Are Airbnb hosts in breach of the Residential Tenancies Act?

 

  • Over 300 properties available to rent for longer than a month in New Zealand on Airbnb

  • Will Airbnb enter the long term rental market as short term stays diminishes?

Landlords could be using short term booking sites such as Airbnb in an attempt to contract out of the Residential Tenancies Act, however, by doing so they are exposing themselves to substantial risk and possible rent refunds. We became aware of the situation on a recent consultancy visit to Christchurch. A Business Development Manager highlighted that she noticed properties she had recently appraised for owners relisted on Airbnb.  Prior to the lockdown, these properties were used solely for short-term stays but instead of being used for one or two nights, they are being occupied for long term stays.

She explained that she had dealt with a steady flow of enquires from Airbnb hosts as bookings for short term stays had predictably reduced following the COVID-19 pandemic. No surprises there. However, what became a sticking point to switching to the long-term rental market for many of these hosts was the work that they would have to undertake on their properties to comply with Healthy Homes standards. These standards become compulsory for new or varied tenancies from the 1st of July 2021. On following up with hosts after appraising the properties, she discovered that they were back on Airbnb but being used for longer-term stays.

By doing this, they are potentially contracting out of the Residential Tenancies Act and exposing themselves to significant exemplary damages and even refunds in rent. 

It comes as no surprise that Airbnb has been dealt a monumental blow since the global pandemic brought travel to a grounding halt. In a recent interview with CNBC, CEO of Airbnb Brian Chesky admitted that they almost lost everything in a period of four to six weeks following the pandemic. Chesky went on to say that there was a greater focus on long term stays with approximately one-fifth of all the Airbnb bookings now being for stays greater than one month.

In terms of New Zealand, this could mean that hosts are breaching multiple sections of the Residential Tenancies Act and in many cases, they are probably oblivious to the fact that they are doing so.

How are Airbnb properties potentially breaching the Act?

Looking at what properties are available on Airbnb, there are currently over 300 properties available for stays exceeding one month in New Zealand. The question is, how do these properties potentially breach the act?

Over one-fifth of Airbnb transactions are now for stays that exceed one month. This means the RTA could well apply and hosts could be in breach.

There are lots of ways. The first thing that we have to establish is whether a long-term stay on Airbnb falls under the Residential Tenancies Act. In this scenario, we have to look at what types of tenancies fall outside the boundaries of the Act and then decide whether a property being advertised for stay’s in excess of one month fall into this category. 

Section 5 of the Residential Tenancies Act looks at what types of tenancies are excluded in certain cases. Because of this section, hosts may find themselves becoming liable under the Act without even realising it. Under section 5(1)(k) The Act shall not apply to premises where the premises;

(i) are intended to provide temporary or transient accommodation (such as that provided by hotels and motels), being accommodation that is ordinarily provided for periods of less than 28 days at a time; and

(ii) are subject to an agreement that has been entered into for the purpose of providing temporary or transient accommodation that continues to be provided under the agreement:

By staying in accommodation for a period longer than 28 days, the occupant, therefore, could become a tenant and Residential Tenancies Act applies. 

However, under the same section, 5(1)(m) states that the Act shall not apply where the premises are let for the tenant’s holiday purposes. With this, there becomes a lack of clarity as to whether the Act applies. 

Example: The guest working away from home

Let’s look at an example as to how problems can arise. The guest books a long term stay through Airbnb for a period of 60 days as they are working away from their home. This will become the guests principal place of residence for that period of time. In a situation like this, section 7 of the Act applies as it becomes a short fixed-term tenancy. As the stay relates to work the Act looks like it will apply to the tenancy. However, if the occupant is taking a two month holiday, then they could argue that they are potentially outside the legislation and the Residential Tenancies Act does not apply.

If the Act does actually come into effect, then there is a raft of potential breaches. Below is a list of some of the potential breaches of the Act along with the consequences that the host may find they are liable for. Bear in mind, this list will grow when the Residential Tenancies Amendment Bill passes and becomes law.

  • Section 13A; Content of a Tenancy Agreement. By booking on Airbnb, there will be an agreement in place but this agreement will need to have all types of information in place including insurance details of the property and healthy homes statements that accurately show the level of compliance. Fail to provide this and host may have to pay exemplary damages of up to $500.
  • Section 17A; Requiring letting fee prohibited. When booking on Airbnb, the guest pays a service fee. If the Act does apply then the host is breaching this section. Exemplary damages of up to $1,000.
  • Section 18A; Landlord must not require security other than a permitted bond. Airbnb states that you may have to pay a cleaning fee or security bond when booking a property. This is a breach of the Act as you cannot obtain any security other than that of a bond and this has to be paid to Tenancy Services within 23 working days. Exemplary damages of up to $1,000
  • Section 23; Rent in advance. Under the Act, you can only collect up to 2 weeks rent in advance from the tenant. With Airbnb, it outlines the full cost which is payable at the time of the booking. By collecting rent of more than two weeks in advance, the host is breaching section 23 which has maximum exemplary damages of $1,000.
  • Section 45; Landlord's responsibilities. There is the potential for multiple breaches of this section. Is the premises complying with building regulations? Is it being rented as a separate dwelling? Does the premises comply with new Healthy Homes standards and does it have adequate insulation? Maximum exemplary damages for this section is up to $4,000.
  • Section 49D; Unlawful acts related to liability. If the occupant damages the premises, the host cannot hold the occupant liable for the cost of damages which equates to more than four weeks rent or the excess of the insurance, whatever is less. If the host does try to invoice the occupant more than this, then they are again breaching this section. Exemplary damages up to $1,000
  • Section 137; Prohibited transactions. By contracting out of the Act, the host is exposing themselves to breaches of this section and this has exemplary damages of up to $1,000.

But it could get worse. If a host found themselves in Tenancy Tribunal and the adjudicator then decided that the Act did apply, they may be forced to reimburse whole or part of the rent to the occupant as the premises may be declared as an unlawful residential dwelling. An adjudicator could also issue work orders to make the premises lawful such as compliance with Healthy Homes, forcing the host to get work undertaken if they continue to rent out the property long-term. Failing the comply with a work order could result in further exemplary damages of up to $4,000.

Also, hosts have to be aware that when the Residential Tenancies Amendment Bill passes, which will probably be before the election, there will be more potential breaches and greater exemplary damages in place. Breach landlord’s responsibilities will increase from $4,000 to $7,200 as the bill stands at the moment.

As you can see, failing to comply can come with a pretty hefty price tag.

You cannot contract out of the Act

In reading the Act, if the premises is your principal residence and you are staying there for 28 days or more and you are not on holiday, the Residential Tenancies Act will apply. Some landlords will be oblivious to this, however, I am in no doubt that there will be landlords who are fully aware of their obligations and responsibilities. By choosing Airbnb as a platform to lease their property long-term, they are choosing to try and contract out and avoid the Residential Tenancies Act. The reality is, you simply cannot avoid your obligations. 

Section 11 of the Act states that any provisions or arrangement entered into in respect of a tenancy to which the Act applies and is inconsistent with the Act shall have no effect.

Some landlords will feel that they may have found a loophole that they can use, however, that loophole simply does not exist.

When looking at Airbnb, there are over 300 properties that are available for month-long stays. Many of which directly market themselves to business travellers and by doing so, the Residential Tenancies Act appears to apply to each of these properties.

Challenging times ahead for Airbnb

Brian Chesky, CEO of Airbnb has a rocky road ahead as his company tries to adapt to the new norm.

It is a remarkable rag to riches and potentially back to rag story. In 2019, the company was valued at a staggering $48 billion and later this year, they were looking at going public. This is now up in the air as the company now faces an uncertain future. A natural progression for Airbnb would be to look at the long term rental model to help bolster revenues. In the words of their CEO Brian Chesky ‘Tourism as we knew it is over’ so, for Airbnb to survive, it has to adapt and look at new revenue streams. Long term rentals are always going to be needed no matter where you are on the planet. I am sure that the powers that be at Airbnb would have seriously looked at this as an alternative. However, the challenge they will face, as is evident here in New Zealand, is that so many different countries will have different legislative requirements for their own rental markets and Airbnb will have to be able to comply with statutory legislation in every environment and country that they operate in. This will be a gigantic challenge.

In the meantime, if you are an Airbnb host weighing up options as to whether you will go to the long-term rental market, In my opinion, you have two simple choices. Make your property compliant with the Residential Tenancies Act or sell. Failing to comply could be an extremely costly exercise.


Will Property Management go back to the future?

As many of us return to the office our industry got a glimpse of what the future of Property Management could and should look like. David Faulkner argues that we must learn lessons from the lockdown and evolve to thrive in a rapidly changing world. 

If you are looking at investing in some new cars for your Property Management division, then I suggest you look no further than the classic DeLorean made famous in the classic movie Back to the Future.  The last couple of months it has felt a little bit like being in a time machine as we have had a glimpse as to what the future of Property Management may look like. The lockdown forced us to not just think differently, but act differently.

I have been writing articles about the Property Management industry for over 5 years now. One of the things that I try to do is challenge the status quo. I want people to stop, think and ask why things are done the way they are. This isn’t about being controversial for the sake of being controversial, people can see through that, it is about evolution and progression. Every day, life and businesses evolve and in moments of crisis, you can be certain that there will be an increase in innovation as we look for new ways to function in the new norm. This crisis will be no different as every industry has been forced to adapt and innovate. What the last two months has also demonstrated is that our industry is remarkably resilient as regardless of the circumstances, people will always need a property to rent.

However, new technologies are already changing the landscape. How we have operated our businesses, will and in many circumstances should change. We need to question what we do, ask why we do it and what benefit does it have for our landlord clients and tenants. Then we must decide whether it is still relevant and whether it can be replaced through automation and artificial intelligence or by focusing on a more personalised approach. Either way, we must focus on providing an enhanced consumer experience whilst also protecting our profit margins. There is no point in being the slickest at what you do if your bottom line has numbers in brackets.

With that in mind, I have decided to get back into the DeLorean, get the speed up to 88 mph and head back to the future and have a look at what Property Management could look like in the not too distant future.

Are three monthly inspections really necessary?

Two months ago, just after the WHO announced that COVID-19 was a global pandemic, I wrote an article suggesting that inspections should be postponed and made the recommendation that tenants could do their own inspections with the Property Manager being present remotely via video link. I copped a fair amount of criticism for making such a suggestion, but the reality is I am not the first person to suggest this. Some high profile industry heavyweights such as Will Alexander have also made suggestions in the past as to this being the way of the future.

As many Property Managers get back to arranging inspections after two months of cancellations, I have found myself wondering why we do these every three months and whether it is necessary for them to be done so often. On many occasions, you sometimes feel as though you are being rather invasive on the tenant, especially when they have a good history and are clearly looking after the property. There is also the environmental impact of this activity as well with more cars on the road heading to inspections meaning more emissions from the vehicles that we drive. The typical routine inspection takes about 15 to 20 minutes whilst your Property Manager does a site inspection of the premises. This does not take into account the time it takes to get to and from the property. The reality is that many landlords do not even open the inspections once they have been sent so it can often feel like a futile exercise. 

Insurance stance needs to evolve to offer a more tailored solution

In reality, there is no reason other than it panders to the needs of our insurance companies. In a recent article written by the highly respected Diane Nelson of Real Landlord Insurance in the REINZ weekly newsletter, she outlined her underwriter’s stance towards remote and video inspections. In doing so, she also highlighted the failings of such an archaic methodology. In her article, she stated that video inspections carried out by a tenant cannot be viewed as a routine inspection. She then gives her reason as follows. ‘Often property managers find leaks that tenants have not been aware of, such as soft floors’. Although I can understand her support of her underwriter, I simply do not share this view. How can a tenant who has potentially lived in a property for years not notice an issue when there is a problem yet a Property Manager who probably spends no more than one to two hours per year inside the property will instantly pick this up? I would rather call it what it is. A tenant noticing the problem but because they do not own the asset, they could not be bothered to report it. That is most likely the issue.

This is where the tenant education becomes so important.

Many Property Managers have carried out 'remote' inspections with their tenants during the lockdown. We believe that this could be the way of the future.

If what I am suggesting is the case and an insurance company refuses to honour a claim due to gradual damage then the tenant should be facing the liability of the cost of the claim. Under the Tenant’s Responsibilities in the Residential Tenancies Act, a tenant must notify a landlord as soon as possible after the discovery of any damage to the premises. By failing to notify the landlord they are potentially waving the landlord’s insurance policy and therefore they should be fully liable for the cost of the repair.

By insurance companies taking their current stance, they are labelling every single tenant as potentially anti-social and problematic who frequently breaches their Tenancy Agreement. This is unfair and outdated. Take car insurance as an example. The insurance policy will take into account the level risk of the insurer. An 18-year-old driving a modified sports car is going to pay higher premiums than a middle-aged person who has never made a claim due to the level of risk. Why are tenant’s treated in such a way that means a Property Manager has to visit and inspect a property every three months?

Should Property Managers be able to inspect the property on a regular basis? Absolutely they should, but this should be determined purely on the basis of the quality of tenant, how they look after the property and the level of risk associated with this. If a tenant is being problematic and not fulfilling their obligations under the Tenancy Agreement, then inspections will be required more frequently. However, if a tenant has lived in a property for a number of years without any issues, then are three-month inspections really necessary?

Talking houses

This leads us to our next suggestion. In the not too distant future, our rental stock will have devices attached to the property that tracks its performance and lessens the needs for three monthly inspections. Last year, I interviewed Brandon van Blerk, the CEO of Tether, which produces a device that tracks and monitors the healthiness of a home. The device measures the following.

  • Carbon Dioxide
  • Relative humidity
  • Indoor temperature
  • Ambient noise
  • Pressure
  • Ambient light

The benefit of such devices being attached to our housing stock is obvious. The moment we see a spike in a particular measurement, you can immediately identify that there is a problem. 

Brandon van Blerk is the founder of Tether. A device that measures the performance of a property

An increase in humidity may mean the property is overcrowded or not being sufficiently ventilated, but it could also mean that there is an undetected leak. The device will notify the Property Manager who can act quickly to ensure the issue is resolved.

There are potential privacy issues with this, but these should be overcome as devices such as Tether benefits all parties. It should also remove the need to inspect a property just to keep insurance policies valid. Why inspect a property when a device will identify the leak that the tenant failed to report?

Also, with the increase in maintenance applications which allow tenants to simply report issues, you have an automated response that allows the tenant to have maintenance requests assessed quickly with estimates for jobs being easily obtained through benchmarking of similar jobs. We are even seeing the introduction of artificial intelligence that can help troubleshoot maintenance issues with tenants without the need to interact with their Property Manager. 

Smart devices come into all walks of life. It will only be a matter of time before we see a multitude of devices and applications becoming mainstream that makes our rental stock more efficient and easier to manage.

Property Management is dead. Long live Asset Management

If my Property Manager is not doing three monthly inspections, then what are they being employed to do? 

This is a valid question. I believe that Property Managers have an increasingly important role to play in the management of our rental stock but it needs to evolve from our traditional model. This is where the industry really needs to innovate to ensure we remain relevant. My view is that the term Property Manager will eventually be replaced by Asset Manager. This means that we become more focused on helping landlords utilise the equity that they have in their portfolios to help them grow financially. It means we will measure, monitor and learn how their property portfolio performers.  We will have a better understanding as to how a property can perform efficiently providing a warm safe environment for the tenant which also reduces the carbon footprint of the property. By doing this we make it far more affordable which benefits both landlord and tenant. 

The perfect place to start is getting members of your team qualified as HomeFit Assessors.

Andrew Eagles is the CEO of the NZ Green Building Council. He has a vision for New Zealand housing that we share.

I recently caught up with the highly impressive Andrew Eagles, the CEO of the New Zealand Green Building Council and we discussed at length the issues we face in trying to get our rental stock assessed and compliant in time for Healthy Homes deadline. I raised the issue that there are simply not enough recognised assessor available to carry out the work within the specified period of time. One suggestion we discussed was to start making Property Managers qualified as HomeFit Assessors. Some big companies are already ahead of the curve in partnering with the HomeFit initiative. Properties that are assessed and qualify get the HomeFit tick of approval which will be displayed on property websites such as realestate.co.nz and Homes.co.nz. Councils, such as the Auckland Council, are adding HomeFit to the LIM statement so any prospective purchasers can see that the property complies with the Healthy Homes criteria.

This can transform our industry and improves the skill level of our workforce. When a landlord engages an Asset Management company, they get access to a raft of services. Not only will they have the standard level of service that a traditional Property Management company can offer, but they will also have access to a whole new range of services that will help them grow their equity whilst the tenant has a less intrusive customer experience.

  • Healthy homes assessments which give your property the Greenstar HomeFit approval, making it more efficient and desirable for tenants.
  • Inspections that can also be used for remote valuations so landlords are able to utilise equity that banks can lend against meaning that they have more power to grow their portfolio.
  • The ability to access specialised insurance products that are tailored not just to the property, but to the tenants. Tenants can insure themselves against bond disputes, loss of income for rent protection and this, in turn, means that no upfront bonds are required and you reduce the need to resolve disputes in Tribunal.
  • Tenants will be able to access discounts to relevant ancillary services that can be arranged through the Asset Management company. This goes beyond your traditional utility connection providers. This can be for a host of local businesses that help improve the communities that the tenants live in.
  • 5 to 10-year cash flow projections with long term maintenance planning for investor portfolios can be produced with the ability to predict what maintenance spends will be required over that period in relation to what rents are likely to achieve.

The list can go on and on.

Finally, home is where the heart is!

The concept of working from home has been welcomed by many in the industry

To finish off, I have to confess, part of me did not want the lockdown to end. I loved the concept of working from home and on returning to our office as a team, we decided that working from home is the way of the future. 

There is a place for the office. You have the camaraderie that cannot be developed through video links. There is also something to be said for the creativity that working in an office can inspire as we brainstorm and work together. However, everyone I have spoken to up and down the country has found working from home makes them far more productive. I must concur with this opinion. We have also already proven that we can actually have a paperless office and digital signatures can become the norm!

Personally speaking, I have loved being able to work from home and spend time with the family. In the evenings we would sit down together at the table for dinner, something that rarely happens in our busy lives. We’d play cards, board games and go for plenty of walks. Maybe, just maybe we will adopt some of the lessons we have learned from working in the lockdown. Our families must come first and having the ability to work around our family improves the balance that so many of us struggle to find.

Our industry has a massive role to play in the development of our country but only if we evolve. We must work more collaboratively with tenants and landlords to improve lives by providing quality, efficient and safe rental accommodation that benefits not just landlords and tenants, but the entire country.


Rents: What we think will happen and why

The demise of Airbnb plus double-digit unemployment will lead to an inevitable drop in rents. The question is, how much by?

Firstly, before I start this piece, I want to praise the New Zealand government for how they have acted during this worldwide crisis. The world is looking at New Zealand in admiration which also sends a beacon of hope to other nations struggling to deal with this pandemic. Prime Minister Jacinda Ardern and her team have done a remarkable job in acting decisively, making tough decisions quickly which has probably led to thousands of lives being saved. Simon Bridges must also be praised for not playing party politics and assisting through heading the select committee. Yes, we are not out of the woods yet, by any stretch of the imagination. However, we have seen the necessary steps taken to restrict and hopefully even eliminate COVID-19 from our shores.

Regardless of what side of the political spectrum you lean towards, it is hard to criticise Ardern in her leadership

There is, however, an enormous price to pay for the decisions that have been taken to protect us from this hideous virus. Thousands of hard-working Kiwi’s will lose their livelihoods through absolutely no fault of their own. Many businesses both large and small have or will go insolvent. We will also see mass layoffs across the country and our once buoyant Tourism sector has been absolutely decimated. This is no criticism of the Government, what was the alternative? Let the virus run amok and watch thousands of Kiwi’s die along with our health service crippled? No thank you. The economy will recover though it will take years to do so. The alternative was not worth contemplating and a lockdown was inevitable at some point in time.

As the initial shock has passed and we get used to being in our own ‘bubbles’, thoughts begin to look at what the long term fall out will be when the dust finally settles from this crisis. The question our industry is probably asking the most at the moment is what is going to happen with rents both in terms of defaults and price? 

Government response appropriate 

In my opinion, the Government was largely right in it’s the initial response to protecting tenants with the introduction of COVID-19 Emergency Response Legislation Bill. We all know the content of this Bill by now as we have had to deal and work through numerous scenarios as we entered the Level 4 lockdown period. Tenant’s needed to be protected however it is debatable that allowing tenants the right to move was the right thing to do. It seems unnecessary to allow tenants to move unless there were certain circumstances such as the threat of domestic violence. Overall though, the Government has done a good job in the most challenging of circumstances. 

Yes, some landlords have been left exposed and are now sat there with empty properties and no rent, even though they may have had a tenant due to move in. In other cases, landlords have had to make alternative arrangements as they were due to move back into a property which was being used as a rental. I genuinely feel for people in these scenarios, yet the reality of the situation means that there are always going to be victims.

We are now hopefully over the halfway point of the lockdown period and it has been nearly a month since the borders were closed to non-New Zealand residents. As such, we are already starting to see the initial impact in terms of what could potentially happen with the rental market in New Zealand. 

Survey highlights concerns of companies

We have introduced a fortnightly survey during the crisis in an attempt to gauge what will happen with rents both in terms of defaults and price. Different companies in different regions have differing opinions. The initial response is that companies in regions with higher rents are more likely to see a greater fall as a percentage and have a higher default rate. Property Management companies in Auckland and Wellington are predicting default rates in excess of 20%. This is concerning and if they are correct, 1 in 5 tenancies will fall into arrears. 

REVIEW WEEK 1 RENT DEFAULT SURVEY

Look at our Survey Results from week 1 of the lockdown
32 companies across New Zealand completed the survey that gives us a snapshot as to what companies are seeing in terms of rent defaults.

After the first week of the lockdown, companies who completed the survey highlighted a rise in arrears from 3.23% at the beginning of the crisis to 6.57%. This is inevitably going to rise and some areas, such as Queenstown, are going to be hit far worse than others.

The concerns highlighted in this survey indicate how important it is to have an open and constructive dialogue with both tenants and landlords alike. The traditional methods of a zero tolerance to rent arrears approach can no longer apply. There is an enormous amount of emotion, fear and stress involved in the current climate. Tenants and landlords will both be feeling the pain and strain financially as well as emotionally. Unfortunately, there will also be people taking advantage of the situation claiming hardship when they are not distressed or simply refusing to pay rent without dialogue with their Property Manager. What can you do in these situations now that applying for termination is no longer possible unless the tenant is 60 days or more in arrears? It is not an easy answer.

Take our second COVID-19 Rent Default Survey

Getting the balance right between protecting landlords and tenants whilst following the letter of the law and fully respecting each individual case generated by the situation can be extremely precarious. As many Property Managers are finding out, this must be done on a case by case scenario and delicately so.

Falling rents are inevitable. The question is by how much?

Opinions about how much rents will fall, if indeed they will fall, seem to be split not just within our survey, but by influential market commenters. 

Over 40% of offices surveyed believe rents will hold. The rest seem split as to how much they will fall by. No one believes we will see rents fall by greater than 20%. Industry commenters such as Ashley Church of Oneroof believe that rents will hold in the long term due to a lack of supply whilst others such as Economist Tony Alexander believe that there will be a drop in rents and landlords need to be ready for this.

I am of the opinion that rents will inevitably drop and at a guess using more gut feeling than analysing any data, I believe that nationwide we could see a drop by as much as 10%. There will be variances in different locations. For example, Queenstown may see a 20% drop whilst some lower-income towns such as Whanganui, Invercargill or Levin may hardly see a change due to the relatively low rents that these towns demand. 

Likewise in the main centres, different suburbs may see differing scenarios. High-end rental suburbs may see a bigger hit as employers lay off staff or freelance workers find that their inflow of work dries up. However, suburbs such as Mangere or Manurewa in South Auckland and Stokes Valley in the Hutt Valley will likely fare better. The apartment market in Auckland will be hit hard in the absence of overseas students.

What I have come to learn from the years that I have spent working in this industry is that rent is primarily dictated by the two things. Peoples income and supply v demand. If rents exceed more than 40% of the tenant's net income, then they will likely struggle with payments. Incomes are going to decrease and rents will follow suit. There are other factors that will also contribute to falling rents.

Airbnb set to flood the market

It is hard to find positives in these hard times however one potential positive is the demise of Airbnb leading to a much needed increase of supply of long term rental property. I have long been of the opinion that Airbnb has contributed very little to society and the negatives around it far outweigh the positives. Many landlords have made decisions to seek better returns and avoid the compliance enforced on them by Government policy such as Healthy Homes. This has led to a surge in what would typically be long term rental properties moving to the short term market. Just when we saw a massive need for rental accommodation, a shortage is created partly through landlords opting for Airbnb instead. This has helped fuel the rental shortage with a record number of tenants seeking accommodation supplements and emergency housing.

Queenstown will be hit particularly hard by the crisis.

Once we come out of the lockdown, it will be fascinating to compare how many rental properties are available on platforms such as Trade Me compared to the same period last year. The short term market has been handed, in the short to medium term at least, a near fatal blow. 

All you have to do is look at places like Queenstown and Wanaka to get a glimpse of what is coming. As the borders were closed and bookings cancelled, many Airbnb hosts scrambled to get their properties onto the market before the lockdown took place. Expect to see a lot of ex-Airbnb properties available to rent very soon.

No wage growth and high unemployment adds to pressure on rents

Who knows how bad unemployment will get in the coming months. Some are predicting double-digit unemployment with the outcome of this meaning there will be a huge supply of talent looking for work and this will put downward pressure on wages. I used to argue that Property Management had real issues in retaining talent due to the high pressure that the job entailed. I no longer see that as being a problem. 

The net income for New Zealanders will be negatively impacted and this, in turn with an increased supply of rental property will lead to an inevitable drop in rents.

There are other factors that we need to take into consideration as well. Net migration and a lack of oversea’s students will lead to a drop in demand in student accommodation and younger renters may actually move back in with their parents to save money if they find that they have lost their source of income. In the long term, I would not be surprised to see some commercial office space convert to residential as well as many people will continue to work from home post-pandemic as well as many commercial tenants will go to the wall leading to a glut of commercial property being available.

Places like Christchurch will fare better as rents are already more affordable in the Garden City compared to other highly populated regions such as Auckland and Wellington however overall, most, if not all regions will see a significant drop in rents.

Will landlords sell on mass or will they hold?

It has been suggested that many landlords will sell on mass, but realistically I think this is highly unlikely. Although many Property Management companies will see revenues drop due to decreasing rents, I believe that this will be offset through a decrease in the natural churn rate of lost managements. Typically, we see a fair percentage of churn when landlords leave due to many of them selling. If a rent roll of 500 loses 100 properties a year, roughly 30% of these are likely to be sold. 

However, my belief is that the only sales we will see are landlords in distress as they are forced to release capital or through mortgagee sales. A drop in sales will be good news for Property Management businesses but potentially bad news for real estate teams. It is very hard to predict what will happen in terms of volume of sales and house prices. I suspect that many vendors will go into a holding pattern, waiting to see what the fallout of the crisis will be. In one of his recent releases, the brilliant economist Tony Alexander has commented how hard it is to predict what will happen to the volume of sales but he is estimating that there could be as much as a 40% drop in property transactions.

People will be very nervous making any sort of capital investment unless they are getting it at a perceived bargain price. The unpredictability of the entire situation will leave many potential vendors waiting on the sideline as they assess what is happening on the field of play. Some vendors may even turn to renting out a property that they would have typically sold if the property market dips, similar to what happened in 2008 post-GFC.

There will also be opportunity. I’ve got no doubt that there will be many landlords who will have plenty of equity with minimal debt who will be waiting for the lockdown to end. Add record low interest rates into the mix and many cashed up investors will be looking to re-enter the market. However, I do not expect them to go into a market prepared to pay prices pre-crisis. What I think will happen is that we will see a classic ‘Mexican standoff’ between vendors and purchasers with the only sales that we will see are vendors who are forced into selling.

I conclude with a word of warning to Property Management businesses up and down the country. All businesses will look to tighten their belts and assess where they can cut costs. Landlords are no different. Some will be looking at the Property Management fee as a potential saving as many may turn to DIY self-management. Make sure that you are servicing your clients. They will need a professional Property Manager more than ever as we have to deal with any number of issues whilst the Healthy Homes standards and the proposed RTA Amendment bill are still lurking in the background and not going away. Make sure that you look after your consumers both landlord and tenant alike and of course, look after each other.

Good luck, stay home, save lives and let's continue to flatten the curve.

David Faulkner


Keep calm, keep vigilant, but carry on

Our industry is better placed than most to ride the Covid-19 crisis

Routine Inspections must stop immediately to protect all

A few years ago, whilst heading the Property Brokers Property Management division, I remember attending the annual Barfoot and Thompson conference which, as always, was an extravagant affair. This year was a little bit different as Barfoot’s was celebrating its 90th anniversary. Whilst people met and mingled taking their seats, in the background a video on the big screen of the history of the company was playing. As others talked in groups, I watched the video and my attention was grabbed instantly when it came to the great depression. The narrator in calm deep voice stated, “In the 1930’s Barfoot’s nearly had to close its doors because of the great depression, but rentals kept it going”.  It was at that point, I realised the importance of a strong and robust rent roll.

We are entering unchartered and choppy waters. Nobody really knows how bad it is going to be. Both economically and in terms of the human cost. I, for one, am greatly concerned about the future. People may criticise me for being too negative or even scaremongering, but for me, the debate about the removal of 90-day no-cause terminations seems utterly irrelevant in terms of what we could be facing. I really do hope I am wrong and I would gladly accept the criticism if I am, but what we now need to adopt is a siege mentality at least for the next six weeks.

Cancel Routine Inspections. They can wait.

There are approximately 250,000 properties professionally managed by our industry, of which many will be inspected on a quarterly basis. This means there could be between as many as sixty to seventy thousand routine inspections being carried out every month by approximately 2,000 to 3,000 Property Managers. Surely, the right thing to do is to postpone all routine inspections, at least till the end of April.

To allow our industry to walk into people’s homes is simply not worth the risk. No one in their right mind is going to complain if an inspection is postponed by a couple of months. The well-being of tenants, Property Managers, and the wider community as a whole must come first. 

We will also have to adopt policies as to how we maintain these properties and communicate with their occupants. Things will still break and will need fixing. This is where technology can certainly help. Using videos to assess repairs and maintenance and being able to communicate using maintenance applications such as Tapi will allow clear communication between all parties. We still have to keep our tenants warm and dry living in well-maintained properties, particularly as winter approaches. Areas such as South Auckland which have issues around overcrowding can be particularly at high risk.

Our industry can survive this, but it will be tough.

Yes, Healthy Homes and RTA Amendments are important to our industry but those discussions can be put on hold for the time being. What we have to do is batten down the hatches and ride this storm out. So how will our industry react to this crisis?

Better than most industries actually, though it will not be easy. 

One thing we can learn from the lesson taught to us by Barfoot and Thompson in the great depression is that Property Management keeps companies going in moments of distress. People will still need homes and will have to pay rent and people will need these properties looked after. Though I do expect rents to drop in the long term as the true economic impact of this crisis is realised. 

Thousands of jobs will be lost in the wider economy, particularly in travel, hospitality and tourism. Small businesses will also suffer and this will put a strain on rents as some people will likely default on rent payments. This is where strong leadership is required and we must foresee this issue.

If interest rates are to be slashed which will help lower mortgage payments, even mortgage holidays, then landlords should pass these savings onto tenants. That is unlikely to happen but the Government may intervene. I would not be surprised to see rent controls established and, under the current circumstances, this may not be a bad thing. Giving tenants rent holidays would be a disaster to our industry and this cannot happen.

We are all going to have to make sacrifices and take a ‘Wartime mentality’ to what is potentially the greatest global crisis since World War Two.

Keep busy, keep calm and carry on. Just differently that’s all.

So what will we do if people do not move and inspections do not happen?

We will see more Property Managers working from home and it could be the perfect time to tighten up your business. So many companies lack robust policies and procedures and this could be the perfect time to review and even implement them. It will also make us innovate and adopt new technology to make us manage properties without being so hands-on. 

Tenancy inductions could be done remotely with digital signatures being available on Tenancy Agreements. 360-degree video tours may become the norm as a way of marketing and viewing a rental property so you do not have to have groups attending viewings.

Even Tenancy Tribunal, which has long been a dinosaur when it comes to modernising, can introduce remote Tribunal hearings with evidence being emailed through. Disputes will still happen between landlords and tenants and they will need to be resolved somehow. The longer we can ride out the storm, the stronger we will be when we come out the other side. And come out of it we will. When we do emerge from the other side we will hopefully see a more empathic and understanding society. 

In recent times, I have become dismayed as to the constant aggressive nature that both landlords and tenants have been guilty of during debates around changes to the Residential Tenancies Act. Ultimately, we all share this great country and we all have equal rights. 

There will be victims, both in life and in business. Do you think I haven’t sat here and wondered what could happen to Real iQ? I would be lying if I said I didn’t. However, we will do what we can and adapt and focus on as getting as many Property Managers qualified as we can and we will come up with creative ideas to support our industry. It will just be done differently that's all. I do have hope that we can weather this storm and I fear we will be far better to do so than our real estate compatriots. I have a genuine concern that the longer this continues, the harder it will become for them. Many properties that do not sell may even find their way to the rental market which will lead to a greater supply of rental property being available.

For those focusing on short term letting such as AirBnB, forget about it as travellers virtually disappear from the market place. Many of these will return to the rental pool and this will help increase the supply of rental property and will help control rents.

My final message to the industry that I love is this. Please look after yourselves and your loved ones, be vigilant and don't feel pressured into doing something you do not want to. Hopefully, it will pass quickly and we can all breathe a huge sigh of relief, but for now, stay strong, keep calm, keep focused and of course carry on!

Good luck everyone.

David Faulkner


No cause for concern

Removal of no cause termination can work, but Tenancy Tribunal has to reform first.

We explain why the Property Management industry will benefit from changes to the RTA.

I know I will be in the minority in our industry who feel this way, but the removal of the 90-day no-cause termination may not be as bad as everyone is making it out to be. That is not to say I am on board with all of the amendments that Kris Faafoi, the Associate Housing Minister is proposing. There definitely needs to be some fine-tuning such as the three strike policy which is totally impractical and the Tenancy Tribunal needs reform before this bill becomes law. However, a subsequent unforeseen consequence from this bill could lead to a surge in the need for professional and qualified Property Managers. Tougher fines, more evidence of compliance, stronger enforcement powers and making it harder to remove tenants will lead to many self-managed landlords outsourcing the management of their property portfolio.

CLICK HERE TO RESULTS FROM OUR RTA REFORM SURVEY

Should it stay or should it go

First, let’s deal with the removal of no-cause terminations. I admit that I do find myself torn when I look at this. There is a huge part of me that agrees with what Faafoi is doing. Without blowing my own trumpet too much I feel I am as well qualified as anybody to have an opinion on what is being proposed. There are not many people who have greater insight into renting in New Zealand than myself. I have seen renting in places as far off the beaten track as Westport and Kaitaia. Places where there are all sorts of social and economic issues. I have worked with Social Housing providers and see the challenges they have to face. I have worked with companies who attract average rents well in excess of $600 a week and we work with hundreds of Property Managers who have or are working towards getting qualified.

Kris Faafoi's Residential Tenancies Amendment Bill is now at the select committee stage

I have also spoken with Tenant Advocate groups as well as landlords who deal with student rentals. I have researched at length what is happening in the UK as for whatever the reason, both countries seem interlinked when setting policy around renting.

The reality is this. There is and will continue to be a significant percentage of landlords who will end tenancies or not extend a fixed term due to the fact that a tenant becomes too demanding, even if they haven’t breached any legislation. I have met tenants too scared to approach their landlord for basic repairs when paying extortionate rents in a dwelling more suited to slums from a bygone era. This is simply not fair and should not happen.

When landlord groups complain that rents will increase because of policy I cannot help but laugh. It is like a child saying ‘no more sweets for me please’. I’d rather they call it for what it is. They want to have the ability to end tenancies without the need to go to Tribunal.

It is Tenancy Tribunal which is the problem, not the 90-day no-cause. 

 Yes, I do accept that we are seeing and will continue to see an increase in tenants pushing the boundaries as to what is acceptable in demanding their rights. I work with Property Managers all the time who experience this. I can understand and empathise with their frustration as tenants make threats of seeking justice through the Tenancy Tribunal and in an increasing amount of cases, without a valid reason. However, this is why an experienced and professional Property Manager is so important. If things were so easy, then our industry would never be needed and things are about to become a lot more complex. The majority of the self-managing landlord will simply not have the skill set or experience to deal with demanding and difficult tenants. For them, this will happen too infrequently due to the small number of tenancies they manage and when it does, they typically get overly emotional and make an irrational decision. This usually resorts to ending the tenancy by giving the tenants notice. Things will no longer be that simple.

Our we heading the way of the Germans?

We are slowly moving to a more European model and in particular, a model similar to Germany where the average length of a tenancy is 11 years. Tenant groups look at Germany as being the Mecca for renting. Nearly half the population of German’s rent and whilst the UK has seen property prices increase by 259% in a 20 year period up till 2017, Germany has increased by an average of only 27%. In Germany, the tenant has all the rights and the housing market is probably one of the most boring in the developed world.

In the not too distant future, we will get to the stage where owning your own home will no longer become a dream and many younger people will choose to rent for life. Why would you want to own your own home when tenants have more rights than property owners? The tenant has a secure tenancy whilst they do not have to pay rates, interest on mortgage payments, insurance and maintenance. A more mobile population will enjoy the flexibility that renting will provide.

We are going to see a radical change in how we live. Tenants may still own property but as an investment rather than a home. Concepts such as Build to Rent will gain traction as people will still look for the security that property investment has compared to other investments but under a different model. The length of a tenancy which has slowly increased over the last few years will extend greatly to probably around 5 to 7 years. All rentals will be pet-friendly and tenants will be allowed to make minor modifications. Personally, I have no problem with this as stable families lead to stronger communities.

CLICK HERE TO MAKE YOUR SUBMISSION TO THE SELECT COMMITTEE

closing date Wednesday the 25th of March

Getting the balance right between landlords and tenants

The key to any successful relationship is to ensure that you get the balance right. Labour and especially the Greens have been guilty of only looking at tenants and have done nothing to address concerns of landlords. They may do the politically acceptable ‘Consultancy process’ but let’s be honest, their minds were made up long ago. Since they have been in power, landlords have been constantly hit with change after change with increased costs. I accept that some change was necessary, particularly around minimum standards for rental properties, but the amount of change has simply been one-way traffic and whether some on the left-hand side of the political spectrum like it or not, New Zealand needs a strong private rental sector. As well-intentioned as it may be, Government policy has so far succeeded in driving up rents to dangerously high amounts.

So far since this Government has been in power, landlords have been hit with the following.

  • Wearing the cost of the letting fee that was originally paid by the tenant.
  • Losing the ability to offset losses from rental properties against their own personal income when the rental property runs at a loss.
  • Added costs with compliance due to insulation and healthy homes.
  • Increased reporting as evidence of compliance with legislation.
Berlin, Germany. 90% of the population are tenants and rent control legislation is used to control rents.

Naturally, landlords try to pass on the increase costs as best they can through rent increases. As things have got financially tougher for tenants, we have seen a huge increase in the demand for social and emergency housing. This leads to the inevitable call to fix rents or cap increases. In Berlin, law has been passed which bars landlords from increasing rents in by more than 10% above the local average rate. 

The one thing that does annoy me is the lack of any exemplary damages to tenants who willfully or intentionally damage a property. A tenant can smash up a landlord's investment and face no fines or criminal charges. This is simply not right and needs to be addressed. Also, if tenants are evicted for antisocial behaviour, exemplary damages should be awarded and even penalties such as community work should be enforced to act as a disincentive. An opportunity may have been missed for the Government to address this and this is why so many landlords are upset. Don't expect too many investors to be voting for Labour!

As I wrote back in October last year, Tribunal needs reform so it can deal with cases of anti-social behaviour quickly and effectively. Waiting several weeks for a hearing will be unacceptable with waiting times only likely to extend. Safety of Property Managers has to be a priority and the changes around termination of antisocial and aggressive tenants need to reflect this. Quick, effective, consistent and balanced Tribunal is what we should be addressing. At the moment, we do not have that. If a Property Manager feels unsafe in a property due to tenants behaviour towards them, then this should be a valid reason to end a tenancy. Three strikes for three separate incidents over a 90 day period is ridiculously impractical and potentially dangerous. If a Property Manager feels threatened, do they need three pieces of evidence recording this for three separate incidents? This needs to change.

Tenancy Compliance Investigation Team increase audits but this only drives bad landlords underground

In the past fortnight, I have been contacted by a number of companies who are getting audited by TCIT. The presence of TCIT has increased dramatically and Property Management companies are now becoming less and less tolerant with landlords who simply refuse to comply and take their advice. 

With proposed changes in the amendments focusing on reporting and retaining evidence of Health Homes compliance, the TCIT will be given powers to issue infringement notices and fees to organisations and individuals who breach the act. Don’t have a Healthy Home statement with evidence of compliance? That’s a $2,000 fine for that breach.

The sad thing is, as TCIT focus on the Property Management industry, the bad landlords who should be identified are being driven underground. The majority of Property Management companies who are trying to do the right thing are left exposed and with no choice but to sack non-complaint landlords as the risks are too great.

Unfortunately, these landlords will prey on the vulnerable and many will simply go unpunished and undetected.

The next few months are going to be fascinating as housing once again, will become an integral part of the upcoming election. Simon Bridges has already indicated he will renege some of the policies such as ring-fencing losses and some of the more ‘Nanny state’ healthy homes standards.

Whatever the outcome, we will keep you informed and up to date with the ever-changing world of renting in New Zealand. As an industry, we should remember this. Never underestimate your value as the service our industry provides will become more sort after. Being a landlord in New Zealand isn’t becoming easier.

David Faulkner


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