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.

MyHousing Online - public housing goes digital

It’s taken a while but FACS Housing is catching up with the 21st century and are getting more of their services and forms online. At the end of October they launched MyHousing, a ‘suite of online services’ that mean people can now go online 24/7 to:

• apply for housing 
• manage their accounts (rent and utilities) 
• pay accounts 
• and request repairs (lodge non urgent maintenance requests). 

You enter MyHousing via the front page of FACS Housing’s website. The ‘look’ of it is reasonably familiar, with the main interface a little bit reminiscent of the myGov portal - though transitions through to specific pages from the initial interface are a little clunky. The ‘Accounts and Information’ pages follow the same design style and logic as Centrelink’s online self service portal. Importantly – because just over 40% of public housing tenants reported no internet connection in their homes in the 2011 Census (ABS 2011) – MyHousing is generally mobile friendly.

Since MyHousing launched on the 31st of October it has had a fair bit of traffic. Over 1000 online housing applications have been submitted, and another 500 are ‘in progress’. Just over 400 clients have registered to access and manage their accounts. Most (80% of visitors) have been looking at ‘Accounts and Information’ to view their rent ledger or utilities accounts, but many (50% of visitors) are also taking the opportunity to update their current contact details. Some have already made use of the ‘e-payments’ facility where you can make rent, water and other payments online with BPAY and internet payments.

Of course you can still do all of these things in real life at a local office. Payment of rent and utilities or other debts can still be done at Service NSW offices. And maintenance requests, general enquiries and - since the middle of this year - applications for housing can all be done over the phone.

FACS reports that the feedback they’ve received from users about MyHousing has been good. Users have told them the online application form is easy to use and that they’ve had a positive experience on the Accounts Information page. The TU has also heard from tenants that the accounts information, and in particular the rent ledger available online, is much clearer than the paper version tenants generally receive (you can actually tell if you are in credit or arrears - which is useful!).

And there is more to come. Eventually all Housing forms will go online, and additional online ‘services’ will be added. FACS is also looking into developing a mobile ‘app’ with a range of functions that could include things like sending reminders or alerts, providing updates on the progress of applications, linking applicants to Link2Home and temporary accommodation, updating info, and repairs requests.

We’re glad to see that FACS is moving in this direction – and that the team behind the online upgrades seem genuinely committed to design that is ‘fit for purpose’ and makes life easier for people engaging with FACS Housing’s various processes. They’ve reached out and have been engaging with community groups from the sector, and have also said they are keen to hear feedback from tenants – current and future.

If you’re a tenant in social housing or have recently applied for housing (or you’re an advocate or worker and have assisted someone who has used MyHousing) we’d love to hear what you think …