Monday, September 24, 2018

What you need to know about renting reform in NSW: Part 1

This week saw the introduction of the Residential Tenancies Amendment law reform. Overall it attempts some very positive things, with only a few parts we quibble with. Unfortunately it's effectiveness will be let down as it does not address the fundamental imbalance in our renting laws caused by unfair 'no grounds' evictions. We support the bill being passed, but with amendments to ensure the reforms can do their job. The Make Renting Fair campaign is asking supporters to email key members of the Legislative Council to ensure the reform is effective and fair.

But let's take a closer look at the bill and what it will mean for renters in NSW. Here's five of the biggest changes. We'll return with the remainder of the proposals in Part 2 and Part 3.

Domestic Violence provisions

We will leave this to our phenomenal colleagues at Women's Legal Service who have led the way on these reforms. They said in their media release the following.

These are the ways the Bill will make a significant difference in the lives of domestic violence  victims-survivors:

Victims-survivors of domestic violence will be able to terminate their tenancy immediately without penalty when they provide a domestic violence termination notice to the landlord and each other co-tenant.

The notice must also include evidence of domestic violence which includes:

a domestic violence order, or
a personal protection injunction under the Family Law Act, or
a copy of a certificate of conviction in proceedings against the relevant domestic violence offender for the domestic violence offence, or
a declaration by a ‘competent person’ as prescribed by the regulations. A ‘competent person’ includes only medical practitioners.

Perpetrators of damage to property will be liable for that damage. A victim of violence or another tenant who is not the relevant domestic violence offender will not be liable for damage to residential property caused during the commission of a domestic violence offence.
A victim-survivor of domestic violence who terminates their tenancy by providing a domestic violence termination notice cannot be listed on a residential tenancy data
[base] list.

While we would have liked the reforms to have gone even further with an expanded list of ‘competent persons’ beyond just medical practitioners being able to provide evidence of domestic violence through a declaration, the reforms included in the Bill are a major step forward and we believe will make a significant difference in the lives of domestic violence victims-survivors and their children.

We at TUNSW agree with the Women's Legal Service.

Minimum standards

Currently landlords are required to provide premises in a state that is 'fit for habitation'. However, what constitutes 'fit for habitation' is not defined and it can be quite hard to work out what it does mean.

The proposal before government is a start on clearly defining what fit for habitation might mean. The government's proposal is a good first step and includes some features which moves to reflect a modern understanding of fit for habitation.

Premises must be structurally sound, which means if the floors, ceilings, walls, supporting structures (including foundations), doors, windows, roof, stairs, balconies, balustrades and railings:

(a) are in a reasonable state of repair, and
(b) with respect to the floors, ceilings, walls and supporting structures—are not subject to significant dampness, and
(c) with respect to the roof, ceilings and windows—do not allow water penetration into the premises, and
(d) are not liable to collapse because they are rotted or otherwise defective.

Other requirements are to ensure premises:
- have adequate natural light or artificial lighting in what we might call living spaces, such as bedrooms, living rooms and kitchens.
- have adequate ventilation, and
- are supplied with electricity or gas and have an adequate number of electricity outlet sockets or gas outlet sockets for the supply of lighting and heating to, and use of appliances in, the premises, and
- have adequate plumbing and drainage, and
- are connected to a water supply service or infrastructure that supplies water (including, but not limited to, a water bore or water tank) that is able to supply to the premises hot and cold water for drinking and ablution and cleaning activities, and
- contain bathroom facilities, including toilet and washing facilities, that allow privacy for the user.

Our recommendation

In order to really create homes which are fit for habitation we also recommend including requirements to ensure there are:
- adequate cooking or food preparation facilities,
- adequate laundry facilities,
- adequate waterproofing in bathroom, kitchens, laundry areas,
- free from infestation by vermin, mould or other biotoxins,
- adequate insulation and weatherproofing.

Many people are also often surprised that there is no obligation to ensure premises are safe apart from things which are legislated elsewhere like smoke alarms. This could be fixed up in a number of ways, but one of the simplest is simply to insert safe into the current obligation (section 52) so that it become: “A landlord must provide the residential premises in a reasonable state of cleanliness, safe, and fit for habitation by the tenant”.

As a first step, parliament should pass this current proposal but we would support amendments to the bill to make it even stronger and more effective.

Fairer 'break fees' for leaving tenancies early

Occasionally tenants find that for work, personal or other reasons they can't maintain the contract until the end of the fixed term. When they leave, there is compensation payable for breaking the contract early - known as 'abandonment'. The current system is a confusing, two-tiered one which often has no relationship with the actual costs to the landlord of the tenant leaving early.

Currently landlords choose one of two compensation systems. They can choose a 'break fee' of either 6 weeks or 4 weeks (depending whether abandonment occurs in the first or second half of the agreement) as a fixed compensation.  Alternatively they can rely on a compensation scheme which comprises of rent until new tenant moves in, advertising, any relevant agents re-letting fee. This method involves adjusting the fees depending on how far through the contract the tenant is, as well as 'mitigation of loss' for landlords not attempting to raise the rent or being overly picky about choosing new tenants knowing that the outgoing tenant is picking up the tab while they choose.

Ensuring the proper amount is charged requires a lot of time and effort by the outgoing tenant.  At the moment, landlords choose whichever one they think will get them the most money.

The proposed change is to require the tenant to pay a fee more closely related to how far through the contract they are. Either, 4, 3, 2 or 1 weeks rent as a penalty depending on which quarter of the agreement (up to 3 years) they are in.  This is much closer to the real costs experienced by landlords once costs are considered in Tribunals.

Our recommendation

We think this much better reflects the average costs payable in 'abandonment'. It does have downsides for tenants who are in high demand areas - they may well pay more in break fees than under the 'compensation' scheme. However we think this is a fair trade for the certainty in not having to keep a close eye on the property once you've left and fighting unfair compensation claims in the Tribunal. A tenant's time and energy should be respected!

This proposal should be passed without change.

Changes to rent increases

Currently in NSW the rent can be increased at any time outside a fixed term, and can seek any amount. It is up to the tenant then to dispute whether the increase is excessive. Often this is very difficult as most of the information required to dispute an increase is in the hands of the real estate industry who may well charge for access. Not only is the landlord or agent more likely to have the funds to pay for the information, but this is an expense that can be written off as a tax deduction by the landlord or agent. Tenants on the other hand, are simply out of pocket.

The government is proposing two changes - one representing a little step forward, and one representing a step back.

Rent increases in periodic agreements will only be able to be increased once every 12 months. This is a good step on its own terms as it provides much more certainty about when increases will come. However, there are two issues - first, that it does not address the information asymmetry, and second that it does not apply to fixed term agreements. A landlord wanting to use rolling 6 months agreements will be able to increase the rent every 6 months.

Indeed the second change makes this issue even worse. In some contracts, landlords or agent write a future rent increase into a fixed term contract of less than 2 years. So long as the date and amount of increase is included, the government's proposal is that the landlord will not have to then issue another rent increase later on. Currently, very few landlords offer leases of more than 12 months (other than the state's biggest landlord - FACS - which generally offers 5 or 10 year leases, without break fees).

A landlord who wants to avoid the 12 month restriction on rent increases in periodic will now be incentivised to move to rolling short fixed term leases, which allows more frequent rent increases. The Minister, Matt Kean, claims one reason they have not acted on no grounds evictions is that retaliatory rent increases are the bigger issue for tenants. We might disagree about which has a bigger impact, but if it is true, these two proposals taken together mean tenants are still very much vulnerable to retaliatory rent increases.

Our recommendation 

Rent increases should be more balanced in two key ways. A time restriction on rent increases should apply regardless of the contract term and be restricted to 12 months since the beginning of the tenancy or the last increase.

There also should be a sharing of the onus of proof around excessive increases. Where the landlord wants to increase the rent above a fair marker, like the Consumer Price Index, we think it's reasonable that they should provide the evidence to support the claim. If the increase comes in at or below CPI, then the tenant can choose whether or not they agree with the claim and demonstrate the evidence for why the property doesn't meet that level. This is a far more equitable approach. 

As a first step, Parliament should pass this current proposal but we would support amendments to the bill to make it even stronger.  

Repairs inspectors assess the need for repairs and make rectification orders

This change would see Fair Trading take a much more active role in repairs processes. At either the tenants or landlords request, an investigator will attend the premises to assess the repairs and make rectification orders. If the rectification order is not followed the Tribunal can make further orders and penalties may apply.

While this idea has potential, its success will mostly rely on whether it is adequately funded - especially for tenants in regional areas where wait times could potentially render it unusable. Where the funding comes from will also be crucial - it would be unacceptable for it to come from the Rental Bond Board whilst Tenants' Advice and Advocacy Services remain grossly underfunded and have been told for many years there is simply not enough money (despite there being a $60million surplus!).

Our recommendation 

We really need to see a more concrete details around how this plan will be implemented - it has capacity to be a game-changer or a dead rubber. It is certainly worth giving a chance.

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