Property management is a complex area of real estate practice – and, with the regulatory framework so vast, it can be hard to keep up with all your obligations. That’s why, in each edition of the Journal, we’re breaking down common problem areas and giving you the resources you need to practice effectively.
The facts about MATERIAL FACTS
All properties have a past – and, from time to time, there may be something from that past that will impact a tenant’s decision to make the property their home. So what ‘material facts’ need to be disclosed when a property with a past comes up for lease?
So often when the words ‘material fact’ are uttered it’s in relation to the disclosure of information to potential buyers. It’s easy to forget that the issue of material fact also arises in connection with residential tenancies. But it definitely does.
It’s fair to say that a lot of people don’t want to live in a home were something unpleasant has occurred. For example, if a violent crime has been committed at the property or a previous tenant has passed away, there are many people who would object to making it their home. Ongoing occurrences like excessively noisy neighbours can also be off-putting.
Perhaps it would make no difference to you, but for countless potential tenants with cultural, religious or superstitious beliefs, it can be an important consideration. This is what makes the issue of ‘material fact’ so difficult.
“By way of example, the fact that a previous tenant has died in the property or there are major repairs planned in the future may be important considerations for one person, but completely irrelevant to another,” Tiana Mueller, Director at MMJ Real Estate, said.
“Added to this, as property managers, we can only disclose what we know. If our landlords don’t tell us, we’re not in a position to disclose relevant information to the tenants.”
Prescribed material facts
Section 26 of the Residential Tenancies Act 2010 (NSW) sets out that a landlord or their agent must not knowingly conceal a prescribed material fact to induce a tenant to enter into a residential tenancy agreement.
Further, clause 8 of the Residential Tenancies Regulation 2019 (NSW) prescribes the following as material facts:
- Flood and bushfire – Where the property has been subject to flooding or bushfire in the preceding five years.
- Health and safety risks – Where the property is subject to significant health or safety risks that are not apparent to a reasonable person on inspection of the premises (for example, the presence of lead paint).
- Asbestos – Where the property is listed in the Loose-Fill Asbestos Insulation Register.
- Violent crime – Where the property has been the scene of a serious violent crime within the preceding five years.
- Drugs – Where the property has been used for the purposes of the manufacture or cultivation of a prohibited drug or prohibited plant within the meaning of the Drugs Misuse and Trafficking Act 1985 (NSW) within the last two years.
- Waste – Where council waste services will be provided to the tenant on a different basis to other residential properties in the area (for example, where the tenant is required to pay for council bins or domestic waste services)
- Parking – Where, because of zoning or other laws relating to the development of the land, the tenant will not be able to obtain a residential parking permit in an area where only paid parking is available (for example, where a condition of a development consent is that the permit will not be made available for a strata apartment).
- Driveways and walkways – Where there is a driveway or walkway on the property that other people are legally entitled to share with the tenant.
- Strata repairs – Where rectification work or major repairs are scheduled (including the replacement of roofing, gutters or fences) to be carried out to common property during the fixed term of the residential tenancy agreement.
- Cladding – Where a fire safety order or building product rectification order has been issued (or there is a notice of intention to issue either order) regarding external combustible cladding, or where a development application or complying development certificate application has been lodged for rectification regarding external combustible cladding.
Always disclose
“One of the biggest issues we face when it comes to material facts is that we don’t know what we don’t know,” Tiana said. “We can only disclose the things we know about and there will always be some landlords who are not forthcoming about certain things relating to their property.
“That’s why it’s necessary to ensure that your landlords understand the importance of disclosing material facts. If they don’t disclose something to you, then you can’t disclose it to the tenant. If the tenant finds out later, they can walk away with only 14 days’ notice.
Tiana said that the list of prescribed material facts set out in clause 8 of the Residential Tenancies Regulation provides clarity for property managers. However, there will undoubtedly be occasions where facts not prescribed should be disclosed.
“It’s best practice for property managers to disclose as much as possible,” she said. “If in doubt, always disclose. If you feel something may alter a tenant’s decision to rent the property, you should let them know.
“It’s always better to over-disclose, rather than under-disclose”
Best practice tip
Familiarise yourself with the prescribed material facts set out in clause 8 of the Residential Tenancies Regulation and advise landlords of the need to disclose material facts.
How?
Use REINSW’s SF003 Material Facts Disclosure Statement (available via REI Forms Live) to help with ensuring that the landlord makes any relevant disclosures. The completed statement also serves as a record on file as to whether there are or are not any material facts to disclose.
Case study
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While clause 8 of the Residential Tenancies Regulation prescribes certain material facts to be disclosed, it’s not uncommon to come across other facts that may impact a tenant’s decision to make a property their home. From noisy neighbours or limited on-street parking to the fact that the previous tenant passed away in the property from natural causes.
Unfortunately, during my time as a property manager, I’ve had a number of tenants pass away in their rented property during the term of their lease.
While the legislation does not impose any obligation to disclose this to potential tenants, I’ve always erred on the side of caution and passed the information on. The reality is that, more often than not, the tenants will find out what’s happened – for example, from a neighbour mentioning it in passing – and, from an ethical point of view, I’d rather they hear it from me, rather than from someone else.
Each time I’ve disclosed this sensitive information to potential tenants, they’ve been appreciative that I’ve let them know in advance.
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TIANA MUELLER, Director at MMJ Real Estate and a member of the REINSW Property Management Chapter Committee.