2.4 Exemplary Damages and Unlawful Acts
Exemplary Damages, Unlawful Acts and powers of the Regulator - overview
So far, we have covered some of the basic aspects of the RTA, looking at what rights and responsibilities parties have to each other. But what happens if things do not go according to plan and there is a breach of RTA?
By now you would have heard us mention that particular breaches of the RTA are an unlawful act. What does this mean and what are the potential consequences?
2.3 Rights and Responsibilities
Overview
In this section of the module, we look at the rights and responsibilities of both the tenants and the landlords. Rights and obligations of the parties involved in the tenancy are covered between section 36 and section 66 of the RTA. With the passing of the Residential Tenancies Amendment Bill 2020, we have seen significant updates that do strengthen tenants rights. We cover some of these updates here.
2.2 Rents and Bonds
Overview
For a residential tenancy to be in place, the rent will be paid by the tenant to the landlord or the landlord’s agent, for the use of the property and the land that comes with the property. This is typically in the way of money. There can be plenty of confusion in terms of rent being paid if both parties are not fully clear on certain aspects. These can include the following.
- What is the rent period being charged?
- What day is rent due?
- How should rent be paid?
- How often does the rent get paid?
- What has to be written on the Tenancy Agreement?
Under Interpretation, Section 2 of the RTA it states that ‘rent means any money, goods, service, or other valuable consideration in the nature of rent to be paid or supplied under a tenancy agreement by the tenant, but does not include any sum of money payable or paid by way of bond’.[1]
Sections 23 through to 35 of the RTA cover different aspects in regards to rent.
Then there is the bond. Under Interpretation, Section 2 of the RTA it states that the bond means any sum of money payable or paid under a tenancy agreement as security for the observance and performance of the tenant’s obligations under the agreement and this Act; but does not include any sum payable or paid by way of rent.[2]
This means that if the tenant does not perform in their duties and responsibilities at the end of the tenancy, the bond may be used to cover the costs associated in remedying this.
Sections 18 through to 22E covers legislation in regards to the bond.
Again, there are strict rules with regards to what you can and cannot do in terms of collecting a bond from the tenant. We will come onto this later.
For starters, we will look at what rent is, how and when it can change and how to read a rent statement.
2.1 Tenancy Agreements
Overview
This is the foundation document that any relationship between a landlord and a tenant is built around. There are strict rules that must be adhered to when establishing your contract. No matter if you are a landlord or a property manager, you have to have a strong understanding as to what you are producing and asking the tenant to commit to.
You also have to be aware of what cannot be put into a Tenancy Agreement as putting unlawful clauses that are outside the Residential Tenancies Act can be costly and get you into trouble.
Before any tenancy commences, a Tenancy Agreement between the tenants and the landlord should be written up and signed by both parties. A Tenancy Agreement is a contract between a landlord and a tenant, recording all the key things that a landlord and a tenant have agreed to about the tenancy. The agreement must comply with the RTA which is the key piece of legislation that both parties must work with.
All Tenancy Agreements need to be in writing and signed by both parties and every party to the agreement should receive a copy. This is stated under section 13 of the RTA, Form of Tenancy Agreement. Failing to have a Tenancy Agreement in place is now considered to be an unlawful act with exemplary damages of up to $750 being able to be awarded. However, even if there is no Tenancy Agreement in place, the Residential Tenancies Act will still apply.
In this lesson, we will look at what you can and can’t put into a Tenancy Agreement plus what happens if situations change throughout the duration of the tenancy such as rent increases or the property sells?
We will also look at the different types of Tenancy Agreements and also some common mistakes that we see landlords and property managers make.
When doing your research around Tenancy Agreements, sections 12 to 16B of the Residential Tenancies Act come into play and for Boarding Houses, section 66C to 66F apply. We will also look at section 137 of the RTA as this covers Prohibited Transactions. More about this later. For now we will look at the basics of a Tenancy Agreement.
1.4 What do tenants want?
What do tenants want?
Tenants today are far more aware of their rights. It is unacceptable that a tenant who requests a repair has to wait months on end to get anything done and unfortunately, this happens all too often.
Yet, as tenants become more aware of their rights through education, expect them to put more demands on landlords and Property Managers. If tenants feel as though their rights are being breached, it would be best to first talk to their landlord to see if they can resolve the issues. Only in extreme cases of negligence and intentional breaches would we recommend to a tenant that they exercise their rights through the Tenancy Tribunal. They should always try and resolve the issues first with the landlord.
1.3 The cost of being a landlord
Overview
Planning is an essential ingredient to the success of any business. Being a landlord is no different and some of the most common mistakes you will see in property investment is due to a lack of understanding. This does not just relate to knowledge around legislation, it also relates to financial planning and understanding the true cost of owning a rental property.
1.2 Property Investment Jargon
Why do we need to know about Property Investment?
Whether you are a landlord or a property manager, you will need to have a basic understanding of how property investment works. This includes understanding some of the terminology used around property investment.
If you are a landlord, you are in business and you need to be competent in understanding how the financial aspect of being an investor works. This will include but not be limited to the following.
- Understanding the difference between net yield and gross yield
- Understanding the costs involved in owning a rental property
- The impact interest rate changes will have on the property
- The importance of budgeting
Likewise, for a property manager to understand the basic needs of a landlord, they too must understand how property investment works. If you have a basic understanding of certain aspects of property investment, you will be in a far better position to understand the requirements of your consumer and improve the level of service that you provide.
Unfortunately, not many property managers and landlords understand and appreciate the importance of this.
Although landlords have a responsibility to provide compliant and safe accommodation for their tenants, they are not social workers and are not landlords for the good of the community. It is about wealth creation whether it be through capital gains, a return on investment or both.
So without further ado, let's take a look at some of the key terminology that you are likely to come across.
1.1 What is a residential landlord?
What is a residential landlord?
A landlord is typically the owner of a property who rents it to an individual or a business. However, the landlord is not always the owner of the property. The keyword to describe a landlord is the grantor of the tenancy. The people who rent the property are called tenants. There are many reasons why people become landlords. Usually, people choose to be a landlord, mainly for the purpose of investment. The landlord owns the property and the tenant pays rent for the right to reside at the property.
In the case of residential rental properties, private landlords are accommodation providers and provide a necessary service to New Zealand as many individuals and families rent.
A landlord can be described as follows:
Individual(s) or entity that provides accommodation for persons who cannot afford or do not want their own home. Those people will pay an agreed sum of money in the way of rent to the landlord. People who do this are known as tenants. When a tenant enters into an agreement with a landlord they are entering into a Tenancy Agreement. Rent will be stated clearly on the Tenancy Agreement and the tenant must pay rent either weekly or fortnightly, depending on what it says in the agreement.
Examples of a landlord are;
- Kainga Ora (formerly HNZ), owned and administered state housing
- Mum and Dad investors with one rental property
- A company set up by shareholders that own rental properties
- An investor who is looking for a return on capital or capital appreciation