. This strategy has simply failed as twice as many families are now seeking emergency accommodation compared to when National was in power. Rents in some regions have gone up over 20% in two years and this is typically for a substandard product. Hammering landlords simply does not work. 

How will we get properties such as these in Dunedin to reduce their carbon footprint?

One idea we believe warrants exploring is subsidising landlords who invest in making housing more energy efficient. If landlords invest in solar panelling or double glazing, the Government could be able to offer them interest-free loans to get the work done. The landlord has to commit to renting the property for a minimum period of say seven to ten years to get the interest free loan and if they sell the property or move into it during that period, then they are charged interest on the loan. The benefits of this scheme are that landlords are committing long term to rent out their properties which give added security to the tenants. The other obvious benefits are that the property will be cheaper to run meaning that tenants will have the extra money in their pocket whilst the carbon footprint of the property is reduced.

As landlords can no longer offset losses on their rental property after the Government changes rules on negative gearing, this is an added sweetener and the savings the Government make on more tax will simply be reinvested in the interest-free loans. The property will increase in capital value whilst tenants will be healthier which means there will be further savings in medical bills and less of a strain on the system.

Focus on smart home devices to track consumption

One thing that the Healthy Homes standards have led to is the increase in companies conducting inspections in regards to what is required to meet the standards. One such company we had the pleasure of meeting was the Sustainability Trust in Wellington. This is a not for profit organisation committed to improving the quality of housing by making them more efficient. They are especially focused on the rental sector and their new tool for reporting on Healthy Homes is excellent. 

We will also see an increase in smart devices such as Tether which measures temperature, ambient light and Co2 emissions. Tapi with its artificial intelligence will make reporting and fixing maintenance issues more cost-effective and quicker. In short, it won’t be long before houses can talk and transmit messages to their Property Manager when there is an issue. Tenants will have devices that tell them how much power they are using in dollar value in real-time. All properties will be marketed with energy-efficient star ratings on them and if they fall below a certain star rating, then the landlord will be in breach of Landlord’s Responsibilities. All of this will help see houses run more efficiently leading to a reduction in the Carbon footprint.

Plant trees to offset emissions

This all sounds very exciting, but reducing every rental property in New Zealand to zero emissions is not going to happen soon. I struggle to see how it can happen by 2050 so what else can we do? 

David Faulkner talks to an audience of mainly Boomer landlords about the relevance of Greta Thunberg

Apparently, 10,000 KwH equates to approximately 7 metric tonnes of Carbon Dioxide emissions. With approximately 6 trees required per metric ton, that means the typical rental property will need about 40 trees to absorb the Co2 emissions. When I interviewed Ashley Giles and asked him what can we do to be Carbon neutral, I was half-joking when I suggested we just plant trees for every property we manage. I could tell by his response however that he was deadly serious when he said that this is exactly what we should be doing. 

His wife, Natalie in her LPMA presentation also made the suggestion that as an industry, wouldn’t it be a great initiative if we pulled resources together and started planting trees for every house we managed. A quick estimate would mean that we would have to plant about 10,000,000 trees to offset the Co2 emissions of 250,000 premises that the industry manages in New Zealand.

If however, we were able to work smarter and gradually reduce emission from say 10,000 KwH per annum down to say, 5,000 KwH within the next decade, then down to 2000 KwH by 2040, then we could be on our way to having a zero net gain in emissions through exciting initiatives such as tree planting to balance the effect of running a rental property. 

By this time, Millenials will be the landlords and they will understand the importance of providing an environmentally sustainable property to their consumers. Future tenants will simply demand it and the landlord will have a legal responsibility to provide it. Maybe, just maybe, Wendell are onto something. Every movement, every idea has to start somewhere and I firmly believe that to achieve great things, sitting in your comfort zone is not going to get you there. Many landlords currently will not buy into this, but when Greta Thunberg’s generation become landlords and enter the workforce, they certainly will.

Well done Wendell for starting the discussion, I’ll plant a tree or two to that!


Tenancy Tribunal reform required as no cause termination debate looms

Tenancy Tribunal. Everywhere I go on my travels around this great country, it is the one topic that always gets hotly debated amongst Property Managers and landlords. There is always plenty of emotion that goes with the territory as well. Comments such as “We are having to wait months for our hearing” or “The adjudicator is biased’ are common complaints that I hear. Others are less critical however the consensus of opinion appears to be that Tribunal does favour tenants though these are just opinions and there have never been any conclusive studies done to prove that this is the case.

One thing is for sure, wait times are frustratingly long. Too long, and if the Coalition Government push through reform such as the removal of the 90-day no-cause termination notice, meaning that in many occasions, you will have to go to the Tribunal to get a ruling, they are likely to increase further, and that is going to be unacceptable. If you have to go to Tribunal and wait for six to eight weeks to remove the antisocial tenant, and even then, your going to need sufficient evidence to do so, more small-time ‘Mum and Dad’ investors may leave the market at a time when we desperately need more landlords as rental stock plummets increasing rents further.

With approximately 600,000 rental properties in New Zealand, there are a staggering thirty to forty thousand Tenancy Tribunal applications every year with approximately 50% of them making their way to the Tenancy Tribunal. That means if you take the average length of a tenancy being two years and three months, approximately 10 to 15% of all tenancies will have a dispute worthy of an application to the Tribunal.

Who makes the applications?

Unsurprisingly, it is the landlord who is making the vast majority of the applications. In 2018 over 85% of all applications were made by the landlord and so far year to date up to the end of June, those numbers remain consistent.

But if you take away rent arrears which make up approximately 70% of all applications, you start to get a picture that there are an equal amount of applications and disputes between landlords and tenants.

There are over 50 Tenancy Tribunal adjudicators in New Zealand operating in 38 different locations. This means on average, adjudicators will make rulings on approximately 300 cases per year.

From a Property Management or landlord perspective, going to the Tribunal is a costly and time-consuming exercise, particularly when waiting times can be for so long. From a tenants perspective, you will automatically have second thoughts about taking a landlord to Tribunal as your name will show up in Tenancy Tribunal orders that are publicly available. 

So what can be done to speed up the process and improve the consistency of rulings? 

And what about the jurisdiction of the Tribunal? Do we need to review how it works and what powers it has? How is it monitored for consistency as in many cases I see, the decision-making process seems to vary considerably as to who is making the decision and whether it is against a landlord or a tenant?

This article is by in no way a criticism or beat-up of the Tribunal, more a recommendation as to how it can evolve. We are fortunate to have a disputes resolution process that is both accessible and affordable with Tribunal orders being made public. But with all things in life, change is a constant and the Tenancy Tribunal is no different. Is it too much to ask to get wait times down to two to three weeks for basic disputes and with more serious cases such as matters around health and safety, antisocial behaviour, assault and wilful damage, why not aim to get this down to within a week?

We believe that this is a possibility but it will need radical thinking and change to make this possible. Change in Government departments is typically slow with so much bureaucracy that you have to navigate. It is like a giant cargo ship in the ocean having to change direction so don’t expect change to come quickly.

So, without further ado, we look at a number of reforms that the Tenancy Tribunal should undertake.

  • Removal of rent arrears only cases from Tenancy Tribunal

This is something we have been talking about for over 12 months. As stated earlier, approximately 70% of Tribunal hearings will have a component of rent arrears. Let’s assume that over 50% of these cases are arrears only. If arrears only cases were taken away from the Tribunal, you would remove over one-third of Tribunal hearings and this alone would be lead to a vast reduction in hearing times.

How can we make this work without jeopardising tenants rights and keeping the process fair and transparent?

We think we have found a solution that will protect the rights of tenants and landlords alike.

Firstly, you have to acknowledge what the Tenancy Tribunal is and what its purpose is for. It is there to resolve disputes between landlords and tenants that relate to the Residential Tenancies Act. Now ask yourself this, are rent arrears a dispute or are they more a matter of fact?

There are plenty of grey areas and reasons for disputes between landlords and tenants but rent arrears is not one of them. It is one area that is black and white. You have either paid your rent on time, or you haven’t. Therefore there is no dispute.

How we see this working

It is a complete waste of time for both the landlord and the adjudicator for rent arrears only cases. Typically, the tenant will not even turn up for the hearing and it is more a case of putting a seal on an order. 

An alternative solution is to make rent arrears applications remotely without having to go to Tribunal. On or after the 21st day of the tenant becoming in arrears you simply send the application through with possession and termination automatically granted to the landlord. The landlord would have to send evidence across to prove this is the case. Rent statements, arrears notices, a copy of the Tenancy Agreement and an address for service for the tenant would likely be required. Under section 55 of the Residential Tenancies Act (RTA), the Tribunal shall make an order terminating the tenancy if the Tribunal is satisfied that the tenant is at least 21 days in arrears. 

A remote adjudicator would ensure that the information is correct and write out the orders ending the tenancy and granting possession back to the landlord. Tenants have to be given the right to reply and defend themselves. So the termination and possession order will be granted to the landlord no later than 10 working days from the date of the decision. This gives the tenant the opportunity to seek a rehearing if they can prove that there has been a substantial wrong or miscarriage of justice. This is clearly stated in section 105 of the RTA under Rehearings.

If the tenant can prove that this has happened, then a Tribunal date will be set within 10 working days of the original decision. Either way, you will limit the risk to the landlord to approximately five weeks rent arrears.

If the tenant cannot prove this, the order stands and the tenancy will end. We estimate that there are approximately five to six thousand cases a year like this so there would be a reduction of about 120 cases a week going to the Tribunal. Two remote adjudicators could handle that workload between them.

  • Track and measure decisions to improve consistency

With so many Tribunal orders being made every day, we believe that to help improve consistency, the decisions that adjudicators make should not only be monitored but also measured. With small data comes big opportunities and the Tribunal is no different. 

It would be hugely beneficial for adjudicators to measure their decisions against other adjudicators. If there are inconsistencies between adjudicators then it would be easily identifiable through this process.

It will also give clarity as to how adjudicators decide who is liable when a ruling is made against a Property Manager. Too often, we see rulings made against a Property Management company when they actually have done nothing wrong. Examples of this are around maintenance or non-compliant properties. The owner is responsible for maintaining the premises and too often Property Management companies face exemplary damages because of the actions of their owners. We highlighted this back in our April article, who is liable?

How do we do this?

With over 15,000 decisions being made by over 50 adjudicators, it will be easy to track the performance of each adjudicator and compare their decisions. You will categorise each decision, for example, rent arrears, damages, cleaning and exemplary damages and you will be able to benchmark decisions based on case type, location and adjudicator.

Such a system would identify any inconsistencies in decisions that adjudicators make but more importantly, we would have an excellent tool to educate not just adjudicators, but both tenants and landlords on what likely decisions the Tenancy Tribunal will come up with on certain cases.

Too many applications will be made based on raw emotion rather than fact. Having such a tool in place will mean that applications will typically be made based on factual evidence and case history rather than one party getting wrapped up in emotion and taking matters too personally.

  • Allow anonymity of the applicant

With the Privacy Act being talked about so much within our industry, we believe it is time to ensure that applicants should be able to remain anonymous. Likewise, if you are the defendant and you have had no ruling made against you, you should also have the option if you wish to remain anonymous.

It is in the public interest to have bad landlords and tenants identified however if they have done nothing wrong or they are a victim then is it really in the public interest to have them identified?

As an example, I have a family member who lives in Wellington and is paying a huge amount of rent for what can only be described as a slum. He has shown me pictures of mushrooms growing in the bathroom, rot, mould and damage to the property through fair wear and tear. This two storeys two apartment flat will be earning approximately $1300 a week in rent and I have spoken to the occupants, explaining their rights. However, they are very reluctant to make a claim as they do not want this to hinder future applications for rental properties.

I can well understand this as any prudent Property Manager or Landlord will do a Tribunal search on applicants. 

Tenants should be encouraged to take recalcitrant landlords to the Tribunal without fear of retribution or how it could impact their renting future. Likewise, often Property Managers are named in orders and this can be deeply distressing for them. It can also be a concern for their safety as sometimes decisions are made that they have little control over and they find themselves named in the media and sometimes subjected to online abuse and threats. 

This is totally unacceptable but unfortunately, it is systematic of the world that we live in. Safety and wellbeing have to be the number one priority.

  • Exemplary damages are out of date. Change them.

We believe that penalties that the Tenancy Tribunal can award do not go far enough and have to evolve. Many of the penalties or, as they are known under the RTA, exemplary damages, have not changed in nearly a decade. As rents have increased over the last 10 years, it would make sense that exemplary damages should increase as well.

They are also geographically biased as well. The median rent for Remuera is $730 yet for Gore in Southland it is only $260. Is it fair and reasonable that the landlord or tenant in Gore pays the same fine as the tenant or landlord in Remuera?

We believe that penalties need to be stiffer. Also, we need to take into consideration the amount of rent that is being charged when making decisions. Instead of having a fixed dollar amount, we believe a fairer system would be to base exemplary damages on a percentage of the annualised rental income. For example, the landlord is breaching his or her obligations under section 45 of the RTA, have maximum exemplary damages of 40% of the annualised rent. 

This would ensure that landlords would be severely hit financially if they purposely breached the act. Is a $4,000 penalty really a harsh punishment when a landlord rents out an unlawful premise that is infested with mould and dampness causing the occupants to become sick?

Stiffer penalties will ensure that landlords are more likely to maintain their properties and therefore we should see a reduction in applications by tenants over time. Bad landlords will be exposed and weeded out.

  • Exemplary damages for wilful damage to the premises

Finally, we find it unbelievable that a tenant can smash up a rental property and not face any exemplary damages or criminal prosecution. Section 40 of RTA under Tenant’s Responsibilities does state that tenants cannot intentionally or carelessly damage, or permit any other person to damage the premises. However, if they do this it is not considered to be an unlawful act and exemplary damages cannot be awarded.

This is ridiculous. I can go out onto a street and smash up a neighbours car and I would rightfully face criminal prosecution. However, as a tenant, I can smash up a property and only be liable for the repairs. This is often a lot less than the true cost of repairing the property as adjudicators have to take into account depreciation.

Tenants who wilfully damage the premises that they are renting should also face sanction and severe penalties through the Tribunal. Too often, the mental and financial strain that this causes to landlords is not taken into consideration. Tenants need to know that the consequences of such actions will hit them financially hard and this should prove to be enough of a disincentive to carry out such obscene behaviour.

If tenants are fully aware of this, then we again should see less damage caused to property resulting in fewer Tribunal hearings.

The 90 days no-cause termination. What shall become of it?

It is going to be the most hotly contested debate around the RTA reforms when this Government finally announces them. With all the well-intentioned ideas that the Coalition has, the reality is that ideology alone does not always make good policy. 

We have already seen one ridiculous Tribunal case where a tenant has taken HNZ to Tribunal, trying to get a full refund of rent of up to $26,000. This was after he was sent a written apology and paid $7,000 in compensation after being removed from a rental property which he contaminated following a police raid that discovered evidence of a Methamphetamine lab. The fact that he had the audacity to waste taxpayers money shows that there will always people who will simply not play by the rules and take advantage.

Safety must be the number one priority

Landlords have to have the ability to remove bad tenants quickly. They also should not need to obtain evidence from scared or intimidated neighbours to do so. Likewise, no Property Manager should ever have to tolerate abuse or threats. In a case highlighted in the REINZ weekly publication to its members, a tenant was for some inexplicable reason granted a rehearing after the Property Manager applied for eviction even though the Property Manager could provide evidence of abuse and threats through text messages. 

Safety and wellbeing must come first. If Tribunal can guarantee that cases such as antisocial or aggressive behaviour will be heard and actioned against within seven days of an application, without the need to get statements or evidence, then I would support the removal of the 90 days no-cause termination. A Property Manager taking oath in Tribunal should be sufficient evidence. Is it really worth risking your job over to get rid of a tenant you simply don't like?

If they cannot do this, then the status quo must remain. Tenants have plenty of rights and giving notice through retaliation already comes with a strong penalty. Maybe including this statement into a Tenancy Agreement is the way to go so tenants are fully aware of their rights.

There is no silver bullet to reducing applications, however, we should set a target to do so. It is in everyone’s interest to have a fast, transparent, fair and consistent Tenancy Tribunal process. Let’s hope that this can start a discussion in ways to speed up the process.

David Faulkner

 


Regulation of the Property Management Industry in New Zealand

Few people in New Zealand have a greater insight into the Property Management industry than David Faulkner. Real iQ trains more Property 


Managers than any other company in New Zealand and David sees it all. With The Real Estate Institute of New Zealand launching their campaign A Call For Change - Better Property Management, David has decided to do a free webinar in regards to the current state of the industry including looking at the following topics.
  • History of our industry and why it was not regulated
  • What has happened over the last 10 years
  • Issues that we see going around New Zealand and in dealing with enquiries for NZ RPM Level 4
  • Why everyone regardless of who you are with should get behind A Call For Change
  • What is the landlord regulation system in Wales like?
  • What David thinks regulation should look like.

 

 


Build to Rent: The future of renting in New Zealand?

  • Build to Rent Forum gives a glimpse of what renting will look like in the future

  • Time to embrace change and accept that renting has to evolve

Although renting in New Zealand may not be entirely broken, I have come to the conclusion that things desperately have to evolve and the status quo cannot remain. Well-intentioned, Government policy has only succeeded in making matters worse by driving up rents through an anti-landlord policy that has resulted in many small ‘Mum and Dad’ investors selling up. Landlords and the Property Management industry have to take some ownership too. If landlords had maintained their properties sufficiently, there would be no need for a Healthy Homes Guarantee Bill. And for too long many Property Management companies have tolerated poor landlords, scared of upsetting them in case they lose their business, continuing to manage poorly maintained and in some cases, non-compliant properties.

What we have now is a serious shortage of stock leading to many tenants paying over-inflated prices and in many cases, for a sub-standard second-hand product. What can be done to improve the situation?

Build to Rent; What is it?

One idea that seems to be growing traction is the concept of ‘Build to Rent’ or BTR as it is more commonly known. The BTR model is an emerging and fast-growing model, particularly in the UK.

Not to get confused with ‘Rent to Buy’ schemes which have been suggested as a potential fix to the Kiwibuild fiasco, BTR is large real estate developments specifically built as long term rental accommodation. With the vast majority of rental accommodation being owned by small scale, amateur landlords who often fail to deliver a good consumer experience, BTR looks like a viable option. 

How does BTR work?

David Faulkner was invited to be the Chair of the first Build to Rent conference in New Zealand

Developers and large scale investment companies will build purpose-built rental accommodation, usually in the way of apartment blocks or high-density housing. These developments will be sold to investors who will own shares in the development meaning that you do not own an individual unit.

The shareholders will then be paid dividends in way of rent payments, usually at a yield of around 4% per annum. The more shares you own in the development, the more you earn as a return. These units will then be rented out to the public, usually on a lease for between three to seven years. However, unlike a typical fixed-term tenancy, the tenant will be free to give notice when they choose. The benefits of this are obvious to tenants. They have long term security without the fear of being ousted by the landlord for whatever the reason may be. 

Tenants will also have the benefit of living in tailored apartments where maintenance requests will be dealt with immediately rather than having to deal with a private landlord who doesn’t want to spend the money and often takes the least expensive option available to them. Therefore the tenants in BTR accommodation will be living in a superior product, paying a set rent that increases usually in line with inflation and they do not have to worry about dealing with landlords who refuse or who cannot afford to maintain the property.

BTR properties are also pet-friendly and the tenants are free to make minor modifications as well. It all sounds too good to be true. 

The Build to Rent Conference

On the 19th of September, the very first Build to Rent Conference was held in Auckland and I was invited to be the Chairperson for the Conference. It was a huge privilege to be invited to do this and I also believed it would be a great way to learn about a concept I knew little about. The day was extremely insightful and I left the Conference believing that although it will not solve all our housing issues, it will certainly go some way to being part of a solution. To fix housing in New Zealand it will need a collective approach by a variety of state and private enterprises. A number of the presenters and panellists had had first-hand experience working with the BTR Sector and in particular, within the UK. One presenter had worked on the Wembley Park BTR development in London by the iconic Wembley Stadium whilst another had worked with the transformation of the Olympic Village in East London which had been converted into BTR accommodation. 

The model looks like a perfect fit for places such as Auckland and in particular Wellington, which is a city bursting at the seams.

Build communities that thrive, not ghettoes of crime

The key to success is ensuring that the product is built with quality materials and with a focus on building communities that support families. Apartment blocks will come with a number of shared facilities such as gymnasiums, swimming pools and shared community living spaces.

The infrastructure has to be right as well. Sufficient roads with places to park your vehicles, as well as close proximity to major transport hubs, are all key components that have to be taken into account. Other key factors that have to be right as well are things such as schooling, daycare centres, shops and entertainment. 

As a teenager growing up in the North West of England, I well remember some of the high-density high rise towers that became ghettoes of crime and poverty. This was predominately due to the lack of good infrastructure, employment issues and poorly maintained buildings. The same mistakes cannot be made in developing major projects like this in New Zealand.

One of the major talking points around the entire conference was that many Millenials no longer saw value in owning their own property and when you look at how society is evolving, you can see the logic to their thinking.

As a tenant, you no longer have the burden of paying rates, maintenance, insurance on the property and interest on mortgage payments.

They are not tenants, they are your customers

New Ground Capital is building this 230 apartment complex in Queenstown where 80 apartments will be allocated as long term rental accommodation

Paul Winstanley, Head of Research at JLL New Zealand and a man with extensive experience with BTR in the UK summed up the concept wonderfully well. He stated that you need to remove the word tenant and call them customers. This is their home and you have to respect this. Property Management becomes a concierge service for the occupants of the developments.

In another presentation, Dr Natalie Allen, Director of innovative urban strategy company The Urban Advisory demonstrated how BTR was working around different cities in Europe. Many developments had shared spaces which included kitchens, games rooms and community centres. These hosted a number of different functions for residents such as coffee groups for young stay at home parents, cooking classes, even whiskey tasting evenings. Neighbours got to know each other and communities thrived as a whole.

People lived in the developments for years which helped build a community spirit. Children went to the same schools and developed roots which benefited them in their upbringing.

Overall, the concept was working extremely well and the BTR proved to be a safe investment for any potential investor who took a long term approach to build for their retirement. With chic and modern designed complexes which had smart home devices to help run your apartment efficiently and environmentally friendly, it is very hard to find flaws with the concept of BTR. 

There are issues however that do need to be addressed.

Not a solution for the lower class

This is a concept aimed at the middle class and does very little to solve issues at the lower socio-economic end of the spectrum. This means that at the lower end of the market, where the majority of the problems lie within our societies, there is little benefit for the tenants of tired, cold and damp properties of suburbs such as Manuwera or Naenae.

These properties are generally in poor condition leading to health issues of the occupants who can never truly settle in their homes. The houses are typically reaching the end of their shelf life and are costly to run which has major consequences long term not only for the occupants but also on the environment.

There are also big question marks as to how the Residential Tenancies Act applies to BTR. Matt Heal who presented at the conference is already involved in BTR developments in New Zealand with housing projects in Auckland and Queenstown. Matt gave a wonderful presentation on how BTR works. When I questioned him around how their leases work he explained that tenants sign a fixed-term lease for three years but are free to give 90 days notice when they want to vacate. I’m not sure how this would be interpreted in Tenancy Tribunal if someone challenged this and applied.

What will become of the 90 days ‘no cause’ eviction?

I left the conference believing that our tenancy laws and our industry have to adapt and evolve. Many components of the Residential Tenancies Act are no longer fit for purpose and maybe the current Government is right to remove the 90 days ‘no cause’ evictions. However, Paul Winstanley did give a warning to the New Zealand Government. Do not hammer the private rental sector and in particular, ‘Mum and Dad’ landlords. This happened to a degree in the UK and it has also happened here which has added to the rental squeeze.

Build to Rent will not solve housing issues for lower-income tenants in places such as South Auckland

The biggest discussion point around the proposed changes to the RTA will be the removal of the 90 days ‘no cause’ evictions. Currently, the landlord does not have to give a reason if they want to give notice. Although I do really understand the concerns of landlords and there are serious health and safety concerns for Property Managers as well, I firmly believe that the benefit of ensuring that tenants have a safe and secure home outweighs the needs of the private landlord. The vast majority of tenants simply want a warm dry place to call home and they want to establish roots in a community. The threat of losing the property is always hanging over them. Issues that will be too difficult to solve will be if a landlord wants to sell the property vacant. I can understand why a landlord may want to do this and in my opinion, that is a valid reason to give notice.

I am comfortable with the removal of the 90 days ‘no cause’ eviction however certain conditions must apply. Tenancy Tribunal is slow, cumbersome and many would say inconsistent. We have to see serious improvements in regards to how our Tribunal system works. Although I have no data to prove this, I do suspect that there are huge inconsistencies with the decisions that come from certain adjudicators and if you have to go to Tribunal to be able to give notice to a tenant you need to have a fast, fair and robust Tribunal process. Would it be too much to try and get the wait time for a hearing down to one week? That is what we should be aiming for.

With over 32,000 applications to the Tribunal every year, of which 85% are made by landlords, this number will only increase if landlords have to apply to Tribunal to get a problematic tenant out and then, they have to have enough evidence to do so.

A great place to start with improvements is to remove rent arrears only cases from the slow laborious process that is the Tribunal. 69% of all Tribunal applications have a component of rent arrears in the application. Rent arrears only applications should be done remotely to save time and speed up the entire Tribunal process. Landlords should not have to wait to remove problematic tenants the same way tenants should not have to wait for basic repairs to be undertaken to their home.

BTR part of a wider collaborative approach

There will be multiple ideas as to how to improve housing and in particular security of tenure.  Owning your own home will be out of reach for many Kiwis due to high prices and the inability to save due to so much of their income going on rent. However, BTR will have an overall positive effect. The concept may be able to be taken out of the cities into some of our provincial centres such as New Plymouth, Tauranga and Nelson, however, developers will need to do their research before undertaking such projects. 

The major take away point of the entire Conference was this. We simply have to look after tenants better than how we currently do. They are paying consumers and they deserve better. There will always be bad tenants as there are bad landlords, but overall if you treat them with respect and dignity, they will respond in kind. We all have to adapt and work together to improve the renting experience in New Zealand.


The 'cannibalisation' of our industry

An open letter to the New Zealand Property Management Industry

Does this type of service benefit the industry in New Zealand?

 

Surely we are better than this? Maybe I am being naive, a bit too precious and even a little hypocritical, but do we really need to resort to these type of tactics as an industry to survive? Many years ago when I started in Property Management, I mystery shopped our competitors to get an understanding as to how the industry worked and who we competed with. It is part and parcel of what goes on and for someone new, it was a great way to learn. However, when I saw a post on LinkedIn by one of Australia's largest Property Management personalities offering a 'Mystery shop your competition service', it caught my attention. Paying a third party to do this takes things to a different level.  I couldn't help but think that at best it is very aggressive and at worst utterly unethical. I questioned myself as to whether such a service should ever be offered. After getting feedback from some of New Zealand's industry leaders it appears I am not on my own.

One high profile business leader stated to me the following.

"With all honesty, I think it lacks integrity. And, further fuels the cannibalisation of each other’s businesses vs. working to convince the wider NZ market of self-managed landlords. Disappointing."

Two weeks ago, we hosted a Conflict and Negotiation workshop in Wellington. In the room were three high profile Wellington Property Management companies. Throughout the day, we had them teamed up and working together, looking at ways to alleviate the pressures on Property Managers. The feedback was wonderful and the day was fun for all. Would that have been possible if these companies found out that they had been spied on by each other? Such tactics are the cause of immediate distrust between companies and sours relations when we should be collectively learning and supporting each other.

From my point of view, if you have to resort to such tactics, then you've already lost and your business never really had a soul. I am a great fan of Simon Sinek and his brilliant book 'Start With Why' sums up what being in business should be about. Yes, it is vital that you are profitable and we all want to make money. However, in my opinion, purely making money should not be motivation for starting a business. I suspect that most successful business owners are the same.

Is being a business owner easy? Absolutely not and I know that many may be tempted to resort to such underhand tactics. However, you have to understand your purpose as to why you exist and focus on being brilliant at what you do. To do this, you need to measure client satisfaction, learn from this feedback and constantly improve your customer experience. At the heart of any successful business are the people who work in it. If you are a business owner or a Department Manager, your team must be the number one priority, not corporate espionage of your competitors business. Ask yourself this, would I want to work for someone who would happily pay for a third party to spy on my competitors? What message does that send to your team and what does it say about your culture and values?

If Real iQ had to offer such as service to make money, I would close the doors and get a job. This is not what growing our industry should look like.

David Faulkner
Director Real iQ

Interview with Ashley Giles of LPMA New Zealand

The LPMA Conference of New Zealand is just around the corner in September. We decided to catch up with the head of LPMA NZ, Ashley Giles who is also part owner of award-winning Auckland based company Wendell Property Management. We chew the fat about the state of the industry in New Zealand, what the future of Property Management and housing looks like as well as how to run a carbon zero Property Management business. We also have tickets to give away for LPMA (NZ) 2019!!


Is this man the biggest threat to the Property Management industry?

  • Wellington City Council set to become a Property Management company if Mayor Justin Lester is re-elected

  • A bold new initiative to control rents or an attack on free enterprise as Lester looks to control the market

Lets put our cards on the table before we start. Wellington is the city I call home. I have lived here for five years with my family and we absolutely love the place. Yes, it has its pitfalls. The city feels like its crumbling as building after building is closed due to earthquake risk. The infrastructure and road network no longer feels as though it is fit for purpose and trying to get across the city can be an absolute nightmare. However, we live in a fantastic beautiful and vibrant city with plenty to see and do. The views are stunning, the harbour is picturesque and there is no shortage of great walks, vibrant coffee culture and some amazing craft beers. 

Wellington, however, has a big, big problem.

Mayor of Wellington, Justin Lester is proposing a radical solution for the Capital's rental crisis.

A perfect storm for rent increases

Rents have skyrocketed in the city with one councillor stating that Wellington will become a 'ghetto for the middle class' if rents continue to rise. And rise they have to unprecedented levels that widen the gap between the haves and have nots. According to Homes.co.nz, the capital has surpassed Auckland for rents with median rent sitting at $658 per week whilst Auckland is now at $627 per week. The situation we have now was entirely predictable and anybody with a basic understanding of economics could foresee what was going to happen.

Nearly two years ago on December 2017, I spoke at an investment seminar in Wellington saying that we were creating a 'perfect storm' for rent increases in the capital. I argued that the following would cause rents to increase by 10% over the next 12 months.

  • An anti-landlord Government making changes to legislation and taxation in an attempt to force landlords to sell properties and subsequently reducing stock.
  • Letting fees being put on to landlords who will in turn increase rents.
  • First-year student fee's being wiped meaning more people heading to the universities putting a greater demand on rental accommodation.
  • A Labour-led Government traditionally leads to an increase in governmental jobs putting further demand on rents and house prices in the capital.
  • A lack of building activity within the residential sector and a shortage of tradespeople leading to an increase in costs for people wanting to build.
  • Legislation forcing landlords to invest in their rental properties with the inception of the Healthy Homes Guarantee Bill.
  • An estimated increase in the population of about 65,000 over the next 30 years, contributing to demand outstripping supply.

There is no satisfaction in gloating and saying 'I told you so' as it was so obvious that this was going to happen. Anyone with a grasp of reality could have predicted this. A new government came to power with a philosophy that everyone would live in affordable, warm and dry homes. The subsequent outcome has lead to a shortage of stock and forced rents to increase to dangerously high levels. 

Milton Friedman would probably turn in his grave if he saw what Mayor of Wellington, Justin Lester was proposing

The public sector looks to control the market. Will it work?

In February 2018 I wrote an article about the unforeseen consequences that this well-intentioned ideology would have. I quoted the famous American economist Milton Friedman who famously once said - ‘If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.’

Clearly, Justin Lester, the Mayor of Wellington doesn't share Milton's views as the public sector is threatening to intervene in the private rental market. If Lester is re-elected as Mayor, the Wellington City Council are poised to become the first public sector Property Management company for private landlords and it will not be used as social housing. It will be renting properties on the open market in an attempt to control rents in the city. 

A trial for future changes in legislation?

It is a bold, ambitious and in our opinion, a highly controversial plan.

What the Mayor is proposing is that private landlords lease their properties to the council for a period of 10 years at market rent. The council would then sub-lease the properties on the open market at a reduced rate in an attempt to control the market. The council will have a clause written into the agreement that the rents will only increase in line with inflation for the duration of the tenancy. One suspects that this Labour based council will guarantee the lease to the tenants for a period of 10 years but they will also give the tenants the ability to give notice so tenants feel as though they have security and flexibility. Great news if you are a tenant.

This could be the blueprint for radical reform to the Residential Tenancies Act as Lester and his council could be acting as a guinea pig for the Labour-led coalition as they struggle to get a handle on the housing crisis in New Zealand. 

If they can pull it off, and it’s a very big if, other councils may follow suit which would be a major threat to Property Management companies across the country.

There are over 10,000 bonds lodged a year in the capital with rents increasing annually by approximately 10%. Inflation is growing at 1.5%

Thousands of properties required to make a difference

What will it take to make the idea work?

The council would have to sign up literally thousands of rental properties to be in a position where they can influence the market. Also, will ratepayers be happy about subsidising a giant public property management company?

The costs of running such as beast would be substantial. 

If you subsidised rents by $50 per week and let's say the council have 2,500 properties, that is a bill of $6,500,000 that the ratepayers have to pick up. And this is based on achieving 100% occupancy with no defaults on rent.

Then you would have the operational costs of running such a project. Let’s say you have 30 staff working on the project as well as all the typical expenses, I doubt you’d get much change on $10,000,000 per annum.

For this to have any impact on the rental market, we have to work out how many properties the council would have to manage to make an impact on rents. Let's look at how many rental properties there are in Wellington and to do this, we have to look at statistics from the Tenancy Services.

Wellington city has a population of about 216,000. This excludes the wider region which has a population of nearly half a million. We have collected a list of bonds lodged in Wellington over the last 12 months from statistics on the Tenancy Services website. From the period of August 2018 to July 2019, over 10,000 bonds have been lodged across the city with median rents increasing by 9.6% over the same period. With annual inflation running at a stagnant 1.5%, you can see the predicament facing the city. Increases by this amount are unsustainable.

Bonds Lodged Wellington, August 2018 to July 2019: Over 10,000

If the average length of a tenancy is about 2.5 years this would mean that Wellington would have approximately 25,000 to 30,000 rental properties owned by the private rental sector. For the Council to have any influence on the rental market, it would need to have secured at least 10% of these properties to have any influence on the market. That would mean 2,500 to 3,000 rental properties would be acquired by around 2,000 private landlords. 

If they can pull this off, expect to see Justin Lester walking up on stage at REINZ and LPMA Award ceremonies in 2020 taking out the Business Development Manager of the Year award!!

What could the impact be for the Property Management industry?

If, and it is a very big if, the council are successful, Property Management companies may find themselves at risk, and not just in Wellington as other councils may replicate this initiative. Why would you pay 8 to 10% for your property to be managed when the council will do it for free for 10 years and guarantee the rent. Think about it! If you are a landlord with no intention of selling for at least the next 10 years, on the surface, it looks like a no brainer. I simply give the council my property, they pay me market rent for 10 years and I do nothing other than pay for the odd bit of maintenance.

But is it the state's job to compete with the private sector? Surely this is an attack on free enterprise. One could even argue it is a step towards socialism. The state taking over the running of a sector that has been dominated by private Property Management companies is a scary thought.

Running a business is far from easy and the prospect of trying to compete with a giant subsidised Property Management company offering a free service for landlords is a daunting prospect for many business owners across the capital.

As an industry, we have been constantly under attack and now it appears that we are being blamed for over-inflated rental prices. The reality is basic economics along with added costs have driven up rents and this idea feels like the left-wing of the political spectrum is clutching at straws.

Why stop at rentals? 

The council could become a giant real estate company, buy properties off vendors at market price and on-sell them at a reduced rate in an attempt to control house prices. All this subsidised by the Wellington ratepayers of course. We could have a Wellington City Council petrol station company, subsidising petrol or how about a Wellington City Council power company, offering reduced power prices for tenants. The list goes on and on.

Increase supply and remove red tape

If the Wellington City Council really wants to help, then the focus should be on increasing the city's supply and making sure that the right type of properties are being built. New Zealand desperately needs three-bedroom housing and plenty of it. All across New Zealand, with the exemption of Christchurch, we have seen the wrong types of properties being built. Ironically, Christchurch is the one city in New Zealand that is relatively affordable and that is purely down to supply meeting demand. 

Look at the apartment market in Auckland, it is saturated with one and two-bedroom apartments, there is no shortage of property there. If it isn’t apartments, then its four-bedroom McMansions in the suburbs that have been built. We need to look at future demographics and build what our population needs. Plenty of compact three-bedroom housing close to the city with strong infrastructure to keep people moving is the key to any city’s success.

Instead of trying to control rents, why not subsidise landlords to install solar power?

Rather than subsidising rents, why not reduce the cost of obtaining consents or subsidise landlords to put solar power on rental properties to reduce the operational costs for tenants. It is in nobodies interest other than a handful of greedy landlords to have over-inflated rents in any of our cities and towns. If people have no disposable income, the economy will grind to halt and we will find ourselves staring down the barrel of a recession. 

So my advice to Mr Lester is to learn from your mistakes. At the last election, he campaigned on introducing the Rental Warrant of Fitness and look at how that turned out? You could count the landlords who used it on one hand.

As demonstrated, the cost of operating such a beast will be extensive and who is going to train them on how to do it? If the council acquired a flood of properties, someone has to do the basic donkey work that a Property Manager does day in day out. Who foots the bill if a property is trashed or damaged? And do ratepayers really feel happy that their hard-earned income is spent in such a frivolous way?

Yet again, this is an example of an idea thrown up out of desperation without proper consultation with industry experts. But hey, they know best, don’t they? Just look at the success of the Warrant of Fitness.

One understands the motives and we wholeheartedly agree that rents increasing at such a rate will have damaging consequences for the region as a whole. This idea, however, will not work. Increasing the supply and improving the current rental stock is the only thing that will work. 

 


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