Victoria's rental revolution - how does New South Wales compare?

Yesterday we celebrated Victoria's proposed tenancy law reforms, and reflected on some tired old lines that turn up every time we give serious contemplation to improved rights for renters. Today let's take a closer look at just what the Victorian Government's "Rent Fair" package includes, and how it compares to our own laws in New South Wales.

Victorian landlords: ready to cross the border at the first sign of tenants' rights

Victoria's proposed reforms are many and varied. They've been categorised into six different groups: rental security, tenants' rights, faster payments and rental bonds, fair priced rent, pets are welcome, and modifications.

Let's dive in.

Rental security
This includes the big one: landlords must give a reason to end a tenancy. This should be rolled out in every Australian state and territory, except Tasmania where it already applies. Along with others from the community sector we've been actively campaigning on this issue here in NSW (find out more at Make Renting Fair NSW). Allowing landlords to end a tenancy without a stated reason actively undermines tenants' confidence in renting laws because they worry they'll be evicted unfairly if they make a fuss or stand up for their rights. By now this should be well established, but if you still need some convincing we recommend a quick look over the recent Unsettled report published by Choice, National Shelter and the National Association of Tenants Organisations. Three cheers for Victoria for announcing this change!

We should note that Victoria already has a long list of reasonable grounds available for landlords to use, and their "no grounds" notice comes with 120 days notice. In New South Wales we are missing some key grounds, such as where the landlord needs to recover the property for their own personal use; and our notice period is a full month shorter at 90 days. Any suggestions we can fix our own laws in New South Wales by expanding the list of grounds for termination and leaving the "no grounds" option intact just took a bit of a hit.

But here's where it starts to get flakey: the law will limit the use of the ‘end of fixed term’ notices to vacate. This will allow landlords to use what is effectively a "no grounds" notice of termination at the end of the first fixed-term period (usually six or twelve months), but not in any subsequent period if the fixed-term is renewed rather than proceeding on the basis of an open ended agreement. Make no mistake, this would be an improvement and we'd welcome a similar change in New South Wales. But in practice it will turn fixed-terms into a "probationary" period. Tenants who stick up for their rights during an initial fixed term would still have no protection against an unfair eviction, so might hold off reporting repairs and maintenance needs, or raising other concerns about their tenancy, until after the fixed term expires. It would be better to just ban the use of no-grounds notices altogether, perhaps with an exception for longer fixed-terms of say three years or more (in the spirit of compromise). This might be something the Victorian lawmakers will consider as they're working out how to encourage more long term leases, which is also included under this heading.

As for the rest of the reforms under this heading - prohibiting false, misleading or deceptive representations and requiring pre-contractual disclosure of the presence of asbestos or an intention to sell, Victoria is mostly just catching up with New South Wales, but taking a few steps further while they're at it. The need for New South Wales landlords to disclose material facts prior to entering into a tenancy agreement was introduced with our Residential Tenancies Act 2010, but it wasn't given any measures for enforcement. We're still hoping this will be fixed - along with adding the presence of asbestos in the property as a fact for disclosure - as per the recommendations of the recent review of our own renting laws.

Tenants' rights

There are two proposals under this heading. A commissioner for residential tenancies who will "champion the rights of Victorian renters in the private sector" strikes us as an interesting idea, but we'll wait and see how that plays out for awhile before we get too hung up on it. A landlord blacklist seems like an odd thing for a government to introduce, when they could just encourage greater compliance with the law by investigating complaints and issuing penalties, but we'll keep an eye on this one as well.

Faster payments and rental bonds

A move to allow a 14 day automatic bond repayment is more or less in keeping with what we've long since known and loved in New South Wales - if you can't get an agreement and both signatures on a bond claim form, then either party can make a unilateral claim that will be paid out after 14 days unless the non-claiming party raises a dispute and takes it to NCAT. Sensible, although we do think it would be better if only tenants were allowed to make a unilateral claim, allowing landlords to dispute the claim or apply to NCAT after a reasonable time if they felt they were entitled to it. Changes  to the way the early release of bond works in Victoria will be of little consequence to us in New South Wales - our law allows this at any time as long as all parties agree, or the requesting party is handing it all over to the other, whereas the Victorian proposal will extend the right to an early refund to be available in the last fourteen days of a tenancy, rather than the last seven days. The same goes for updated bond cap & up-front rent cap for most properties - these are already in place in New South Wales, where a bond may not exceed four weeks rent and no more than two weeks rent in advance can be required regardless of the type of property or amount of rent payable. The move for faster repairs reimbursement, where tenants can seek reimbursement for the cost of urgent repairs they have effected because they couldn't wait for the landlord, is a small step ahead - Victorians will be entitled to this within seven days of a request, while we could still be waiting up to fourteen days. That is, of course, assuming we've followed the process correctly - never effect an urgent repair without reading up on the law first, because failing to follow all the steps could see you permanently out of pocket.

Fair priced rent
Victoria has announced a very modest change here, that will leave us in their dust. Rent increases are already restricted in Victoria - they can't happen more than once every six months, and under the proposal this will change to once every twelve months. Meanwhile, in New South Wales, there is no limit or cap on the frequency of rent increases. In theory, your rent could go up daily and there ain't a damned thing you could do about it - provided you've been given the proper notice on each occasion - other than apply to the Tribunal and argue that a proposed increase is "excessive". Limiting rent increases to a maximum of once a year would be alright in New South Wales, but we'd also need to rework the way tenants can respond to them. It should be up to the landlord to show that a significant increase is reasonable, rather than the tenant to show that it is excessive.

This plan also proposes cracking down on rental bidding, which is something we can all get behind. The law in New South Wales is not really clear on whether it's lawful for landlords to solicit bids, but it seems okay to accept a higher rent if a tenant jumps in first. Just because you can pay more doesn't mean you should, and landlords shouldn't dangle properties in front of desperate tenants with a wink, a nudge, and a sign saying "pssst, make me an offer" hidden in the top drawer. Victoria says it will prohibit landlords from "inviting" bids, which is bad news for a couple of rent bidding apps that are sniffing around at the moment, but perhaps it could go a little further. We should be clear - in an era when governments are relying on the private sector to make up the shortfall created by chronic under-investment in social and affordable housing, allowing those with greater means to push up prices for the rest of us should be well and truly outlawed.

Pets are welcome

Pets in rental property will be allowed by right of every Victorian tenant! Or will they? The proposal says tenants will need the landlord's written permission first. It also says the landlord won't be able to unreasonably refuse, but that leaves a lot of grey area around just how rigid this new "right" will be. Further, this seems to be more of a right for people who rent and want a pet than people who have a pet and want a home to rent. Landlords will still be able to discriminate at the point of application by simply declining to rent to people with pets.

A better way to give tenants the right to keep pets would be to take a "don't ask, don't tell" approach. We should confirm once and for all that landlords have no business making decisions about who besides themselves shall get to keep a pet, and prohibit including a "no-pets" clause in tenancy agreements.

Modifications
Ensuring that tenants can make minor modifications to their home is the final piece of news coming out of the Victorian proposals. It makes good sense, and again it brings Victorian laws in line with ours in New South Wales. With this kind of reform the devil is in the detail, as questions of who gets the value of an improvement if the tenancy ends prematurely will need to be considered thoughtfully. We haven't quite gotten this right in New South Wales yet, either.

More news from down the Hume

There's been massive news out of Victoria over the weekend, with the Andrews Government pledging to make renting fair!

The announcement refers to an "unprecedented package of tenancy reforms" that includes doing away with the Victorian equivalent of unfair evictions, preventing discrimination against tenants with pets, and cracking down on rental bidding. All of these sound pretty good to us here on the Brown Couch, and we look forward to seeing further details as these proposals are implemented by amendment to Victoria's Residential Tenancies Act 1997. Early details are available here.

Of course, not everyone was happy with this announcement. ABC online reports:

The Real Estate Institute of Victoria (REIV) said the changes would force up costs, which would be passed on to renters. 

"Rents will go up, people will leave the market, there'll be less supply and that's only going to push people out of the rental market and make it more difficult for those who are seeking to rent premises cheaply," chief executive Gil King said.

But our colleague from the Tenants' Union of Victoria, Mark O'Brien, wasn't having any of it:

"Every time there's reform of the residential tenancies law, the institute claims it's the end of the world as we know it and that's never what occurs," he said.

O'Brien's view is supported by a great deal of research, which suggests property investors tend to be motivated by financial considerations rather than tenancy laws.

Still, it's a line the investor lobby and landlord advocacy groups like to trot out at times like this and we expect a similar conversation will emerge in New South Wales when at last the results of our own review of renting laws make their way towards Parliament. We've been expecting this would occur before the year is out, but now that's looking unlikely. This means we've still got time to convince our own government they should be following Victoria's lead to make renting fair - you can lend your support to our claims here.

But it also means our own landlords' and real estate agents' groups will have more time to practice their lines about tenants' rights leading to all sorts of doom and gloom for renters. "Careful what you wish for," they might say. "The changes will force up costs, rents will go up, people will leave the market, there'll be less supply and that's only going to push people out of the rental market and make it more difficult for those who are seeking to rent premises cheaply".

The thing about all this is that there's not much stopping rents from going up as it is. For a quick refresher on why this is, have a look at our earlier post about why rental affordability continues to deteriorate.

But back to the specifics of the claim. The Real Estate Institute of Victoria seems to have skimmed over their suggestion that rents will go up to offset an increase in landlords' costs. Perhaps they've cottoned on that such claims are a furphy, because even though most landlords would go out backwards without them rents are a function of what tenants can pay rather than what landlords' choose to spend when buying and holding property. Or perhaps they just don't think the Victorian proposals will add significantly to their costs so they've steered clear of any further detail. Either way, they've put their emphasis on the slightly different argument of "people will leave the market, thereby reducing supply".

We should keep an ear out for this one in New South Wales, too. It's the idea perhaps that fair renting laws will take all the fun out of property investment, so landlords will take their money and spend it on other, much simpler things. Keep in mind the same argument was made when our current laws were drafted in 2009/10, and the private rental market was hands down the most likely place for a property in New South Wales to turn up in following sale or construction between the 2011 and 2016 Census events.

Still, given the prices property owners could expect at the moment it stands to reason some might be tempted to cash out. Some might even use the prospect of law reform as a cover for their decision. Rest assured they'll be factoring in capital gains before all else, and nobody likes to sell before hitting their targeted windfalls unless they really, really have to.

Those who do sell will be doing immediate damage to their sitting tenants - just as any landlord does when selling for any other purported reason. That is, unless they sell to another investor who is not so concerned about law reform (or other purported reason), and will keep the tenancy going. Given it's mostly an investors' market at the moment this scenario is becoming more and more likely. But, on the off chance an investor cashes out by selling to a first home buyer, the net impact on supply will be zero if the buyer is leaving the private rental market in order to take up home-ownership. And if a whole lot of investors suddenly decide to sell up all at the same time, prices might start to come down a little and first home buyer activity might find some renewed vigour.

It's the landlords who take their properties with them when exiting the market that are the real problem. These are likely to be in the very small minority, since most landlords run at a loss for tax purposes, and rely on any rental income to cover their main costs which includes the interest on their loans. Nevertheless, this risk could be easily countered with a vacant property tax, the likes of which the Victorian Government has also recently proposed. The revenue from such a tax could be used to fund new social housing dwellings.

Despite what we can expect to hear from the investor lobby in the coming months, the NSW Government would do well to start taking notes on Victoria's tenancy law reform proposals.

Why landlords should support pets in rentals

The Daily Telegraph has published an article about a push from the left of NSW Labor for a ban on "no pets" policies in rentals. We've previously discussed why reforming no pets clauses is a really good idea. This is a good signal that significant parts of the Labor party are realising that property ownership is not the be all and end all of the way we create homes. For many people, creating a home includes caring for a pet.

The NSW Greens have held renter positive policies for a while now, and the push from Labor left indicates that the political appeal of renters across the spectrum is growing. We encourage all parties to adopt these kinds of policies. To help in this effort, we'd like to address the landlords in the room, and talk about why you should support this push, and whether you support Labor, Liberal, the Greens or the Christian Democrats, let your representative know that you are on board.

It is better for the animals.
Even if you don't like your tenants, from an animal welfare point of view this is a no-brainer. The RSPCA has been calling for these changes up and down the east coast - and their interest is clearly on the animal welfare side of this issue. Our shelters are full, and there is a large and growing population of people crying out to help.
No one is proposing Palominos in penthouses, or Angus cattle in apartment complexes. A reasonable restriction on the types of animals allowed in homes is acceptable - but should be set with the animal's welfare and needs of the community as the guide.

It is better for your insurance.
Every sensible landlord holds insurance on their investment. For most good insurance policies these days, pets are covered - but only if you have declared them to the insurance company.

The pets are here, whether you know about them or not. While many tenants don't have pets for fear of being caught and losing their loved one, sometimes tenants who owned a pet before moving also couldn't face the thought of their companion being put down in the shelter - so they conceal them or pretend they belong to neighbours. Isn't it far better that tenants can be honest and tell you about their pet and you can enjoy the confidence knowing that even if there is some damage over the bond, your costs will be covered?

And in all likelihood, it won't cost you.
Tenants pay bonds. Less than 10% of bonds are claimed in full by landlords, and in our experience the majority of those claims are actually made on rent arrears or tenants leaving the lease early. That means you've got a whole lot of bond to give you comfort around the more minor every day costs like fumigation, and extra wear and tear on carpets or floorboards. Most pet owning tenants pay for these things before it gets to the bond anyway, but the system is there.

Even if you do need to make a claim, no worries - us tenants have already subsidised your tribunal application. We pay $14 million a year from the interest on our bonds to the Civil and Administrative Tribunal to make sure your costs aren't too high.

In the end, the question you really need to ask yourself is - would you vote against this face?

Dealing with property as the landlord sees fit

Anyone with a passing interest in tenants' rights will know the biggest issue we face is housing insecurity. It's written into the very laws that claim to give us certainty and stability. Landlords are lawfully entitled to end tenancies without a reason, which completely undermines all the rights that tenants do have. It creates a deep, dark hole for tenants who fear that sticking up for themselves will just unsettle their ability to stay housed.

We know the best way to give housing security to tenants is to get rid of any legal right for landlords to end tenancies without grounds. In New South Wales this means making some changes to sections 84 and 85 of the Residential Tenancies Act 2010. When we try to bring this up in polite conversation we're often chided for our naïveté and told such change would impinge upon a landlord's right to deal with their own property as they see fit. This, we're assured, is just a stretch too far.

Indeed, when Fair Trading NSW kicked off the statutory review of the Act they included some commentary and questions around ending tenancies without grounds:

Commentary: There have been suggestions that 'no grounds' terminations be removed and that the landlord be required to provide a ground for termination from a prescriptive list of possible reasons. This proposal would need to balanced against the view that landlords are entitled to deal with their property as they see fit. 

Question 33: Should landlords be required to provide a reason for terminating a tenancy? If so, what types of reasons should be considered?

... and of the 180 or so responses they received, about half indicated they would like landlords to be required to give a reason to end a tenancy. One in about three responses had nothing to say on the matter, and the remaining one in five said they're okay with the way things are.

One of those who indicated they're comfortable with the status quo was the Law Society of NSW. They said:

Landlords should not be required to provide a reason for terminating a tenancy, provided the landlord complies with the requirements for notice, the landlord should be entitled to deal with the property as the landlord sees fit.

Tsk tsk. Lawyers should know better. There are many, many ways the law intervenes to prevent landlords from dealing in property as they see fit.

But they're also a pedantic bunch, and we know they like to get this stuff right. Our Principal Legal Officer has drawn up a quick guide for any lawyers looking to brush up. Over to you, Counsel...

What about the landlord’s absolute right to possession of the property?

... the landlord should be entitled to deal with the property as the landlord sees fit.*

This “should” statement turns out to be wishful thinking. It was almost true in feudalism. But, the landlord was still subject to the terrible power of the Crown. Not even the Church was safe - see Henry VIII.

In modern Australia all land is held by or of the Crown. This mirrors feudalism, but the whole picture is more complex.

The landlord has limited control of the use of the land. There is much control of what land is used for. There is control of what happens under the surface and in the sky above. For example, the Mining Act 1992 and the Civil Aviation Act 1988 (Cth).

The landlord cannot build anything substantial on the land without approval - Environmental Planning and Assessment Act 1979. Approval of the use of land is controlled by zoning – Local Environmental Plan. Growing certain plants is prohibited – Drug Misuse and Trafficking Act 1985. Some other plants are subject to controls as weeds – Noxious Weeds Act 1993.

The title can be taken away. Our governments can compulsorily acquire private land for various purposes. There is legislation for this at state and commonwealth level. For example:

· Local Government Act 1993, Chapter 8 Part 1
· Roads Act 1993, Part 12
· Land Acquisition (Just Terms Compensation) Act 1991
· Lands Acquisition Act 1989 (Cth)

And by random strangers, by adverse possession – Limitation Act 1969.

The landlord is not entitled to deal with the property as he or she sees fit. The landlord’s entitlements in relation to land are conditional and controlled.

The power the landlord has to evict tenants without a reason is less a power in relation to land than a power over people: a power to cause inconvenience, cost and distress.

No grounds termination is an anomaly. The Residential Tenancies Act 2010 should be amended to require grounds for eviction.

*1 February 2016, Law Society of NSW submission to the statutory review of the Residential Tenancies Act 2010, at 33

New Ministers

New NSW Premier Gladys Berejiklian has announced her first Cabinet and front bench.

The Tenants' Union congratulates our new Minister for Innovation and Better Regulation (covering Fair Trading NSW as part of the portfolio), the Hon. Matt Kean MP.

Member for Hornsby and
Minister for Innovation and Better Regulation,
the Hon. Matt Kean MP

Kean was elected to the Legislative Assembly in 2011, as the Member for Hornsby. He served as a Parliamentary Secretary for Community Services in 2014-15, and more recently for Treasury in 2015-17, but this marks his first Ministerial position. According to the Register of Disclosures by Members of the Legislative Assembly, Kean is a tenant, and his appointment comes as the NSW Government prepares to introduce legislation to amend the Residential Tenancies Act 2010 following the statutory review of the Act. We understand drafting is well underway so we don't expect this Ministerial reshuffle to have too great an impact on the reform process - especially since Kean's predecessor, the Hon Victor Dominello MP, will take on the more senior Finance, Services and Property portfolio under which Innovation and Better Regulation sits.

(On that note, we offer our congratulations and thanks to Minister Dominello as well. Dominello held the Innovation and Better Regulation portfolio since April 2015, making him one of the longest serving Ministers for Fair Trading in recent history. During his time in the portfolio he introduced Rental Bonds Online, which allows tenants to deposit their money with the Rental Bond Board directly before entering into a residential tenancy agreement. He presided over the review of the state's renting laws, and while this will not deliver stability, liveability and affordability for tenants Dominello did commit his Government to improving the law for survivors of domestic violence who need to end a tenancy. He'll no longer take carriage of this reform, and it remains to be seen just how it will be implemented, but we acknowledge his consultative approach to its development, and his dedication to seeing it through. Finally, Dominello also oversaw the drafting and implementation of the state's new strata laws. While these laws are not without controversy, they've taken a useful step towards better representation for tenants in the operation and management of strata schemes in New South Wales.)

The Tenants' Union also welcomes the return of Pru Goward to the Family and Community Services portfolio. Goward resumes this portfolio along with Social Housing, while retaining her appointment as Minister for the Prevention of Domestic Violence and Sexual Assault.

Member for Goulburn and
Minister for Family and Community Services
Minister for Social Housing, and
Minister for the Prevention of Domestic Violence and Sexual Assault,
the Hon Pru Goward MP

When Goward previously held the Family and Community Services portfolio there was no Minster for Housing, with responsibility for Social Housing split between Family and Community Services and Finance and Services. This didn't work so well, and a discrete Social Housing portfolio has since been created. It sits alongside the Family and Community Services portfolio, reflecting the Government's view that a Social Housing tenancy is a form of welfare dependency.

Since Goward last held the Family and Community Services portfolio, with shared responsibility for Social Housing, the Government has launched its Future Directions for Social Housing strategy. As a ten-year strategy, there is still much to be done in developing and implementing many of its key proposals, and Goward will now take charge of these. Most notably, she will preside over discussions arising from the current IPART Review of Social and Affordable Housing Rent Models. She will also oversee the Government's efforts to grow the social and affordable housing portfolios for the first time in many years.

Finally, the Tenants' Union congratulates Anthony Roberts - himself a former Minister for Fair Trading - on his appointment as Minister for Planning, Minister for Housing, and Special Minister of State.

Member for Lane Cove, and
Minister for Planning,
Minister for Housing and
Special Minister of State,
the Hon. Anthony Roberts MP

The inclusion of a Housing Ministry is not new, but it hasn't been done since Frank Terenzini held the portfolio in Kristina Keneally's administration, circa 2010-11. Back then, a Housing Minister was really just a Social Housing Minister with a shortened title, so what is new is the inclusion of both a Housing portfolio, with links to the Planning portfolio, and a Social Housing portfolio tied to Family and Community Services. No doubt this broadened focus reflects Berejiklian's much publicised ambition "to make sure that every average, hard-working person in this state can aspire to own their own home", and it bodes relatively well for housing policy discussion during Berejiklian's time as Premier. Of course, we mustn't forget that now former Planning Minister for Rob Stokes once took a swipe at negative gearing and capital gains tax discounts for their contributions to housing unaffordability. His departure from these policy discussions doesn't bode quite so well...

Welcome to 2017 - the year of the renter

Welcome back to the Brown Couch for 2017. It's been a swell (at times sweltering) break - now it's time to dust off the old keyboard and get ready for another big year.

Domain's Jennifer Duke has dubbed it "the year of the renter" on account of the rising population of Australians who are long-term tenants, tipped to outnumber home-owners in parts of the country during 2017. Duke opines that "... if the growing group of tenants are to be housed with security and decency, fixing the rules that surround the rental market is something that has to be done now." We couldn't agree more.

While we're firmly in the "every year is the year of the renter" camp, we must admit there's a growing interest in tenants' rights across the country. The perennial housing affordability conversation is slowly starting to explore the costs and conditions of long-term living in the private rental market. Of course, there's still a long way to go, but there's a noticeable change in the air. For one thing, our own engagement with the mainstream media has never been higher, and we're getting a far more sympathetic ear than we might have expected even just a year or two ago... For example, check out our spot on ABC News 24's Weekend Breakfast program from late last year:

There's a long way to go, but there will be a couple of big opportunities to push the discussion further as we move through this current year of the renter. For one, we'll have a new Premier who has listed housing affordability as a key priority area, and while we don't yet know what this means for the Social Housing and Fair Trading Ministerial portfolios, we'll have to take it as a positive sign as the Government considers the final stages of the statutory review of renting laws, and pursues its ambition for Social Housing reform. Fingers and toes crossed, just for good measure.

We can expect some of the 2016 Census data to start coming through towards the middle of Autumn, which will tell us just how much our renter population has grown over the last five years. And we're expecting a report from a national survey of tenants that was conducted late last year by Choice, National Shelter and the National Association of Tenancy Organisations, so watch this space. In the meantime the next issue of Rent Tracker is just around the corner, and we'll have more to say about the impact of Airbnb on the Sydney rental market in the coming weeks.

2017 is set to be another big year, full of opportunities to join the push for a better deal for tenants. Keep an eye out for us, and jump in where you can.

Long term leases: merely fiddling around the edges

There has been some discussion on the Brown Couch lately about long term leases, which are often touted as Australia's solution to a chronically insecure private rental market.

A recent posting suggested the NSW Government is considering options for long term residential tenancies. Our worry is that optional long fixed term tenancies, with reduced rights for tenants, would be offered on a take-it-or-leave-it basis. Read more here.

Another posting examines the probable cost of entering into a long term tenancy. You may check it here. And, there’s a further posting here which argues that considerable disagreements over who is responsible for which repairs and maintenance costs (structural, general or cosmetic?) may be far greater than expected. And another posting talks about the experience of protected tenants in NSW because their lease is silent on the issue of repairs. Check it here.

The interest in long fixed-term tenancies is laudable. However, if it is because more people are renting for longer, then this is not the answer, because only a few landlords will ever take it up.

The answer is at the federal level
The answer is more with the federal government which has the 'levers' to change the types of landlords who dominate in the private rental market.

Private rental housing is structurally insecure because the private rental market is enmeshed in the owner-occupier market. Most landlords are individual persons who own a single rental property for speculative purposes (that is, most are operating at a loss – they are negatively geared – and hoping for capital gains). In order to maximise the prospect of capital gains, they need to be able to sell their property with vacant possession when it suits them, selling to either other landlords or owner-occupiers. This speculative strategy is encouraged by our taxation laws. So, tax changes to negative gearing and the treatment of capital gains are necessary to discourage, not encourage, speculation in the private rental market which has led to this proliferation of ‘mums and dads’ investors. Because of this Jennifer Duke says tenants are at the mercy of their landlord’s personal life decisions. Read more here.

Melbourne Institute of Applied Economic and Social Research (The Household, Income and Labour Dynamics in Australia Survey: Selected Findings from Waves 1 to 14, 2016, p 74) puts the proportion of households owning investment housing at 13.0% in 2014. Ownership by such landlords is not conducive to the existence of affordable and secure rental housing stock.

But the Federal Government flatly refuses to do anything about negative gearing or capital gains tax arrangements. In fact, Liberal MP David Coleman, who chaired the Federal Government’s 20-month inquiry into home ownership, states the report found that there was no structural problem with housing affordability. Read more here and here.

Cartoon by Ron Tandberg, appearing SMH 16/12/16

For another view on the dynamics of the private rental market across Australia, check out the publications here and here.

Here's an interesting take by Michael Kaziol who asks ‘Renting property? Don't hold your breath for a long lease.’ You may read his article here. There also are other impediments at the federal level under the existing regime which highlight the importance of moving away from a rental market dominated by ‘mums and dads’ investors. Read about one here.

Rather, we need to remove the barriers and provide incentives so that superannuation funds direct their funds to institutional landlords, especially not-for-profit housing organisations, so that they might expand their residential rental stock. At last, we are finally seeing movement on this front in Australia. See report on HESTA’s funding of social and affordable housing in Queensland here. Outgoing Reserve Bank board member Heather Ridout has backed a greater role for institutional investors in funding more affordable housing. Ms Ridout, who also chairs Australian Super, told a panel at a Citi conference, that the fund had invested in social housing in London, where it has backed residential development projects that include social housing. See more here.

Michael Pascoe writes a sobering piece here on why institutional investors steer clear of the private rental market. However, this may be about to change. Just recently Jessica Irvine wrote about the best thing for renters since 3M hooks. Read more here. There is more about this model for financing affordable housing here. Even if this proposal was to draw upon even a small slice of Australia’s multi-trillion dollar superannuation industry, its impact would be significant and vulnerable tenants would benefit from a greater supply of affordable properties, owned and run by not-for-profit institutional landlords more committed to providing a secure tenure.

Coming back to New South Wales …
If we insist on toying with long term leases and limit our focus to what the State Government can do, we should consider a change in the current land tax. As things stand, the very narrowly defined current land tax regime discourages landlords from owning more than a few properties. We need go no further than a previous blog on The Brown Couch here to look at alternatives.

Section 20 of the Residential Tenancies Act allows landlords to omit or vary some mandatory terms of the statutory residential tenancy agreement, and include otherwise prohibited terms. Accordingly, this section should be amended to explicitly state that a landlord cannot opt out of their obligation for repairs of a structural nature and, further, what constitutes ‘structural repairs’ should be defined. This will provide clarity and avoid many disputes at tribunal hearings.

A dilemma arises where the landlord is a social housing provider, because of the operation of Section 148 of the Residential Tenancies Act 2010. This allows a social housing landlord to evict a tenant who refuses to accept an offer of alternative social housing premises, regardless of the fixed term of their social housing agreement on a specific property. This undermines the purpose of a long fixed-term lease.

A current anomaly with long term tenancies of 20 years or more requires urgent legislative action, because it allows a social housing landlord to evict a tenant in fewer than 28 days, even without issuing a notice of termination. This arises as a result of Section 154G of the Residential Tenancies Act 2010, which commenced on 18 December 2015 ... a massive step backwards for long term tenancies. It requires the Tribunal to reduce the period before a possession order is made from 'not less than 90 days' to 'no more than 28 days', unless there are 'exceptional circumstances justifying a later day'. At law, the words 'exceptional circumstances' have a very high bar. Section 154G is an amendment which forms part of the Residential Tenancies and Social Housing Legislation Amendment (Public Housing - Antisocial Behaviour) Act 2015, but long term tenancies have nothing to do with anti-social behaviour. Indeed, this new provision defeats the purpose of an important provision for long term tenants (who are usually older tenants), that came into force under the 2010 Act.

But, this is merely fiddling around the edges …
The answer is to make renting generally more affordable and secure. So, a far better alternative is the introduction of a 'reasonable grounds' eviction regime in residential tenancy legislation, in place of the provisions that allow a landlord to evict a tenant for no reason. Read more here. This would make long term leases less important from the tenant’s perspective, because once a fixed term expires the landlord would have to provide their reason if they required vacant possession … and this reason could be tested in a tribunal. Let’s make this happen!

Running repairs? The cost of longer term tenancies: part 3

We have written a number of blog posts now on longer fixed term tenancies, and the problems we anticipate if tenants were asked to take on repairs during a tenancy. One example worth considering when talking about longer term tenancies and the possibility of shifting responsibility for repairs is 'protected tenancies'.

Not that many people are familiar with protected tenancies (though we've written about them a number of times on the blog - most recently here and here). Protected tenants are those covered under the provisions of the Landlord and Tenant (Amendment) Act 1948, but there are very limited circumstances under which someone can be recognised as having a protected tenancy. Generally protected tenancies are found in older suburbs where many residents rented until gentrification gobbled up their suburb, or in country towns where no-one worried about paperwork in the good old days. And in practice, protected tenants are older tenants.

There are two key advantages of being a protected tenant. The first is rent control - rents are usually limited to 'fair rents', and will be considerably less than the market rent. The second benefit is stronger protections against terminations. Protected tenants can only be evicted on certain proscribed grounds (and they can't be kicked out for no reason, i.e. a 'no grounds' eviction). This gives them much greater security of tenure than other tenants. They certainly offer benefits far more compelling than anything being put on the table in current discussions around longer fixed term tenancies.

A succession of landlords all flatly refused to do repairs on this protected premises. Water had been pouring through the ceiling just inside the front door for months.

However the significant drawback of protected tenancies is repairs. The Landlord and Tenant (Amendment) Act 1948 is silent on the need for landlords to do repairs or maintenance. What this means is that many protected tenants are older tenants who, on the one hand have been able to age-in-place, but on the other hand live in homes crumbling around them, because their landlord refuses to do any repairs – sometimes in an attempt to force them out.

Recently we spoke with John, a protected tenant who has been living in his home in Randwick since 1978. We asked him about his experience in a protected tenancy and the ongoing issues he has faced around repairs ...

John moved into his unit in Randwick 39 years ago. It was an old Victorian place with rococo ceilings, a spacious feel - it had one large bedroom and a small room at the back - and a nice view over the racecourse.

But it was falling to pieces: “when I moved in the place was dreadful, everything was faulty”. There was no paint on the walls, the floorboards were loose and squeaked as you moved across them, and the lino had holes in it. The kitchen was a wreck. For $40 a week though, John thought he could live with it.

When he moved in John painted the apartment after confirming that the landlord at the time would reimburse him. The landlord never reimbursed him. Thanks to his handiwork over the years the unit is in good condition, but he has had to do a lot of work. He installed a new kitchen and a new heater, has put in carpets, and paid for significant additional repairs to the bathroom: “I’ve invested a bit into this place. The work I’ve done has made it into a nice place, a home for me”.

One of the few ways a protected tenant can get repairs done is to complain to their local council about the disrepair a building is in. Randwick Council under the Environmental Planning and Assessment Act 1979 has ordered John’s landlord to undertake repairs at least a couple of times. Once when the balconies for the unit block were crumbling and had to have work done to ensure the safety of occupants and passers-by. On another occasion they were required to bring in an electrician to attend to electrical faults that were posing significant safety risks for the entire building. John reports that in this instance his then landlord did call in an electrician, but failed to pay them. As a result the electrician refused to finish the work. In general his original landlord refused to do any work on the unit, including structural repairs.

The landlord's failure to undertake repairs has been a significant and ongoing problem for John:

I don’t see why I should be responsible for structural defects and electrical problems as a protected tenant. I don’t mind doing the things I can do, but the structural issues ... [should be done by the landlord].

Recently the original landlord who John had entered into his tenancy with sold the building (John reports they bought it originally for 7000 pounds, and when it sold 18 months ago it went for $4.2 million). The new owner tried unsuccessfully to evict John. John attributes his success in fighting the eviction in large part to the excellent support he received from a local tenant advocate from the Eastern Area Tenants Advice Service. The new landlord has subsequently undertaken significant renovations and repairs to all of the other units in the building, but - like John's original landlord - has left John's unit untouched.

When asked if he thought tenants should give up their established rights around repairs to secure a longer fixed term lease in the current private rental market, John was clear:

No, it’s not worth it. Not even if you’re going to rent one of the newer places. I know lots of people in Randwick in these new apartments who have lots of problems. Repairs come up often. The rent that tenants are expected to pay now, the landlord should bloody well look after the place.

21st Century Bonds - part 3

If you haven't already heard about the Rental Bonds Online service, chances are you soon will.

Rental Bonds Online: coming to all new tenancy agreements?

That's because the NSW Government has just changed to the Residential Tenancies Act 2010 to make it more or less mandatory for your next landlord or their real estate agent to tell you about the service, which allows tenants to electronically transfer a rental bond payment directly to the Rental Bond Board. This is great, as it means you'll no longer have to hand over wads of cash, or go out of your way to get bank cheques or money orders in order to pay a bond. It also means landlords and agents won't even have to see your bond money at all - unless they become entitled to some of it at the end of your tenancy...

The Government has made this change because, to date, only a relatively small number of new tenancies have had a bond lodged via the online service. This is despite a high number of landlords and agents having registered to use it, suggesting that many are not telling tenants about it. Instead, they continue to take tenants' bond money to lodge with the Rental Bond Board themselves.

The change will come into force on 30 January 2017. From that time on, a landlord or real estate agent will be prevented from "requiring or receiving a rental bond from a tenant" unless they have registered to use Rental Bonds Online, and have given the tenant an opportunity to pay their bond to the Rental Bond Board directly, using the service. The only way landlords and real estate agents will be able to lawfully avoid telling you about the service will be to refrain from taking a bond in the first place.

No doubt we'll be hearing more about this over the next couple of months...

Running repairs? The cost of longer term tenancies: part 2

Last week on The Brown Couch we talked about how much it could end up costing tenants who sign up to a longer term lease in exchange for taking on responsibility for repairs and maintenance – if such a model for long fixed term tenancies is taken up by the Government.

One aspect we didn’t touch on was the question of what kind of repairs tenants might be liable for in this scenario, and how exactly liability would be set out?

Commercial tenancies have been suggested as an example of how this might be determined.

In commercial tenancies responsibility for repairs and maintenance of a premises is generally set out in the lease – though not always. The lease should outline what repairs a tenant is and isn’t expected to pay for. Clauses are commonly drafted to imply that the tenant has responsibility for the general repair and maintenance of premises, but exclude responsibility for repairs related to ‘fair wear and tear’, structural repairs or costs relating to capital expenditure (for example replacing air-conditioning units). If these are excluded they are not the tenant’s responsibility, but they are also not automatically the landlord’s responsibility. They are only the landlord’s responsibility if this has also been specifically outlined in the lease.

Not surprisingly perhaps, repairs and maintenance are a common area of dispute in commercial leases.

If tenants in private rentals were expected to take on repairs in exchange for longer term tenancies, we would certainly hope there were clear limits set on what repairs they were responsible for.  But we foresee that under an arrangement similar to those made in commercial tenancies a whole lot of confusion and disputes regarding repairs could arise. We can imagine many disagreements over where ‘general’ repair and maintenance ends and structural begins.

The first comment we received on our first discussion in this series spoke broadly to this concern. Anonymous told us:

I once rented a property where I was responsible for the first $20 worth of repairs (a number of years ago now). This caused no end of drama e.g. electrician visit of $87 was $20 mine, rest landlord but replacing washes was solely my problem as cost of washers was less than $20. Never again. It was 6 years of arguments.

Even where it seemed the terms were set out quite clearly (tenant responsible only for “the first $20 worth of repairs”) the result was: “6 years of arguments”.

Currently under the Residential Tenancies Act 2010 the landlord is responsible for providing and maintaining the rental premises in a 'reasonable state of repair'. They don’t, however, have to fix any damage caused by the tenants. Already many disputes arise between tenant and landlord because the landlord claims that the tenant is in some way responsible for the problem. Disagreements commonly come up around issues like vermin, mould and guttering – either the landlord claims the tenants caused it, or that they failed to notify them soon enough or take adequate measures to ‘mitigate’ the problem (i.e. take steps to limit the extent of the problem and subsequent costs of any repair or replacement).

Where a tenant becomes responsible for the general repairs and maintenance of a property, we're worried landlords might similarly try to push 'structural' repairs on tenants on the basis they are a result of the tenants failing to meet their end of the bargain and keep up with the general repairs and maintenance required.

Tenants, under such a model, might also become vulnerable to arguments around ‘waste’. 'Waste' as a legal concept refers to any permanent damage done or allowed to a property by a person who is legally in possession of it, and where the damage or harm has diminished the value of the property. A landlord can seek compensation for 'waste', and this can include the cost of restoring the property to its original condition after any changes have been made, even if these changes were intended as improvements.

Currently we believe an action for damages because of 'waste' is unlikely to succeed against a tenant covered by the provisions of the Residential Tenancies Act 2010, largely because of the landlord’s current obligations around repairs and maintenance. This wouldn't necessarily be the case if long fixed term tenancies were offered that varied or shifted the obligations relating to repairs to tenants.

We mentioned in our previous post that many private rental tenants are already facing very high housing costs. They may not be able to attend to repair and maintenance issues as they occur, or even perhaps during the duration of the lease.

In this situation, in addition to seeking compensation to undertake any required repairs at the end of a tenancy, a landlord might also take an action for damage on the basis of ‘waste’.  So they could seek further compensation (that might, for example, cover significant structural repairs) claiming the tenant’s failure to attend to repairs in a timely manner had led to a diminishment in value of their property. However a landlord also may be able to seek termination of an agreement during the lease, on the basis that that the tenant has failed to meet their obligations to undertake repairs and maintenance work.

If the Government really wants to improve security for tenants there is a much easier way (and yes, we've talked about this before) - they need to look at changing the current provisions in NSW tenancy legislation that mean tenants can be evicted for no reason. Because it's clear the costs of long fixed term tenancies are just too high.

Running repairs? The cost of longer term tenancies: part 1

Recently we reported on a round table meeting convened by the Minister for Innovation and Better Regulation (which includes Fair Trading) to discuss options for longer term residential tenancies. One of the ideas that was kicked around at the round table was that if landlords agreed to offer longer term leases they should get something in return – for example, tenants taking on the responsibility for repairs and maintenance of the premises.

We don’t think tenants giving up their established right to repairs is a very good idea.

In general housing available to renters is of lower quality than housing for owner occupiers. It is more likely to be in need of repairs, and almost three times more likely to require ‘essential and urgent’ repairs (ABS 2002).

So renters who trade away their right to repairs, if allowed, should generally expect that they will need to front up for repair costs through the year. But how much?

Estimating repair costs for a rental property is not an easy ask – the age of the house, size, fixtures, and number of people who might be living in it all need to be taken account of.

Property management ‘experts’ advise landlords to put aside funds for repairs and maintenance costs each year. They offer a range of methods to calculate what this amount should be, including for example:

• a percentage (e.g. 5%) of rental income 
• ‘the 1% rule’, i.e. a percentage of the value of the property 
• ‘the square metre’ rule (putting aside say $10 for every square metre) 

Following these methods, if a tenant was considering how much to put aside for repairs for this recently listed Kogarah rental – a 2 bedroom house on a 300m square block of land, advertised for rent at $550 a week, and estimated to be worth around $900,000 - they’d be looking at around:

• 5% of rental income: $1,430 annually 
• 1% of value of property: $9,000 annually 
• ‘Square metre rule’: $3,000 annually 

These methods of estimation assume that while the tenant may not spend the full amount one year, they might be up for higher costs the next (or vice versa). Note the significant variance in the figures above. Despite this, experts do not recommend any one method above another - reinforcing the point that there is no clear or reliable method for predicting what repair and maintenance expenses might be. The only thing that a tenant can confidently predict is that as the property and the fixtures within it age, repair and maintenance issues will come up more often. And they may cost more to fix.

Alternatively a tenant could look at how much has previously been spent annually on repairs for rental homes. The most recently available data on this is from the Australian Tax Office from 2013 – 2014. It indicates that around 75% of NSW landlords did repairs to their rental properties during this period and on average they spent around $1,200 (if you are keen to look at these numbers in closer detail you can download the 2013 - 2014 ATO tax statistics on rental income here). This tells us how much landlords claimed as deductible repair expenses during this period (so a rough guide to how much was actually spent by landlords over the year), but might not be the most accurate indicator of how much should have been spent on repairs each year.

Renters often call up their local Tenant Advice and Advocacy Service because their landlord is avoiding or attempting to minimise the amount they spend on repairs for a rental property. Perhaps a more accurate figure then comes from an older source – the ABS Australian Social Trends report on ‘Housing Stock: Housing condition and maintenance’ from 2002. This reports that on average an owner-occupier household spent $1960 each year (i.e. this is the amount home owners spent repairing the home they live in). Allowing for inflation this would suggest tenants could more reasonably expect to pay around $3,115 every year on repair and maintenance costs.

These figures are averages. So while some tenants who agreed to take on repair costs during their tenancy might expect to pay less, some could be facing considerably more.

Of course, tenants will be hit harder by repair costs than their landlords were. Repairs undertaken by landlords for a rental property can be claimed as a deductible expense against a landlord’s taxable income – so landlords effectively pay less to repair the property than a tenant would.

And the impact of taking on repair costs in tenancies would not be felt equally by all tenants. Low income tenants would be disproportionately hit by repair and maintenance costs. They generally rent older, lower quality housing - but while their housing or the fixtures within it might be of a lower standard, it won’t necessarily cost them any less to repair or maintain the property. In fact they will likely face repair and maintenance costs more frequently, and have to pay more for these repairs (ABS 2002).

Let’s look at some common scenarios regarding repairs while renting. What could each of these end up costing a tenant?
                                             
Problem: Your phone line or internet is playing up        

Costs start from: Phone technician (Telstra?) call out costs start at around $150

Problem: Toilet clogged up or leaking
Costs start from: Plumber call out costs start at around $150

Problem: Gas oven won’t light
Costs start from: Electrician call out costs start at around $150

Problem: hot water system’s broke
Costs start from: Electrician call out costs start at around $150

Problem: Cockroaches start creeping out of the woodwork
Costs start from: Professional pest control packages start from around $149

Problem: Lock not locking
Costs start from: Locksmith call out costs start at around $135

These are just the starting costs. In each example a spare part, or additional labour could be required. Perhaps a fixture (dishwasher, ceiling fan, oven, etc) needs to be replaced altogether – so just start adding on the dollars from there.

Many tenants are already close to or at their budget limit for housing costs in rent (especially given the current lack of affordable rentals across NSW). Tenants may not have the financial resources to attend to repair and maintenance issues as and when they occur. Perhaps not even for the duration of their lease. Instead they may be forced to live with housing in a state of disrepair throughout the remainder of their lease, and then be hit up with a very large bill to complete these repairs when they move out.

Tenants certainly want more security. They want stability so they can confidently make a home for themselves and their family in their rented housing. They shouldn’t be forced to trade away established rights at considerable cost just to get this.