Rallying our response for residential tenancies reform

March/April 2016 edition

As the NSW Government conducts the five-year review of the Residential Tenancies Act, REINSW harnessed the collective knowledge and experience of members to craft its case for reform.

By Christopher Carey

The residential property market in NSW is entering a new era. There are now more than 820,000 residential rental households across the state, and demand for quality rental accommodation is set to rise over the coming years as more and more people move to NSW. Landlords, tenants and property managers need residential tenancy laws that respond to the market’s contemporary needs and strike the right balance between flexibility and certainty.

The Residential Tenancies Act 2010 introduced significant changes to the regulation of residential tenancies in NSW. Now, a little more than five years on, it's time to review the Act with a view to ensuring the right laws are in place to manage future developments in this vital area of real estate practice.

In June 2015, knowing that the mandated five-year review of the Act was imminent, the REINSW Property Management Chapter Committee took the decision to get ahead of the game. They formed a dedicated sub-committee to comprehensively review the Act and recommend changes. By the time the government’s Discussion Paper was released at the end of October 2015, the sub-committee had already compiled a detailed list of recommendations. Drawing on their own collective experience of more than 150 years in property management, the sub-committee also sought input from REINSW’s wider membership.

REINSW submission

REINSW used the sub-committee’s work to form the basis of its submission in response to the Discussion Paper. Due to the many months of work by the sub-committee, the resulting submission not only addresses the specific points set out in the Discussion Paper, but goes much further. It provides the government with a detailed account of the changes that need to be made to the Act to ensure fair and equitable outcomes for all parties involved in a transaction.

Following is a summary of the just some of the recommendations set out in REINSW’s submission, which was lodged at the end of January 2016. You can view the full submission at reinsw.com.au/submissions

Thanks to the sub-committee

REINSW would like to take the opportunity to extend a sincere thank-you to the members of the sub-committee. Their tireless efforts and dedication over many months provided REINSW with the best possible foundation for our submission to the government.

Tim Anderson
REINSW Life Fellow

Gary Triganza
Property Manager at Miles Felstead Realty

Sandra McGee
Rental Manager at Starr Partners

Kellie Eagles
Proeprty Management Directo at Elders QUeanbeyan/Jerrabomberra

Lyn Kimball
Director and Property Manager at Fitzpatricks Real Estate

Christopher Carey is the REINSW Membership Manager and co-ordinated the Property Management Chapter sub-committee’s review of the Residential Tenancies Act 2010.

Holding fees

At present, there are a number of issues that can arise for landlords in connection with the acceptance of holding fees.

One issue is that a holding fee currently binds the landlord to the approved applicant, but does not bind the approved applicant to the landlord. The landlord is effectively obliged to take the property off the market, but the applicant can withdraw their application at any time before the agreement is signed. This means that the landlord misses the opportunity to consider other potential tenants during the holding period.

Another issue is that accepting a holding fee prior to an existing tenant vacating the premises can leave the landlord liable to pay temporary accommodation costs for a new tenant if the property is not vacated on the agreed date.
These issues need to be resolved in the revised legislation.

Recommended: If the holding period exceeds seven days, the holding fee should be able to be increased to the equivalent of a maximum of 14 days’ rent.

Recommended: If a holding fee is accepted prior to the existing tenant vacating the premises, the fee should be subject to the existing tenant vacating (as the tenancy agreement will not be able to be signed until after the tenant vacates). A holding fee equivalent of a maximum of 14 days’ rent should be payable in these circumstances.

Recommended: If the approved applicant fails to sign the tenancy agreement within the seven day holding period or by the original agreed signing date (whichever is earlier), the landlord can give notice that the property is being placed back on the market. In such a case, the holding fee will be forfeited by the approved applicant.
 

Rental bonds

Without doubt, there are aspects of the bonds regime that need to be modernised to meet the needs of the current marketplace.

Maximum bond amount

The current maximum bond of four weeks’ rent does not provide for an equitable balance between the landlord and the tenant. Legislation in other states recognises that there are circumstances where a higher bond is necessary.

Recommended: The legislation should provide for the ability to apply a bond of six weeks’ rent where the premises are furnished or the rent is more than $450 per week.

Bond top-up

Where a tenant has leased a property for a number of years, the bond will no longer be in line with the market. This creates difficulties for landlords who need to carry out repairs at current market prices when the tenant vacates.

Recommended: A bond top-up option be allowed where a tenant has occupied a premises for more than three years. This not only protects the landlord, but also the tenant by ensuring no financial hardship or surprise in relation to the bond amount when finding a new premises.

Pet bond

Prospective tenants with pets are often overlooked by landlords.

Recommended: To level the playing field for all prospective tenants, a pet bond should be introduced. Prospective tenants regularly offer to pay landlords a pet bond, even though the legislation does not currently require it.

Balancing the rights and obligations of landlords and tenants

There are a number of areas in the current legislation that would benefit from further clarification in order to produce a fairer outcome for landlords and tenants.

Tenant’s right to quiet enjoyment

The current section 50(3) requires a landlord to take all reasonable steps to ensure the tenants of neighbouring properties do not interfere with the quiet enjoyment of the tenant. It is unreasonable to expect a landlord to influence and change events, environmental conditions and behaviours over which they have no control and then penalise them for failing to do so. REINSW believes that further clarification is required.

Recommended: An additional sub-section be added to the effect that the landlord is not responsible for their tenants’ quiet enjoyment being impacted from neighbouring properties where the landlord does not own the neighbouring properties.

Safety obligations
The obligations of tenants with regard to safety need to be clarified.

Recommended: Additional clauses should be added to the standard tenancy agreement to clarify tenants’ obligations in relation to vital safety issues such as smoke alarms, swimming pools, window safety locks etc. These additional clauses should require the tenant not to interfere with any safety installations on the premises and require them to advise the landlord if there is an issue with a safety matter on the premises. REINSW has provided draft clauses for consideration in its submission.

Termination notice periods

No grounds notice

Currently, when a landlord gives a 90-day no grounds notice of termination, the tenant is able to vacate the property immediately. This can leave the landlord with no opportunity to find a replacement tenant and having to bear the associated costs.

Recommendation: The tenant should be required to give at least 21 days’ notice if they wish to vacate before the expiry of the 90-day period.

Termination of fixed term tenancy

The disparity in notice periods in the case of a fixed term tenancy needs to be addressed. Whereas a landlord has to give 30 days’ notice, a tenant can move out with 14 days’ notice.

Recommendation: The minimum notice period for both parties should be changed to 21 days.

Early termination by tenant

The current section 100(1)(c) is a constant source of confusion and needs clarification. The section protects tenants, on the assumption that all landlords are devious.

Issues arise when a landlord’s circumstances change after a lease has started and the landlord needs to sell the property. The section has the effect of allowing tenants to terminate the lease where the landlord has exchanged the contract for sale, subject to the tenancy. This can cause the landlord to be in breach of the contract, losing the purchase and possibly having to pay damages to the prospective purchaser.

Recommendation: In the interest of fairness to both the landlord and the tenant, the section needs to be redrafted.

Termination by tenant for breach

In relation to termination by a tenant for breach by the landlord, it is essential to consider the nature of the breach. Is it persistent, significant or serious?

Recommendation: In order to create the scope for the parties to resolve any issues, section 98(1) needs to be amended so that termination is only permitted if the landlord’s breach related to an essential or material term of the tenancy agreement.