Who would benefit from long fixed term tenancies?

Questions raised in the recent review of the Residential Tenancies Act included "what incentives would encourage the use of longer term leases?" and "what are the key challenges for landlords in offering longer term leases?"

For our part, we offered in response a reprise of an old Brown Couch favourite: long fixed terms are not the solution. Tenants would be better served by expanding the list of grounds upon which tenancies can be brought to an end, and getting rid of the "no grounds" provisions that allow landlords to end tenancies without a good reason.

But the review concluded with a report recommending:

The Act’s provisions in relation to no grounds terminations should remain unchanged. The Government should consider other ways of improving security of tenure in the rental market, including through facilitating the use of longer fixed term leases (recommendation #17).

... and:

That the Government give further consideration to other changes that could be made to the Act to further incentivise the use of longer fixed term tenancies (recommendation #16).

It was with these recommendations in mind that the Minister for Innovation and Better Regulation, whose portfolio includes Fair Trading NSW and the administration of the Residential Tenancies Act, recently convened a round table meeting to discuss options for long term residential tenancies. The Tenants' Union scored an invite, as did the Property Owners' Association, the Real Estate Institute, and a number of other interested parties.

Despite our reservations, we entered the discussion with an open mind. We hoped some useful and interesting ideas for reform might emerge, given the growing acceptance that the private rental market is doing such a poor job of delivering secure homes for those who live there. Instead, we got raw insight into what landlords would be looking for in exchange for long fixed term tenancies: more money/reduced costs, minimal loss of control, and a right of veto. Anything short of that, and apparently landlords would all go on strike.

In other words, landlords won't be compelled to offer secure tenancies - they'll only do it when it suits them, and interested tenants would have to make it worth their while. It's almost as though they know they've got tenants over a barrel, and they can sense a way to juice them for just that little bit extra...

This might include asking for a higher rent, or being allowed to levy extra charges, in exchange for a long fixed term tenancy. Or it might include asking tenants to trade off some of their established rights, like agreeing to attend to the property's repairs and maintenance needs for the duration of the agreement. The law already allows for some "mandatory terms" to be varied in agreements that are for a fixed term of 20 years or more, but to date nobody seems interested. It is hoped that landlords might offer longer tenancies, and tenants sign up to them, if such terms could be varied for a more realistic five year fixed term.

Our worry is that optional long fixed tenancies, with reduced rights for tenants, would be offered on a take-it-or-leave-it basis. Tenants seeking properties at the higher end of the market might be able to strike a decent enough bargain for themselves, securing a long term tenancy by virtue of their relative economic wellbeing - but of course that is already possible. Those in need of low cost housing, probably considering properties with higher repairs and maintenance needs, will be in less of a position to bargain. They could find themselves locked into long term agreements they don't necessarily need, and lumped with costly obligations that would be difficult to fulfil. They might be slugged with a hefty repair bill at the end of the tenancy, if they fail to live up to the landlord's expectations about how the the property would be maintained. For that matter, they might still have their tenancy ended without grounds once the long fixed term is up.

But even if we could ignore that possibility, we can't ignore this basic proposition: landlords would have a scheme that requires households to purchase a secure tenancy. Only some households, though, and only at the landlord's discretion. Others would have to stick with rolling short fixed terms or insecure periodic tenancies, and the ever-present fear of eviction without grounds.

It appears the New South Wales Government may give serious thought to this option.

So... something to think about in the meantime: what's a secure tenancy really going to be worth?