Tenancy Tribunal reform required as no cause termination debate looms

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

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

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

Who makes the applications?

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

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

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

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

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

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

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

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

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

  • Removal of rent arrears only cases from Tenancy Tribunal

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

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

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

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

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

How we see this working

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

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

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

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

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

  • Track and measure decisions to improve consistency

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

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

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

How do we do this?

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

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

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

  • Allow anonymity of the applicant

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

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

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

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

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

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

  • Exemplary damages are out of date. Change them.

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

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

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

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

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

  • Exemplary damages for wilful damage to the premises

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

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

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

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

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

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

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

Safety must be the number one priority

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

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

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

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

David Faulkner

 


Regulation of the Property Management Industry in New Zealand

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


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

 

 


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

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

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

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

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

Build to Rent; What is it?

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

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

How does BTR work?

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

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

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

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

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

The Build to Rent Conference

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

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

Build communities that thrive, not ghettoes of crime

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

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

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

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

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

They are not tenants, they are your customers

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

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

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

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

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

There are issues however that do need to be addressed.

Not a solution for the lower class

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

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

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

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

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

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

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

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

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

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

BTR part of a wider collaborative approach

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

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


The 'cannibalisation' of our industry

An open letter to the New Zealand Property Management Industry

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

 

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

One high profile business leader stated to me the following.

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

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

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

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

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

David Faulkner
Director Real iQ

Interview with Ashley Giles of LPMA New Zealand

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


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

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

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

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

Wellington, however, has a big, big problem.

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

A perfect storm for rent increases

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

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

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

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

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

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

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

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

A trial for future changes in legislation?

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

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

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

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

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

Thousands of properties required to make a difference

What will it take to make the idea work?

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

The costs of running such as beast would be substantial. 

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

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

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

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

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

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

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

What could the impact be for the Property Management industry?

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

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

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

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

Why stop at rentals? 

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

Increase supply and remove red tape

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

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

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

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

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

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

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

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

 


Interview with a Legend: The career of Bob Walters

He has been called the Godfather of Property Management. Bob Walters is simply, a Property Management legend. After nearly half a century working within the industry, we talk to Bob Walters about his career within the Property Management industry. From his early days, door-knocking in Western Sydney to collect rent in the '70s, all the way through to the beginning of LPMA and his journey to becoming the leading trainer and consultant both sides of the Tasman. Bob has simply done it all. In this 45 minute interview with Director of Real iQ, David Faulkner, Bob talks about his journey and gives an insight into what he believes the future of Property Management will look like.


Burnout: Why the Property Management industry is facing a crisis

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

  • Well being and safety are major concerns as demands increase

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

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

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

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

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

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

Greater demands on landlords following through to Property Managers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Then there is the incessant whining. 

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

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

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

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

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

Nothing has changed

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

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

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

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

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


Tenant selection turned into a lotto draw

  • Ill-conceived guidelines poorly thought out by Privacy Commissioner

  • Potential lotto draw for tenant selection created

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

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

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

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

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

 

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

Why do we have new guidelines?

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

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

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

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

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

Personal information shall not be collected by any agency unless

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

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

What is in the new guidelines?

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

GUIDE TO PRIVACY COMMISSIONER GUIDELINES

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

  • Always Justified
  • Sometimes Justified
  • Almost never Justified

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

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

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

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

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

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

Confusion reigns as lack of consultancy hinder guidelines

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

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

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

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

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

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

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

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

Credit check? only sometimes!

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

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

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

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

The importance of proof of income

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

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

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

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

Getting the balance right

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

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

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

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

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

Regards

David Faulkner

 


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

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

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

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

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

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

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

Tribunal cases set for an increase?

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

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

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

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

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

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

Section 2 of the RTA defines the landlord as follows.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Case History: Lovell v At Homes Rentals Ltd and Turner

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

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

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

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

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

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

Clear as mud!!

Case History: Knowles v Blue Ribbon Realty Ltd and Jordan

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

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

Consistency and clarity required

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

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

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

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

What we would recommend

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

What I believe should happen is as follows.

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

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

Regards

 

David Faulkner


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