Thursday, April 13, 2017

Australia, the land of indefinite, insecure tenancies

There's been a lot of talk lately about the insecurity of renting in Australia, and how things would be better if we can somehow get everyone onto longer leases. There's a perception that Australian tenancies are notoriously short, with the majority of leases lasting around 6 or 12 months.

We're often asked how long leases ought to be in order to give renters the security they need. Take, for example, this recent interview Leo did with ABC 24's Breakfast program, where he is asked (at 1:50) "what length of tenancies would you like to see become available for people?"

And Su-Lin Tan's latest piece in the Australian Financial Review - Renting in Australia is generally 'miserable' but doesn't have to be - wades into similar territory. Tan notes the growing number of Australians "not interested in buying a home" and adds:
But one of the biggest obstacles is the lack of long-term leases, a stumbling block for people who have kids in school, long-term job commitments or simply want a settled life.
Referring to data and commentary from the recent Unsettled report, Tan also notes that the Netherlands, Germany and Denmark offer "infinite leases".

For a more comprehensive look at how European tenancies work, there's the recent publication of the International Union of Tenants report from members to its 20th congress, Rent Regulation and Security of Tenure in the Private Rental Sector. Or, for a quicker grab, there's UK Shelter's map of renters rights in Europe. These tell us that for the majority of European countries tenancies are "protected" with fixed terms of three years, if indeed they are not "permanent" and can only be ended with legal grounds.

And what of Australia? In all jurisdictions tenancies tend to begin with a fixed-term agreement. It is for the parties to decide the length of that term, and it is a matter of convention rather than law that most tenancies begin with a term of 6 or 12 months. If a tenancy agreement is not formally terminated following the processes set out in our renting laws, or a new fixed term created, it carries over and becomes a periodic or continuing agreement once the fixed term expires. It does not end simply because the fixed term expires. These are essentially permanent agreements similar to what we see in parts of Europe, where tenants' have some of the strongest protections against eviction and unreasonable rent increases in the world.

So what makes Australia different? What's missing from our laws, that operates in those parts of Europe that we look to for inspiration, is the part about not being able to end tenancies without legal grounds. Or rather, in all of the Australian states and territories it is lawful to end a tenancy without a reason, so the legal ground becomes "no grounds". In New South Wales this can happen at the end of a fixed term agreement with 30 days notice to the tenant, or at any time during a periodic agreement with 90 days notice to the tenant.

When issued with a valid notice of termination without grounds, there is generally nothing a tenant can do to save their tenancy but beg. The rationale for this is that "landlords should be able to deal with their property as they see fit". While in Europe, landlords presumably still manage to deal with their property as they see fit, but they must do so within structures that protect tenants from unfair or unreasonable evictions.

A tenancy cannot be terminated without grounds during a fixed term, which is why it's often suggested that longer fixed terms would be a good thing. It might also explain why some tenants enter into new short fixed terms at the expiry of their term, although this might also be because landlords and real estate agents often insist - threatening termination without grounds if a "new agreement" isn't signed. And while longer fixed terms may suit some people, we can't help but notice that tenants frequently ask for advice on how to end a fixed-term agreement early. Some might be encouraged by the use of longer fixed terms, but they are not the catch-all solution we're after. Indeed, long fixed term agreements might present unacceptable risks to many tenants, if the means by which they are encouraged is the erosion of tenants' rights.

How long are Australian tenancies then? The Unsettled report doesn't give us much detail on this, focusing instead on the length of fixed terms for Australian renters. Unsurprisingly, it found that 83% of Australian renters have no fixed term agreement, or are on an agreement of 12 months or less. It also found that half of Australian renters have moved three times or more, including 19% who have been renting for less than five years, and 42% of those under the age of 35.

For tenancies in New South Wales, tenants' bonds lodged with the Rental Bond Board reveal a little more. From data released under a freedom of information request in 2016 and made available as part of the NSW Government's open data portal, it is clear that only a small proportion of tenancies end within 12 months or less. The majority continue into a second year and a significant amount go on for a third year after that. Slightly more than one in ten rental bonds have been held by the Board for more than three years.

Bonds lodged with the NSW Rental Bond Board, by duration
Whether they are (or were) attached to agreements with a fixed term of 6, 12 or any number of months, these tenancies are indefinite. They are insecure because they can be brought to an end without grounds. If predictability and stability for long-term renters is what we're after, we should focus less on encouraging longer fixed terms, and more on getting reasonable grounds for termination into our renting laws. As long as their home remains available to rent, and they continue to meet their commitments under the agreement, tenants should not be asked to leave without a good reason.

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