Unlawful dwelling case highlights the risks to landlords

Tenancy Tribunal ruling is a wake-up call as landlord tries to contract out of their responsibilities

As we face a year of unprecedented change, a small but highly important law change last year will have a major impact on landlords and Property Managers and we are not talking about Healthy Homes or insulation. Back in August 2019, we witnessed the passing of the Residential Tenancies Amendment Bill No 2. Although this bill is better known for changes to tenant liability following the Osaki case, the passing of this bill witnessed another significant change. It gave the Tenancy Tribunal jurisdiction to make rulings on any premises used as a place of residence including unlawful dwellings. Sleepouts, converted garages and additional dwellings on land without a separate title all fall into this category. There are many landlords who have extra dwellings such as self-contained sleepouts which will also likely have consent. However, can a landlord rent out a separate dwelling that is on a title with another property? And are landlords able to contract out of RTA?

If we follow the ruling made in a recent Tenancy Tribunal case, apparently the answer is no.

Lobarinas v Zhan: Trying to contract out of the RTA and what constitutes a tenant?

A great example of this change in legislation is the complex Tenancy Tribunal case of Lobarinas (Tenant)  v Zhan (Landlord) which took place in December 2019. This recent case highlights the significance in the changes of legislation and provides an excellent example of how a landlord attempting to contract out of the Residential Tenancies Act (RTA) simply backfired.

The background of this Tribunal case is as follows.

  • The landlord (Ms Zhan) rented out a separate dwelling which was attached to the main dwelling which Zhan lived in. This was not done under a Residential Tenancies Agreement but instead done as a House Sharing Agreement meaning that Ms Zhan was attempting to contract out of the RTA.
  • Zhan argued that the occupant (Mr Lobarinas) was not a tenant but instead a flatmate.
  • Zhan collected a bond but failed to lodge it with Tenancy Services.
  • Zhan gave 42 days notice to Lobarinas as her daughter was coming to reside at the premises over the Christmas period.
  • The extension to the dwelling was consented but not as a separate household or title.
  • Lobarinas lived in the separate dwelling without access to the main household. The dwelling also had a separate meter for electricity. 
  • Lobarinas argued that he was a tenant and not a housemate and the notice that the landlord gave him to vacate was incorrect.

The case brings a number of alleged breaches of the RTA and some interesting questions. Alleged breaches include renting out an unlawful dwelling, giving incorrect notice to vacate, failing to lodge the bond, a breach of quiet enjoyment and contracting out of the RTA. 

When is a household unit an unlawful dwelling?

This case becomes more interesting as it asks and establishes the following three key questions.

  • When does a person residing in property become a tenant?
  • What is an unlawful residential dwelling?
  • Can a landlord contract out of the RTA?

Lobarinas argued that he was induced to enter into a ‘House Sharing Agreement’ in an attempt by the landlord to contract out of the RTA. However, because Lobarinas lived in a separate household unit and there were no shared common facilities, he was a tenant and not a housemate. Therefore, the notice he had been issued to vacate was invalid and the normal provisions of the RTA applied.

The adjudicator agreed with Lobarinas and awarded damages against Zhan. Adjudicator Hogan correctly concluded the following breaches had occurred.

  • Lobarinas was, in fact, a tenant and not a housemate. This is because the premises was separate to the main dwelling. Lobarinas never had access to and could not share the facilities of the main dwelling. Therefore there were two separate dwellings on the one title.
  • The RTA defines residential premises as “any premises used or intended for occupation by any person as a place of residence, whether or not the occupation or intended occupation for residential purposes is or would be unlawful”. This was Mr Lobarinas’s home and as such, the RTA applied. 
  • Although the extension had consent, it did not consent as a separate dwelling. The title showed only one dwelling. Because of this, the adjudicator ruled that this was an unlawful residential premise.
It is essential that landlords have the correct consents in place before they rent out their properties. Tribunal has been given plenty of power.

This meant that Zhan’s attempt to contract out of the RTA had failed. For Ms Zhan to continue to rent out the separate dwelling in the future, she would have to obtain consent from the local council as there was a change of use to the premises. This is stipulated under section 115 of the Building Act

It could have been worse!

It could have been worse for Ms Zhan. The adjudicator could have issued a work order against the landlord to get consent but chose not to do so. This brings into play an entirely new section of the RTA. Section 78A is about orders that Tenancy Tribunal has the ability to make in regards to unlawful dwellings. A worst-case scenario here could have been that Zhan would have had to have paid rent back to the tenant and Tribunal could have issued a Work Order meaning that the landlord would have to go to the council to get the correct consent. They could have also had to pay significant money to the tenant in exemplary damages as the landlord had breached their responsibilities and had committed a prohibited transaction which is a breach of section 137 of the RTA.

This did not happen. The landlord only had to pay $2,055.44 which was made up of general damages for stress and quiet enjoyment, compensation for two invalid vacate notices and exemplary damages for failing to lodge the bond. 

What probably helped Ms Zhan was that Lobarinas indicated to the adjudicator that the premises were in fact very comfortable. The adjudicator explained to Ms Zhan that she could use a House Sharing Agreement but this meant that any occupant must have full access to the entire premises and not just the separate dwelling. As things stand, the premises could not be rented out again until consent had been issued.

Click here to view the case

Lessons to be learnt

In conclusion, there are multiple lessons for landlords and Property Managers when examining this case. If you have a converted sleepout or a separate dwelling that you want to rent out, you must ensure you do the following.

  • Make sure the premises have the correct consent and are on a separate title. Section 45.1(c) of the RTA states that the landlord must comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the premises. Therefore if the premises do not have consent the landlord is in breach of their responsibilities. Penalties for this are not insignificant and are only going to increase when proposed changes to the RTA are passed and become law.
  • You cannot contract out of the RTA. Section 11 of the RTA states any attempt to enter into an agreement between a landlord and a tenant that is inconsistent with the RTA will have no effect. Also, by writing clauses into a Tenancy Agreement that are classed as prohibited transactions, the landlord is potentially committing an unlawful act.
  • As there was a Tenancy Agreement in place the landlord had given incorrect notice to the tenant as the daughter to Ms Zhan was only temporarily staying at the premises. It was not their principal place of residence. They had also failed to lodge the bond within the appropriate timeframe. 
  • You can get a housemate but you cannot restrict them to a separate dwelling, they must have use of the entire premises.
  • If the landlord wants to put it on short term accommodation platforms such as Airbnb or Bookings.com, then they are free to do this as the RTA would not apply. However, expect local authorities to become more diligent with policing and taxing these accommodation providers as the increase in Airbnb is contributing to a shortage of stock.

So, can a landlord contract out of the RTA?

The simple answer is no. If you are going to rent out a dwelling, always ensure that you have the correct consents to do so. If you are unsure, do not rent it out without proof. Getting it wrong can be a costly mistake with dier consequences for both Property Managers and landlords.

I am often critical of the Tenancy Tribunal process and around inconsistencies that we see in some of the orders, but in this case, I think the adjudicator got this correct. This case is a great example of what can go wrong when you take short cuts. Don't get caught out.


Tenancy Tribunal reform required as no cause termination debate looms

Tenancy Tribunal. Everywhere I go on my travels around this great country, it is the one topic that always gets hotly debated amongst Property Managers and landlords. There is always plenty of emotion that goes with the territory as well. Comments such as “We are having to wait months for our hearing” or “The adjudicator is biased’ are common complaints that I hear. Others are less critical however the consensus of opinion appears to be that Tribunal does favour tenants though these are just opinions and there have never been any conclusive studies done to prove that this is the case.

One thing is for sure, wait times are frustratingly long. Too long, and if the Coalition Government push through reform such as the removal of the 90-day no-cause termination notice, meaning that in many occasions, you will have to go to the Tribunal to get a ruling, they are likely to increase further, and that is going to be unacceptable. If you have to go to Tribunal and wait for six to eight weeks to remove the antisocial tenant, and even then, your going to need sufficient evidence to do so, more small-time ‘Mum and Dad’ investors may leave the market at a time when we desperately need more landlords as rental stock plummets increasing rents further.

With approximately 600,000 rental properties in New Zealand, there are a staggering thirty to forty thousand Tenancy Tribunal applications every year with approximately 50% of them making their way to the Tenancy Tribunal. That means if you take the average length of a tenancy being two years and three months, approximately 10 to 15% of all tenancies will have a dispute worthy of an application to the Tribunal.

Who makes the applications?

Unsurprisingly, it is the landlord who is making the vast majority of the applications. In 2018 over 85% of all applications were made by the landlord and so far year to date up to the end of June, those numbers remain consistent.

But if you take away rent arrears which make up approximately 70% of all applications, you start to get a picture that there are an equal amount of applications and disputes between landlords and tenants.

There are over 50 Tenancy Tribunal adjudicators in New Zealand operating in 38 different locations. This means on average, adjudicators will make rulings on approximately 300 cases per year.

From a Property Management or landlord perspective, going to the Tribunal is a costly and time-consuming exercise, particularly when waiting times can be for so long. From a tenants perspective, you will automatically have second thoughts about taking a landlord to Tribunal as your name will show up in Tenancy Tribunal orders that are publicly available. 

So what can be done to speed up the process and improve the consistency of rulings? 

And what about the jurisdiction of the Tribunal? Do we need to review how it works and what powers it has? How is it monitored for consistency as in many cases I see, the decision-making process seems to vary considerably as to who is making the decision and whether it is against a landlord or a tenant?

This article is by in no way a criticism or beat-up of the Tribunal, more a recommendation as to how it can evolve. We are fortunate to have a disputes resolution process that is both accessible and affordable with Tribunal orders being made public. But with all things in life, change is a constant and the Tenancy Tribunal is no different. Is it too much to ask to get wait times down to two to three weeks for basic disputes and with more serious cases such as matters around health and safety, antisocial behaviour, assault and wilful damage, why not aim to get this down to within a week?

We believe that this is a possibility but it will need radical thinking and change to make this possible. Change in Government departments is typically slow with so much bureaucracy that you have to navigate. It is like a giant cargo ship in the ocean having to change direction so don’t expect change to come quickly.

So, without further ado, we look at a number of reforms that the Tenancy Tribunal should undertake.

  • Removal of rent arrears only cases from Tenancy Tribunal

This is something we have been talking about for over 12 months. As stated earlier, approximately 70% of Tribunal hearings will have a component of rent arrears. Let’s assume that over 50% of these cases are arrears only. If arrears only cases were taken away from the Tribunal, you would remove over one-third of Tribunal hearings and this alone would be lead to a vast reduction in hearing times.

How can we make this work without jeopardising tenants rights and keeping the process fair and transparent?

We think we have found a solution that will protect the rights of tenants and landlords alike.

Firstly, you have to acknowledge what the Tenancy Tribunal is and what its purpose is for. It is there to resolve disputes between landlords and tenants that relate to the Residential Tenancies Act. Now ask yourself this, are rent arrears a dispute or are they more a matter of fact?

There are plenty of grey areas and reasons for disputes between landlords and tenants but rent arrears is not one of them. It is one area that is black and white. You have either paid your rent on time, or you haven’t. Therefore there is no dispute.

How we see this working

It is a complete waste of time for both the landlord and the adjudicator for rent arrears only cases. Typically, the tenant will not even turn up for the hearing and it is more a case of putting a seal on an order. 

An alternative solution is to make rent arrears applications remotely without having to go to Tribunal. On or after the 21st day of the tenant becoming in arrears you simply send the application through with possession and termination automatically granted to the landlord. The landlord would have to send evidence across to prove this is the case. Rent statements, arrears notices, a copy of the Tenancy Agreement and an address for service for the tenant would likely be required. Under section 55 of the Residential Tenancies Act (RTA), the Tribunal shall make an order terminating the tenancy if the Tribunal is satisfied that the tenant is at least 21 days in arrears. 

A remote adjudicator would ensure that the information is correct and write out the orders ending the tenancy and granting possession back to the landlord. Tenants have to be given the right to reply and defend themselves. So the termination and possession order will be granted to the landlord no later than 10 working days from the date of the decision. This gives the tenant the opportunity to seek a rehearing if they can prove that there has been a substantial wrong or miscarriage of justice. This is clearly stated in section 105 of the RTA under Rehearings.

If the tenant can prove that this has happened, then a Tribunal date will be set within 10 working days of the original decision. Either way, you will limit the risk to the landlord to approximately five weeks rent arrears.

If the tenant cannot prove this, the order stands and the tenancy will end. We estimate that there are approximately five to six thousand cases a year like this so there would be a reduction of about 120 cases a week going to the Tribunal. Two remote adjudicators could handle that workload between them.

  • Track and measure decisions to improve consistency

With so many Tribunal orders being made every day, we believe that to help improve consistency, the decisions that adjudicators make should not only be monitored but also measured. With small data comes big opportunities and the Tribunal is no different. 

It would be hugely beneficial for adjudicators to measure their decisions against other adjudicators. If there are inconsistencies between adjudicators then it would be easily identifiable through this process.

It will also give clarity as to how adjudicators decide who is liable when a ruling is made against a Property Manager. Too often, we see rulings made against a Property Management company when they actually have done nothing wrong. Examples of this are around maintenance or non-compliant properties. The owner is responsible for maintaining the premises and too often Property Management companies face exemplary damages because of the actions of their owners. We highlighted this back in our April article, who is liable?

How do we do this?

With over 15,000 decisions being made by over 50 adjudicators, it will be easy to track the performance of each adjudicator and compare their decisions. You will categorise each decision, for example, rent arrears, damages, cleaning and exemplary damages and you will be able to benchmark decisions based on case type, location and adjudicator.

Such a system would identify any inconsistencies in decisions that adjudicators make but more importantly, we would have an excellent tool to educate not just adjudicators, but both tenants and landlords on what likely decisions the Tenancy Tribunal will come up with on certain cases.

Too many applications will be made based on raw emotion rather than fact. Having such a tool in place will mean that applications will typically be made based on factual evidence and case history rather than one party getting wrapped up in emotion and taking matters too personally.

  • Allow anonymity of the applicant

With the Privacy Act being talked about so much within our industry, we believe it is time to ensure that applicants should be able to remain anonymous. Likewise, if you are the defendant and you have had no ruling made against you, you should also have the option if you wish to remain anonymous.

It is in the public interest to have bad landlords and tenants identified however if they have done nothing wrong or they are a victim then is it really in the public interest to have them identified?

As an example, I have a family member who lives in Wellington and is paying a huge amount of rent for what can only be described as a slum. He has shown me pictures of mushrooms growing in the bathroom, rot, mould and damage to the property through fair wear and tear. This two storeys two apartment flat will be earning approximately $1300 a week in rent and I have spoken to the occupants, explaining their rights. However, they are very reluctant to make a claim as they do not want this to hinder future applications for rental properties.

I can well understand this as any prudent Property Manager or Landlord will do a Tribunal search on applicants. 

Tenants should be encouraged to take recalcitrant landlords to the Tribunal without fear of retribution or how it could impact their renting future. Likewise, often Property Managers are named in orders and this can be deeply distressing for them. It can also be a concern for their safety as sometimes decisions are made that they have little control over and they find themselves named in the media and sometimes subjected to online abuse and threats. 

This is totally unacceptable but unfortunately, it is systematic of the world that we live in. Safety and wellbeing have to be the number one priority.

  • Exemplary damages are out of date. Change them.

We believe that penalties that the Tenancy Tribunal can award do not go far enough and have to evolve. Many of the penalties or, as they are known under the RTA, exemplary damages, have not changed in nearly a decade. As rents have increased over the last 10 years, it would make sense that exemplary damages should increase as well.

They are also geographically biased as well. The median rent for Remuera is $730 yet for Gore in Southland it is only $260. Is it fair and reasonable that the landlord or tenant in Gore pays the same fine as the tenant or landlord in Remuera?

We believe that penalties need to be stiffer. Also, we need to take into consideration the amount of rent that is being charged when making decisions. Instead of having a fixed dollar amount, we believe a fairer system would be to base exemplary damages on a percentage of the annualised rental income. For example, the landlord is breaching his or her obligations under section 45 of the RTA, have maximum exemplary damages of 40% of the annualised rent. 

This would ensure that landlords would be severely hit financially if they purposely breached the act. Is a $4,000 penalty really a harsh punishment when a landlord rents out an unlawful premise that is infested with mould and dampness causing the occupants to become sick?

Stiffer penalties will ensure that landlords are more likely to maintain their properties and therefore we should see a reduction in applications by tenants over time. Bad landlords will be exposed and weeded out.

  • Exemplary damages for wilful damage to the premises

Finally, we find it unbelievable that a tenant can smash up a rental property and not face any exemplary damages or criminal prosecution. Section 40 of RTA under Tenant’s Responsibilities does state that tenants cannot intentionally or carelessly damage, or permit any other person to damage the premises. However, if they do this it is not considered to be an unlawful act and exemplary damages cannot be awarded.

This is ridiculous. I can go out onto a street and smash up a neighbours car and I would rightfully face criminal prosecution. However, as a tenant, I can smash up a property and only be liable for the repairs. This is often a lot less than the true cost of repairing the property as adjudicators have to take into account depreciation.

Tenants who wilfully damage the premises that they are renting should also face sanction and severe penalties through the Tribunal. Too often, the mental and financial strain that this causes to landlords is not taken into consideration. Tenants need to know that the consequences of such actions will hit them financially hard and this should prove to be enough of a disincentive to carry out such obscene behaviour.

If tenants are fully aware of this, then we again should see less damage caused to property resulting in fewer Tribunal hearings.

The 90 days no-cause termination. What shall become of it?

It is going to be the most hotly contested debate around the RTA reforms when this Government finally announces them. With all the well-intentioned ideas that the Coalition has, the reality is that ideology alone does not always make good policy. 

We have already seen one ridiculous Tribunal case where a tenant has taken HNZ to Tribunal, trying to get a full refund of rent of up to $26,000. This was after he was sent a written apology and paid $7,000 in compensation after being removed from a rental property which he contaminated following a police raid that discovered evidence of a Methamphetamine lab. The fact that he had the audacity to waste taxpayers money shows that there will always people who will simply not play by the rules and take advantage.

Safety must be the number one priority

Landlords have to have the ability to remove bad tenants quickly. They also should not need to obtain evidence from scared or intimidated neighbours to do so. Likewise, no Property Manager should ever have to tolerate abuse or threats. In a case highlighted in the REINZ weekly publication to its members, a tenant was for some inexplicable reason granted a rehearing after the Property Manager applied for eviction even though the Property Manager could provide evidence of abuse and threats through text messages. 

Safety and wellbeing must come first. If Tribunal can guarantee that cases such as antisocial or aggressive behaviour will be heard and actioned against within seven days of an application, without the need to get statements or evidence, then I would support the removal of the 90 days no-cause termination. A Property Manager taking oath in Tribunal should be sufficient evidence. Is it really worth risking your job over to get rid of a tenant you simply don't like?

If they cannot do this, then the status quo must remain. Tenants have plenty of rights and giving notice through retaliation already comes with a strong penalty. Maybe including this statement into a Tenancy Agreement is the way to go so tenants are fully aware of their rights.

There is no silver bullet to reducing applications, however, we should set a target to do so. It is in everyone’s interest to have a fast, transparent, fair and consistent Tenancy Tribunal process. Let’s hope that this can start a discussion in ways to speed up the process.

David Faulkner

 


Burnout: Why the Property Management industry is facing a crisis

  • Shortcuts by landlords and tenants exercising rights lead to a crisis within the industry

  • Well being and safety are major concerns as demands increase

“It’s getting ridiculous!” these are the comments I hear from an experienced Property Manager as I walk into the office of a company in Wellington. “I’ve had enough!” The business owner looks at me and asks ‘Is it just us going through this?” 

I answer her, “No, it's happening everywhere”.

A few hours earlier, I received a message from a client in the South Island. They were losing their best Property Manager. She has simply had enough. She was sick of dealing with landlords complaining about all the work that they are being forced to undertake and also dealing with tenants, many of which now had a sense of entitlement. ‘I’ve spoken to Tenancy Services and know my rights!” She wasn’t leaving for another job, she had simply had enough and the straw that broke the camel's back was a call from an abusive landlord. These are not isolated cases.

It is happening every day and our industry is staring down the barrel of a crisis. A crisis created by too much change happening too quickly leading to an increasing shortage of rental properties, with many small Mum and Dad investors leaving the market leading to an over-inflated increase in rents. A crisis self-created by the Property Management industry, as a deregulated industry, consumed by an oversupply of Property Management companies, undercut each other in an attempt to secure business. This has led to a drop in fees meaning that the Property Manager has to manage too many properties to make the business worthwhile, which in turn leads to staff feeling underpaid and overwhelmed with high staff turnover.

Do not get me wrong, tenants should stand up for their rights if they feel that they have been exploited. However, there are more and more cases of people exploiting the system. The abuse that comes with this has intensified and conditions for property managers have probably never been tougher. 

Many people are now leaving the industry and new people who enter the industry struggle to cope - shocked by the intensity of their role, they often leave after six months.

Greater demands on landlords following through to Property Managers

As rents have increased disproportionately due to demands placed on landlords by the Government, the demands of tenants have increased as well. This has played into the media's hands. Many tenants have highlighted their plight in the media, creating a victim mentality amongst many. Tenants have a far better understanding of their rights and are not afraid to exercise them. We have absolutely no issue with tenants justifiably standing for their rights and in many cases, we implore tenants to do so. However, we now have a situation where many tenants are exploiting the system, trying to secure a windfall $4,000.

In my time working within the Property Management industry, I cannot recall a time when conditions have been so bad for Property Managers working up and down the country. Many of them give their all, working in what can at times feel like a thankless industry. The demands of the job have increased dramatically over the last two years. This has largely been created by increased legislation and changes in the political landscape. However, there are other demands as well. 

As the rental crisis increases, our industry has come under intense scrutiny from the media as they lap up stories from Tenant Advocate groups and individuals trying to make a name for themselves. Journalists constantly seek news stories and troll Tenancy Tribunal orders, looking for shock stories which lead to more and more tenants looking to exploit the system.

Evidence of this is the tenant who recently won a Tribunal case due to the Property Manager insisting that the carpets of her rental needed to be cleaned. Is a case that is worth $90 in carpet cleaning really worthy of making national news?

Then we get a further crass piece of journalism from the Property Management industry’s greatest fan, Rebecca Stevenson. Yes, we all remember Rebecca, with her Spinoff article Why property managers are terrible – for everyone. This time, she makes the accusation that the only reason carpets are cleaned by Property Managers is so we can take our cut.

The sad case is, although there are always things that we can improve on, the Property Manager was doing what she believed was the right thing to do.

Then there is the abuse and sometimes, threats of violence.

The case in question led to abusive comments on social media and a very good Property Manager left feeling distraught. Yes, mistakes were made and it could have been handled differently, however, she was only trying to do the right thing by her owner. Making money was the last thing on her mind. Doing the right thing for the landlord and trying to protect the asset was all she was trying to achieve.

What wasn’t reported in the media was the sterling work this company does for their local community and the money it raises for charities such as Daffodil Day and Breast Cancer Awareness. But that isn’t newsworthy.

Threats of violence and abuse in our industry are getting worse.

Only a fortnight ago I listened to a Property Manager, telling me she had to put up the rent on a West Coast property after instructions from the landlord, only to receive a threat from an associate of the tenant warning that “she can expect a brick through the window of her family home.” Should anyone have to tolerate threats like that?

Earlier this year, I heard from an anonymous business owner who had her office set on fire allegedly by the tenant, after refusing to extend a tenancy due to the abuse one of her property managers received. This case is under police investigation.

Everywhere I go around New Zealand, I see the depressing signs of tired Property Managers who no longer have the energy, desire or will to deal with the increasing demands of the job. 

Landlords are putting more and more unfair demands on Property Managers as too many try to dodge and avoid or work around changes in legislation that leaves Landlords and Property Managers open to sanction. Some just simply bully their Property Managers into submission. Property Managers have spent years advising landlords on multiple occasions in terms of their legal responsibilities yet even at this late stage, many landlords still simply ignore these demands.

Then there is the incessant whining. 

“They won’t even turn the heat pump on! Why should I install it?”

“I’m putting up my rents by $40 a week!”

“Get them to clean the mould, they are creating it!”

In the near future, we expect to see more changes being announced in terms of protecting tenants, such as the removal of no cause evictions. But before Government announces this, we want them to stop and think.

It has been nearly two years since Natanya Campbell and her mum Wendy Campbell Rodgers were killed when they were making a property inspection in Northland.

Nothing has changed

In July 2017, Property Managers Wendy and Natanya Campbell turned up at one of their rental properties with contractor Jeff Pipe. Jeff had been instructed to install smoke alarms at the rental property to ensure that it was compliant under the Residential Tenancies Act. It seemed something wasn’t quite right as it is a little unusual for two Property Managers to turn up with a contractor for such a basic job. As they approach the property, the tenant, Quinn Patterson, opened fire on the party, killing both Wendy and Natanya Campbell and injuring Jeff Pipe.

The event sent shockwaves throughout the Property Management industry though unfortunately many, myself included, were not entirely surprised.

Now, nearly two years on from these tragic events, I ask myself have we actually learnt anything?

The simple answer is no. If anything, things have become worse and unfortunately, it would not surprise me if these tragic events happened again. 

So I finish with this. The average Property Manager in New Zealand knows that they will have to deal with conflict, it is unavoidable and part of the job. But abuse, threats and ridicule through social media is not in the job description. The number one priority of our industry should be to protect the thousands of people up and down the country who just want to do a good job. Look after them and they, in turn, will look after you.


Tenant selection turned into a lotto draw

  • Ill-conceived guidelines poorly thought out by Privacy Commissioner

  • Potential lotto draw for tenant selection created

As if we didn’t have enough to deal with!

Ten months on from the infamous story of the ‘KFC Test’ for tenants making the headlines, the Office of the Privacy Commissioner (OPC) dropped yet another bombshell on an industry that continues to find itself struggling to cope with the amount of change thrust upon it.

This month, without prior warning or involvement from industry organisations such as REINZ or IPMA, the OPC released new guidelines that Property Managers and landlords should adopt when selecting a new tenant.

Their advice, if followed to their recommendations, almost turns tenancy selection into a lotto draw. Want the property? Just put your name in the hat, don’t worry about it, you never know your luck.

As Bindi Norwell, CEO of REINZ stated, guidelines are good. However, there are discrepancies and she was also critical that as a body, they were not consulted with before the release of the OPC guidelines.

 

Tenancy selection could become as basic as drawing a number out of a hat.

Why do we have new guidelines?

Last year, as the letting fee ban was making its way through Parliament, Property Manager Rachel Kann made an oral submission to the select committee. When asked about how the Government could assist with tenants, her suggestion was around budgeting.  She stated that she identified the poor spending habits of prospective tenants. This information was provided to her on bank statements of prospective tenants provided to her when applying for a property. According to Rachel, KFC seemed to be more of a priority to some of her prospective tenants than paying fines and rent. Unknown to Rachel, NZ First MP Darroch Ball who sat on the select committee, was not impressed by her admission and in August last year, he released a copy of the recording of her submission to the media.

The news made national headlines and yet again our industry was projected into the spotlight. It also alerted to the OPC practices around tenancy selection and they naturally had concerns. Jon Duffy, Assistant Privacy Commissioner at OPC, highlighted in an article in August 2018 that landlords and Property Managers may be asking for too much information.

The consequences of this are a potential breach of the Human Rights Act and the Privacy Act. There are serious penalties for breaching both of these acts.

Unknown to everyone within the Property Management industry and apparently also to Tenancy Services,  OPC had been working on new guidelines that landlords and Property Managers need to follow when selecting tenants. When the guidelines were released on the 14th of May, it certainly raised more than a few concerns with some believing if followed to their recommendations, it turns tenant selection into a lotto draw.

"Privacy Principal One:- Purpose of collection of personal information

Personal information shall not be collected by any agency unless

(a) the information is collected for a lawful purpose connected with a function or activity of the agency; and

(b) the collection of the infortmation is necessary for that purpose."

What is in the new guidelines?

OPC released the guidelines to help clarify questions that they were receiving following ‘KFC’ gate, one wonders how many questions they received. However as is often the case, releases such as this sometimes bring up more confusion and questions rather than clarity.

GUIDE TO PRIVACY COMMISSIONER GUIDELINES

OPC has categorised three different groups as to what information you can collect before deciding whether you will select a tenant.

  • Always Justified
  • Sometimes Justified
  • Almost never Justified

They then go on to state the information that you can collect after you’ve selected the tenant.

What set alarm bells ringing was some of the items that fall into the never justified category. Many of which are commonly obtained.  Also, seeking income verification and or a credit check report is only sometimes justified. Try telling that to the landlord who had a tenant with a bad credit rating default on rent.

All of a sudden, the following items that are often stated on a Tenancy Application Form have become almost never justified.

  • Driver licence number (Drivers licence as proof of ID)
  • Nationality or citizenship (Passport as proof of ID)
  • Marital and family status (names of applicants include children)
  • Gender (look at the name and ID, pretty easy to figure this one out!)
  • Details about current accommodation
  • Employment history and status (looking here at the proof of income and stability)
  • Age (proof of ID and in contradicts section 14 of the RTA)

Look at the majority of Tenancy Application forms, particularly from the big companies such as TPS and Tenancy Tracker, if you are applying for a property to rent, you will always have to submit the information that is almost never justified.

Tenant selection will become increasingly complex if the new guidelines are enforced by Tenancy Tribunal

Confusion reigns as lack of consultancy hinder guidelines

Reviewing this, what is always or sometimes justified to be obtained by potential tenant conflicts with what is never justified to obtain. Let’s look at some examples.

Name and proof of ID: This is categorised as always justified.  you are free to ask for name and proof of identity. However, how can you verify someone’s ID if you cannot obtain the most common forms of ID?

  • You cannot ask for a Driver’s Licence number (an official form of ID)
  • You cannot ask for nationality or citizenship (that rules out passports!)
  • You cannot ask for age so this will rule out all forms of official ID.

Martial and family status: By filling out an application form, you will be naming who will be residing at the property and naturally, applicants will be by default, telling you if they have children or are married. Knowing the age of children is a default requirement for any prudent Property Manager and landlord as you should be stating how many people can reside at the property.

Current income verification: This is alarmingly only sometimes justified. To verify income, you will be either declaring that you are on a benefit, you are a student, or you will be providing a payslip. So, by doing this, you are by default obtaining someone’s employment status.

Name and contact information of current landlord: You are always justified in collecting information with regards to their current landlord, however, you cannot obtain information about the current accommodation and rent.

With regards to the later, you can imagine your conversation with the tenant’s landlord. How do you verify who the landlord actually is without checking the current address?

The prospective tenant could put anyone as their current landlord and you simply have to take the tenants word for it. By verifying that the landlord is who they say they are, you will be breaching OPC guidelines.

Credit check? only sometimes!

Amazingly, according to the OPC, a credit check on a prospective tenant is only sometimes justified. This, to me, seems ridiculously short-sighted. In the last 12 months, we have seen over 13,000 Tenancy Tribunal hearings and one-third of these involve rent arrears. If we did not do credit checks on prospective tenants, then this number would potentially increase. There is simply no point in putting a tenant into a property if they cannot afford to pay the rent and creditworthiness is a vital component of tenant selection.

Rent arrears management starts at tenancy selection. When I was first placed in a position to run a rent roll, arrears management were a real issue. Approximately 20% of tenants were in arrears meaning one in five tenants were behind on rent. We introduced two policies that helped reduce arrears.

  • Introduction of a zero tolerance to arrears. If you missed one week, we applied to Tribunal. No exemption.
  • Introduction of 100-point criteria around tenant selection. This was based on the following.
    • Proof of ID (now never justified)
    • Proof of Income, this is typical WINZ statement or payslip but you could provide a bank statement to verify income. (now never justified)
    • Verification of current address (now never justified)
    • Professional or current landlord reference (cannot seek information on current employment so now never justified)

The results of introducing this policy were stunning. Within 5 years of implementing these policies, in the final calendar year, we had collected over 99.7% of all rent due.

The importance of proof of income

I cannot stress the importance of verifying a prospective tenant’s income. This is not just for the landlord’s benefit; it is also for the tenants. There is no point in putting a tenant into a property that they cannot afford. The outcome can be financially and emotionally crippling for all parties involved. If you cannot verify their income then, we are not only exposing landlords to unnecessary risk, we are exposed tenants to the risk of bad credit and history in Tenancy Tribunal and losing their home.

Property Managers would work under the instructions that no tenant should be accepted for a property if the rent was more than 40% of their net income. If it was more than this, the tenants simply could not afford rent and by placing them into a property showed a lack of care and responsibility on behalf of the Property Manager for all parties.

By neglecting this policy, it would expose the company to litigation as we had not carried out proper due diligence in our tenancy selection process. Landlords with ‘Loss of Rent’ insurance policies would not be able to make a claim as we had been negligent in our tenancy selection and landlords would hold the company responsible. Rightfully so!

Application forms for tenants from Victoria, Australia are not justified according to our Privacy Commissioner. They ask for age, employment status, salary.

Getting the balance right

There is no doubt that guidelines will help landlords and Property Managers to implement best practice policies around tenant selection, however, a collective discussion involving all the industry stakeholders, whether they be private or public, would have been a far more favourable process. What we now have is confusion and uncertainty created unnecessarily so.

Yes, improvements can and should be made. This also involves how we obtain references. If you are providing a reference, how do you know prospective tenant gave permission allowing the landlord or Property Manager authority to do so? I’ve no doubt that there are breaches of the Human Rights Act and the Privacy Act when we do select tenants, however, this is probably more likely through negligence rather than anything more sinister. A collaborative approach would have been far more beneficial.

Now, we again have an industry looking at each other, scratching our heads and wondering where to go from here.

We have obtained Tenancy Application forms from Australia including their official application form from REIWA. We also have application forms from the UK to compare to see if we are asking for too much information. They currently are asking for exactly the same information as we are. So are they breaching current legislation as well?

OPC should have engaged the industry in designing these guidelines. The confusion that they have created could have easily been avoided.

Regards

David Faulkner

 


Who’s Liable when the Tenant claims? Property Manager v Landlord

  • This month we ask for clarification on who Tribunal should hold responsible for breaches by the landlord

  • Potential increase in tenant claims could lead to millions being awarded in exemplary damages

Who’s liable? It is a very simple question when a tenant makes a claim to Tribunal, yet somehow, no one seems to be able to give a definitive answer. When a Tribunal makes a decision in favour of the tenant, and money has to be paid to the tenant in way of compensation or exemplary damages, who is responsible?

Expect to see more tenants taking their landlords and Property Managers to Tenancy Tribunal post 1st July. The question we are asking is if they are in breach, who should pay?

For years now, I have followed decisions that come out of Tenancy Tribunal. They make for great case studies to use in training Property Managers. We read the documents to assess how the adjudicators came to their conclusion and how they interpret the law. However, in the years that I have researched cases, it seems like it is a lottery as to who has to front up with the penalty. It is more relevant now than ever, especially after the Tenancy Compliance and Investigation Team (TCIT) have made it perfectly clear who they are going after. They are targeting the Property Management companies and are of the belief that they should pay.

With the 1st July 2019 deadline approaching for insulating your rental property, we are expecting to see some opportunistic tenants waiting to pray on unsuspecting or simply pure arrogant landlords who haven’t ensured their properties are compliant and insulated to the new standard.

Tribunal cases set for an increase?

This could lead to a surge in Tenancy Tribunal cases as tenants, quite rightly, exercise their rights. The carrot of being awarded $4,000 in exemplary damages is a substantial one and I would encourage tenants to do so if their rental property is non-compliant. It’s not as if landlords haven’t had time, they have had three years to get properties insulated and ready. Yet clearly, we are not going to have our entire rental stock ready by 1st July 2019. We predict as much as 10% of rental properties will not be insulated and this is approximately 60,000 houses. That is $240 million of potential exemplary damages.

So before this deadline hits, we want to get clarity as to who should pay and we have a few questions that need answering.

  • Who is liable - the landlord, the Property Management company, or is it both?
  • Are decisions assessed on a case by case scenario, allowing the adjudicator to make the call on the day?
  • What is the protocol that adjudicators follow in making these decisions?

Let’s start with the first question. Who is the landlord?

The best place to start is to look at some of the key sections and interpretations within the Residential Tenancies Act.

We should all know that the Property Manager acts as Agent for the Landlord, it should state this on the Tenancy Agreement. But, what does that mean?

Section 2 of the RTA defines the landlord as follows.

“in relation to any residential premises that are the subject of a tenancy agreement, means the grantor of a tenancy of the premises under the agreement; and, where appropriate, includes—

  • a prospective landlord; and
  • a former landlord; and
  • a lawful successor in title of a landlord to the premises; and
  • the personal representative of a deceased landlord; and
  • an agent of a landlord

So, by signing a Management Authority with the owner of the property, the Property Manager becomes the agent of the landlord. Therefore, according to the RTA, the Property Manager becomes the landlord.

Straightforward enough, but does that mean that the owner of the property has abdicated all care and responsibility to the agent? Of course not, they are the owner of the property and therefore they are a business owner making them the principal of the business. This means they have responsibilities not just under the RTA but under many pieces of legislation including the Health and Safety at Work Act.

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A principal of any business cannot abdicate full responsibility to a third party and ultimately, they are responsible for the performance and compliance of the property. In the case of a Property Management company, they physically cannot make a landlord comply, as many are finding out trying to get a small percentage of landlords to insulate their properties without success. Along with all the other day to day tasks that a Property Manager undertakes, they also act as an advisor and consultant to the owner of the property.

The issues we have faced with insulation is a prime example. Most landlords with properties under management would have arranged/agreed for their properties to be fully insulated and compliant by now. However, there is a small percentage of landlords who simply have ignored requests from Property Managers. Why should a Property Management company face exemplary damages of $4,000 when they have done everything in their power to get the landlord to comply?

I have never been convinced that it should be the Property Management company who carries the burden when a landlord ignores a recommendation and potentially exposes the agent to risk. Sometimes I feel as though there is a temptation for adjudicators to target Property Management companies as they are an easy target.

We see many different cases where adjudicators make decisions on who is liable for damages award to the tenant.

However, I do also understand why TCIT would target Property Management companies. It will make them think twice about managing non-compliant properties.

In order to help us get some clarity into where the liability falls we have reviewed two cases where the Property Management companies are held jointly liable but for two completely different reasons. We also highlight a third case where the landlord is liable and not the Property Management company, even though both are named on the application. This highlights the inconsistencies that can occur in Tribunal.

Case History: Mendez-Gray v Jennes and Realty Link Taupo T/A LJ Hooker

One of the main reasons I feel that this is a major issue that needs resolving is because of the mixed messages we get out of Tenancy Tribunal. This case in particular highlights what needs to be stated on the Tenancy Agreement to remove the liability of the Agent and put it firmly with the Principal.

In the height of the Methamphetamine scandal, one case stands up and needs further examination.

In August of 2016, LJ Hooker had to pay Elena Mendez-Gray the sum of $6,788.44. The background of the case was that the landlord had seemingly known that her property was likely to be contaminated with Methamphetamine but had not disclosed it to the Property Management company. Subsequently, the tenants found out that it was over the legal limit set at the time of 0.5 micrograms. The tenant’s won the claim.

Adjudicator D Malcolm ordered both the landlord and LJ Hooker to pay the tenant.

However, in the order, Adjudicator Malcolm exonerates LJ Hooker of any wrongdoing. What LJ Hooker did wrong was that they declared themselves as the landlord on the Tenancy Agreement and not the agent for the landlord. The adjudicator then goes on to state that in common law, where a contract names the agent and discloses the principal, there is a prima facie rule or presumption that only the principal can sue and be sued. However, due to the fact that LJ Hooker did not disclose that they were acting as an agent for the landlord, this made them jointly liable.

Case History: Lovell v At Homes Rentals Ltd and Turner

In this case, At Homes Rentals Ltd and Turner had to pay Lovell $3,870.44 in exemplary damages and compensation for a number of breaches of the RTA.

The case was held in Tauranga in April 2018 and the adjudicator was J Smith. In the order, adjudicator Smith gives a lengthy summary on who is the actual landlord and who should the damages be awarded against.

In his summary, the adjudicator states that in common law the primary rule is that an agent who acts purely as an intermediary for a principal is not a party to the contract between the principal and the other party. In this situation, the agent cannot sue or be sued on the contract.

However, the adjudicator then quotes a section from the book Residential Tenancies: The Law and Practice by David Grinlinton.

“Often real estate agents manage the landlord's property, and in such case, proceedings would normally be taken in the name of the landlord rather than the agent. However, where an agent's name appears on the tenancy agreement as the landlord, the agent may be jointly and severally liable with the landlord, and proceedings may be brought directly against the agent. Such liability may be avoided by including the words "as agent for" or "on behalf of" (the landlord)".

The adjudicator then goes on to explain the definition of a landlord as stated in section 2 of the RTA. In the definition, we stated earlier the words ‘where appropriate’ appear. Smith argues that ‘where appropriate’ was specifically written to suit residential tenancy cases. So, where an agent signs a tenancy agreement for the owner and is fully engaged in the day to day management of the tenancy, the agent will usually be a landlord for the purposes of the RTA, particularly where the agent’s action or inaction is part of the tenant’s claim. In these circumstances, the agent may sue, and be sued by the tenant.

Clear as mud!!

Case History: Knowles v Blue Ribbon Realty Ltd and Jordan

In December 2018, the tenant of a Te Awamutu property won compensation as the landlord had failed to maintain the property as it was cold, damp and suffered from a mould issue. The carpet was rotting due to water damage and the tenant also provided evidence of gaps in the ceiling, letting in daylight.

Adjudicator Lang awarded $2,250 to be paid to the tenant by the owners of the property Magda and Brett Jordan and not Blue Ribbon Realty Ltd. In the final statement, Adjudicator Lang states that the party who is liable for maintenance failures is the owner of the property. Therefore they have to pay the sum award and not the agent.

Consistency and clarity required

This is no criticism about how adjudicators interpret cases, they will each have their own views and clearly, they will not always agree. However, from a Property Managers point of view, it is an area that certainly needs clarification so everyone knows where the liability falls moving forward. This surely is not too much to ask.

If a Property Management company faces exemplary damages of $4,000 post 1st July and that company has done everything in its power to get the landlord to comply, it could be a worthy exercise as an industry to invest in a bloody good lawyer. They could then to argue in an Appeal to the District Court that Tenancy Tribunal is wrong and all exemplary damages and compensation should be awarded against the principal. Even if the appeal failed, at least we would know where we stand.

Principal Tribunal Adjudicator Melissa Poole. It would be great to get clarification from her as to who is ultimately liable.

This is highly unlikely to happen but it is one way we could move forward and it would finally clarify who pays. No doubt, post 1st July we will find out how Tenancy Tribunal will rule and whether they will be consistent.

What we would recommend

I may not be a lawyer, but when you have researched a topic for a number of years, you do get to grasp a good basic understanding of how the RTA works. This, however, is an area I am still trying to find an answer to. I've even asked adjudicators after attending Tenancy Tribunal hearings if they can clarify who is liable. Hopefully, we can get clarity before the 1st of July kicks in.

What I believe should happen is as follows.

  • The common rules of basic law apply. The agent should be exempt from being sued by the tenant as they are acting as the agent. They are not the principal.
  • If the Property Management company is negligent in how they have operated, then this becomes a matter between the principal (the landlord) and the agent (Property Management company). The principal can then lodge a claim against the agent, ideally, through the Real Estate Authority.
  • The Property Managers will have to be licensed to represent the landlord as an agent.
  • Tougher penalties are required for exemplary damages. Penalties have remained the same for nearly a decade. Our opinion is that damages should be on a percentage of the annualized rent. This is much fairer as landlords who receive low rent income in places such as Invercargill face the same penalties as landlords who receive higher income in places such as Wellington and Auckland.
  • Tenant’s should also face a wider range of exemplary damages. There is nothing in the RTA that allows landlords to seek exemplary damages for willful damage to property or for serious breaches of the RTA such as assault. This should be included as it could be argued that the tenants have committed a criminal act.

As ever this is just an opinion piece and we welcome your feedback. Thanks for reading.

Regards

 

David Faulkner


Will the Rental Warrant of Fitness finally find a healthy home?

  • Will New Zealand follow suit of Wales and regulate landlords?

  • We believe the Rental Warrant of Fitness will be used as a tool to measure enforcement of Healthy Homes standards

After much discussion and debate, finally, we have the proposed standards announced for the Healthy Homes Guarantee Bill (HHG). The deadline will come a lot quicker for most landlords than what they will realise, particularly because any fixed term tenancies will have to comply within 90 days of a tenancy being renewed post 1st July 2021. We actually believe that it may not be achievable if landlords up and down the country do not act now and in particular with moisture barriers and insulation top ups.

However, what has yet to be decided is how the Healthy Homes Guarantee will be enforced and policed.

The Tenancy Compliance and Investigation Team (TCIT) are simply not going to have the resources to ensure that all properties comply with the HHG standards and an alternative tool for measuring compliance will have to be developed and implemented to ensure that landlords fulfil their obligations under the new standards.

This is where the Rental Warrant of Fitness (RWOF) will likely finally find its home.

Wellington introduced the voluntary Rental Warrant of Fitness scheme. Take up has been virtually zero

Whilst the dates have been confirmed for compliance, Government is still to decide on what documentation the landlord will have to provide to prove compliance. However, the obvious document to use will be the RWOF which was developed by Prof. Phillipa Howden-Chapman and her team at Otago University. The RWOF has been over a decade in the making and has been financed by public funding. It was developed due to the poor condition of many of our rental properties across the country and the obvious health concerns of people living in these properties. It has powerful support within the political circles both at a local and national level.

Wellington City Council launched a voluntary RWOF scheme after Mayor Justin Lester was elected nearly three years ago, though it has to be said, take up has been embarrassingly poor and the scheme can only be described as a flop. However, that is not to say that the scheme will not work or will not find a purpose if it is made compulsory. The HHG standards will have to be monitored and policed with implementation being registered, and the RWOF could be the perfect tool to do this.

How will the Rental Warrant of Fitness work?

 The RWOF manual makes a recommendation that rental properties will need to be assessed every three years and the concept is similar to the Warrant of Fitness you undertake for your car. At this stage, the RWOF covers 29 separate criteria and is a simple pass/fail concept, meaning that the property will have to clear every one of the 29 criteria to pass.

Although the criteria will have to amend slightly to cover off the Healthy Homes standards, it will become the perfect tool to cover off compliance of rental properties. Similar proposals are being made in the UK where we see more compliance around rental properties. Each property has to have an Energy Performance Certification (EPC) and this must reach a minimum standard in order to be rented out. On top of this, there has been a proposal that all rental properties undertake a ‘Property MoT test’ to tackle sub-standard rental properties. Here in New Zealand, we seem to follow similar trends in regard to the UK property legislation and we see no reason why this wouldn’t be the case here.

What the process may look like

  • At commencement date of standards, all rental properties will have to undertake the RWOF to assess compliance.
  • If they pass, a certificate of approval will be issued and displayed so any tenant or prospective tenant will see that the house is compliant.
  • If they fail, the landlord will be given a timeframe to ensure that the property comes up to standard or they will be in breach of Landlords Responsibilities and may face exemplary damages as the house will not be fit for purpose.
  • If the house continues to fail the RWOF, Tenancy Tribunal may issue a work order to ensure that maintenance is carried out so it will pass or else it will not be able to be rented.
  • Assessors will be trained, certified and registered. These potentially could be Property Managers though there may be issues around a ‘conflict of interest’ if they are managing the properties that they are assessing for compliance.
  • Every three years, a WOF will be undertaken which will include measurement of insulation to ensure that any degradation is identified and ‘top-ups’ are undertaken as and when necessary.
  • Tenanted properties that do not have a WOF undertaken will be ‘red-flagged’ and will be reported to the Tenancy Compliance and Investigation Team.

Should a national database of landlords be developed?

 The obvious issue that arises with the implementation of such a policy is how do you identify the rental properties? The likelihood is rogue landlords will simply just ignore the scheme and will take the punt that they will not get caught out. With an estimated 400,000 landlords in New Zealand, there will be obvious issues around monitoring and identifying everyone. If only a handful of landlords participate in the scheme, then it will lose all credibility as has been the case in Wellington.

One solution could be to have a national register of landlords who will either have to undergo some basic training under the Residential Tenancies Act or they will have to engage a fully qualified Property Manager.

Once they have undertaken the training, landlords will go onto the national register as will their properties. Property Management companies who manage properties for landlords will also have to register the properties under management as well.

Wales regulates landlords

There is a similar scheme that has been developed in Wales. Rent Smart Wales was set up in 2015. If you are a landlord or an agent for the landlord, you have to be licensed under the Welsh Assembly to operate and this means compulsory training.

Frank Webster from the UK explains how Rent Smart Wales works at the Generation of Change Conference

There are clear benefits to implementing such a scheme. This means that landlords are better educated and understand what their rights and responsibilities are, and the initiative seems to have had some success. If a landlord does not want to undertake the training, they simply engage a qualified and registered Property Manager to take on the responsibility. The upshot is that tenants will be better serviced living in better quality rental properties and cowboy operators will be identified and put out of business.

There are other benefits as well.

At the moment, there is limited data available to monitor the actual real-time number of rental properties in New Zealand. Such a scheme will mean that regulators will be able to identify potential issues around supply and demand for rental properties and whether there are any trends around lack of compliance. We will also be able to identify easily what percentage of the housing stock is in the private rental sector.

If a landlord fails to register under this scheme, they will face exemplary damages, though the penalties landlords face at the moment simply do not go far enough.

At the recent Generation of Change Property Management Conference in Wellington, the keynote speaker from England, Frank Webster highlighted that authorities in the UK now have the ability to fine non-compliant landlords on the spot with penalties of up to 20,000 GBP. In New Zealand, landlords face a fraction of this under the Residential Tenancies Act and some landlords will analyse the cost versus risk and simply not bother. If penalties were more aligned to the UK, then many landlords will see the risk being too great and will comply.

The Rent Smart Wales scheme could be the answer to regulating landlords

There is obvious concern that many landlords may just sell up, leading to a greater shortage of rental properties across New Zealand. This is already happening, leading to unprecedented rent rises in many of our centres. In some central suburbs of Wellington, median rents have increased by as much as 25% in the last twelve months. This is unsustainable and not healthy for the country.

Other risks are that landlords will choose to use platforms such as Airbnb as there are not the same legislation requirements that landlords have to abide by. Governments around the world are tackling the Airbnb conundrum as this is also contributing to a shortage of rental accommodation in other places around the world. Our Government will need to be decisive to ensure that we do not see too much stock moving to the short-term market. Taxation and limits around the use of Airbnb are ways that cities and countries are dealing with this issue.

Are we overcomplicating the issue?

Throughout all the hot air that comes from both sides of the debate, there is a simple question that seems to be ignored.

Is it too much to ask that every New Zealander lives in a warm, dry and safe home?

In our opinion, this should not be too much to ask. Every Kiwi should be able to live in a home that is warm and dry.

If you are a landlord who thinks otherwise, then in you should really sell up and put your money elsewhere. If you are a Property Manager, leave the industry and get another job.

In our opinion, the Government has got the standards right and any good landlord who maintains their property should have no issue in complying with the new standards. The timeframe may be an issue as most tenancies we see are fixed term, meaning that compliance will be closer to 2021 rather than 2024. We also would not be surprised to see longer fixed term tenancies being utilised more to take the pressure off landlords so they can comply by 1 July 2024.

Places like Dunedin or in the deep south may struggle, especially many of the old student properties and we have highlighted this in previous articles, but long term, New Zealand as a whole will benefit.

What we have to ensure is that compliance is effectively enforced, and this will not be easy to do. The whole credibility of the standards will be put at risk if we fail to enforce these standards and New Zealand’s most vulnerable citizens continue to live in substandard accommodation.

The Timeline to compliance

Type of tenancy or landlord
The date of compliance
Private Rental Sector
  • The rental property will have to comply with the standards within 90 days of the renewal or start of a new tenancy after 1st July 2021.
  • All other cases will be 1st July 2024
Boarding Houses
  • A single compliance date of 1 July 2021
Tenancies under Housing New Zealand
  • These tenancies must comply by 1 July 2023

The Standards for the Healthy Homes Guarantee Bill

Standards Requirements
Heating The minimum achievable indoor temperature must 18-degree Celsius. A fixed form of approved heating in living spaces
Insulation The minimum level of the ceiling and underfloor insulation must have a minimum thickness of 120mm
Ventilation Ventilation must include openable windows in the living room, dining room, kitchen and bedrooms. Also, an appropriately sized extractor fan in rooms with a bath or shower or indoor cooktop
Moisture Landlords must ensure efficient drainage and guttering, downpipes and drains. If a rental property has an enclosed subfloor, it must have a ground moisture barrier if it’s possible to install one
Draught stopping Landlords must stop any unnecessary gaps or holes in walls, ceilings, windows, floors, and doors that cause noticeable draughts. All unused chimneys and fireplaces must be blocked.

 


phil-twyford

Let it be: How to cope with the letting fee ban

  • We explore the best options for dealing with the Letting Fee Ban
  • Labour signal that there will be radical changes to the Residential Tenancies Act

We have been warning you now for nearly two years that this was coming and now the day of reckoning is nearly upon us. The new Residential Tenancies (Prohibiting Letting Fees) Amendment Bill is now at the Select Committee stage with public submissions on the bill open until the 23rd May. Expect this to be law by Christmas with a further three months before the fee is banned completely.

For all you people who are thinking of calling the letting fee something else or looking for an alternative fee to charge tenants, save your time and energy, that isn't going to work. The best thing we can do as an industry is to accept this, figure out if and how we can recover this and adapt to the situation.

Make a submission to the Government

We would recommend that you submit your opinion to the Government. It is our democratic right to do so and there is no point in whinging from the sidelines if you are not prepared to put pen to paper (or type on your keyboard) and make a submission. You have until midnight on the 23rd May to do so.

History of the letting fee

If we are being absolutely brutally honest, Labour is right to ban it. Is there anywhere else where a contract is signed between one party and another and a third party has to pay the fee? It is dated and goes back to the original act where only REINZ members and Real Estate Agents could charge the fee. This was pre-Real Estate Agents Act 2008. Property Management was left out of the REAA and in 2010 the new National Government amended the RTA allowing anyone acting as a letting agent or a solicitor the ability to charge a fee (see section 17 of the RTA).

Where we, as an industry has failed, is to justify what the fee is actually for. How can a property rent in Ponsonby for $950 and a similar property rent for $300 in Levin yet the fee remains one week's rent?

The reality is that it has been coming for some time and even if National had formed a Government in the last election, it was going to go at some stage when Labour eventually got in. This happened sooner than many anticipated so now we will just have to deal with the fallout. The chances of the next National lead Government reversing it are probably close to zero.

What next? We explore the options

Well, there are plenty of options open to the industry but unless you are prepared to wipe out on average about 15% of your total revenue, the landlord is going to have to pay it somehow or other. What this will mean is that where possible, there will be a further squeeze on rents as Property Management companies will try to increase rents where they can so their landlords are not out of pocket.

It is a complex issue however after to talking to many companies across New Zealand both large and small, we think we have discussed almost every possible option there is. So, without further ado, we will look at what you can do to soften the impact of this blow.

Option one: Sell your rent roll

If you are a relatively small operator then I have no doubt that you would have considered this option as the prospect of approaching your owners for more money must be harrowing. Especially as many a small operator has used price as a point of difference as they have run the business out of their own property so to reduce overheads. If you have approximately 200 properties and your average fee is not great, you will be concerned.

Originally, we predicted that the multipliers of rent rolls would decrease as supply would outweigh demand. However, this does not appear to be the case. Yes, activity has been quiet, particularly post-election as everyone has waited to see what will happen. However, we have all of a sudden become busy with people getting rent rolls appraised and our latest sale in provincial New Zealand went for a multiplier of 2.6 for every dollar in management fees.

We have long held the belief that the natural evolution of the Property Management industry will see more properties managed by fewer companies. Most companies that we see are struggling to grow organically as the investors leave the market, leaving acquisition as the main source of business development. To put it simply, the big will get bigger as they gobble up the smaller companies. There will still be room for smaller companies but they have to charge accordingly. In January 2017, I predicted that cheap, boutique property management will simply disappear and nothing has changed my mind from that viewpoint.

If you are genuinely worried about the future, now may be the time to man the lifeboats and head towards the escape route.

Option two: Absorb it

Obviously, this one would be most popular with the landlords. The option here is that you take a hit on your profit margin, try to trim some fat from your business and maybe implement a strong rent increase to try make more money out of the tenants.

However, I struggle to see how anyone can do this. Even if they could, it would send a very negative message to your clients that you have been ripping them off for years.

"15% cut in revenue? Don't worry about it, we'll wear it!" This would leave me thinking that I have been paying you too much for too long.

The only companies I believe this is a realistic option for is for large offices who's overheads become a smaller proportion due to the size of their income or to good operators who are charging a high fee already. They may be able to absorb some of the cost but I firmly believe that these operators will be few and far between.

Zenplace is a Property Management business in California that uses AI through Chatbots to improve productivity, communication and efficiency. They charge the landlord 50% of the first months rent and 4.9% ongoing.

Others may take a serious look at the P&L and look at what fat they can cut out of their business as well as look at ways to make the business become more efficient and productive. This is where technology can help play its part. I have long argued that in the future we will see a new brand of automated Property Management evolve and this may speed up the process as Proptech companies continually introduce software that will improve efficiencies meaning Property Managers can manage more. We will also see a move to Artifical Intelligence as there are many tasks in Property Management which can be automated such as arrears and inspection notifications.

Option three: Increase your management fee

This to me, is probably the most obvious one to do for owners and Property Managers alike. We have sat down now with a number of companies and examined how much fees would have to increase by to ensure you recover the lost revenue.

This table shows different ways of recovering the lost income through increasing fees and rent. We accept that some locations such as Christchurch may not be able to increase rents as there is an oversupply of property.

If your letting fee makes up approximately 12% of your total revenue then a fee increase of about 1.3% should enable you to recover the cost. The obvious request of landlords will be that you increase your rents so our recommendation would be a combination of both were possible.

However, some landlords with long-standing tenants may find this unfair. 'Why are you increasing my fee when my tenant has been living in the property for 7 years?' this is a fair call.  The decisions for companies is when do you implement this. Do you do it when the fee ban comes into effect or wait until there is a change of tenant?

The other added benefit to companies who do increase their fee is that they are adding value to their business. Multipliers on rent rolls take into account contract fees such as the management fee and inspection fees. By increasing the management fee by 1% you could be increasing the capital value of your business by approximately 15%.

Option four: Charge the landlord fee

Probably the most obvious option will be to just charge the fee directly to the landlord. It is unlikely that owners in more expensive suburbs will be willing to accept a full weeks rent and what we may see evolve from this is an increase in Landlord paid advertising.

If you are considering this as a way of recovering the fee, our recommendation will be to introduce a variety of marketing packages. Dependant on how the landlord wants to market the property, this will determine what fee they will be charged. If you are going to do this you also need to take into account the time and costs involved in letting the property.

Promoted landlord paid advertising may become more prominent.

One of the benefits of this option is that landlords may become more motivated to retain their tenants and we will see a greater spend on repairs and maintenance.

This is something that should become more of a focus for our industry. One company that we work with do this remarkably well. There average spend on repairs and maintenance is higher than any company that we work with. Then we look at the average length of a tenancy. The correlation between maintenance spend and happy secure tenants is obvious. With this company, the average length of a tenancy is approximately three and a half years and the letting fee makes up less than 8% of total revenue. They run at an average occupancy rate in excess of 98% and there average arrears for the month is under 1%. This company has nothing to worry about.

Option five: Ancillary fees

The final option we will look at is to increase ancillary fees such as disbursements on maintenance and inspections. This is often an overlooked area where companies miss out on revenue.

The maintenance fee is a prime example of companies missing out yet sometimes it is a fee that owners struggle with. Many owners will have the mindset that their Property Manager is getting maintenance done purely as a means of generating extra revenue. This, in my opinion, is untrue yet it is a perception many landlords may have and we cannot ignore what our consumer might think.

Many companies spend extra time and money arranging maintenance and some will even end up doing Project Management without being paid for it. This is again an area of missed opportunity and we only have ourselves to blame. It again all comes down to landlord education and spending quality time at the start of the relationship explaining what is involved. Project Management is an entirely different skill set and service and goes way beyond 7% management fee.

I am in no doubt that landlords whether they like it or not, are going to have to invest a considerable amount of money into their properties to ensure that they are compliant under the Healthy Homes Guarantee Bill. Companies can look at introducing a Project Management service or ensure that they are getting renumerated for the time they spend arranging repairs and maintenance.

This table shows what you can potentially earn through organising repairs and maintenance. The average spend on maintenance is likely to increase as compliance with the Healthy Homes Guarantee Bill impacts landlords.

Inspections is an other area where fees can be reviewed or introduced. You should be inspecting approximately 25% of your portfolio every month. By reviewing or even in some cases introducing an inspection fee you will be adding significant revenue that should go part of the way to compensate for this missed revenue in letting fees.

Inspection revenue is an other area that could be looked at as a way of recouping the letting fee. Here the table shows what extra revenue can be earned by tweaking your inspection fee.

Approach it sooner rather than later

The fact that Property Management has been in the media spotlight so much in recent times means that landlords will already be conditioned to the fact that they will have to pay more. In our opinion, it would be wiser to approach them now to start the discussion. Present them with a number of options and see which one they prefer. No one likes being told what to do so engaging in dialogue with them to get their feedback will help enhance your relationship.

I hold the belief that 90% of people are genuinely good to deal with and are understanding. Most landlords will realise that you are in business and you have to make a profit to survive. We may see some fallout as some landlords decide that they will do it themselves to save money. With all the legislation changes that they will have to deal with, good luck to them. They will need it!!

Kiri Barfoot is interviewed on the AM Show discussing the letting fee

Twyford admits that rents will increase

In a recent interview with online media portal The Spinoff, Minister for Housing Phil Twyford accepts that rents will go up because of the letting fee ban. Twyford says the following.  "I know that if you ban letting fees those costs will be passed on and ultimately they’ll end up being added to rent to some extent, but the point about letting fees for tenants is that they come at the worst possible moment when you’re being expected to find bond and rent in advance and so on."

This is after he has stated that there is no evidence to suggest rents will increase when this ban is introduced. Maybe he changed his tune after being in the same studio when Kiri Barfoot was being interviewed about the ban on the AM Show.

Phil Twyford is the keynote speaker at this years REINZ Property Management Conference in August which is a great coup for REINZ. It will be fascinating to hear what he has to say and expect a full house to turn up and listen to him.

The face of renting will change radically in New Zealand over the next 5 years. A lot of it is good but ultimately there will be a significant cost to all parties. As ever, here at Real iQ, we will keep you updated and give you our opinion.


An open letter to the property management industry

Real-iQ’s vision for the Property Management Industry

During Christmas of 2015, after surviving my first year in business, I sat down and wrote down a plan as to how I saw the future of Property Management and what type of role I wanted to play in the industry. It was at this point I decided to develop a Training Business to support Property Managers throughout the country.  I simply wanted to make a positive impact on the industry that had given me so much pleasure and satisfaction. I had seen too many Property Managers in offices up and down the country struggle with a lack of resources, training and support. I truly believed that I could make a difference.

Real-iQ has come a long way in our relative short history.  I started off as a sole operator and now we are a small and dedicated team whom I am grateful to work with and who share my vision.

Recently, it was announced the REINZ, Real-iQ and The Skills Organisation were partnering to bring the Property Management industry the revamped New Zealand Residential Property Management Level 4 qualification. I have read some comments on social media sites, including our own which disapprove of REINZ’s involvement within the Property Management industry. Rather than respond to each post individually, I think it is important to make everyone clear as to how we see Property Management evolving and why we see partnering with REINZ as a hugely important way to support our industry.

Real-iQ partnering with REINZ

Last September, I first met the new REINZ CEO Bindi Norwell, and since then we have had numerous meetings where we have discussed the future of Property Management. I have been hugely impressed with her enthusiasm for Property Management and willingness to listen and learn. I have also been very impressed with the profile she has given our industry within the media. REINZ have made a real commitment to support the industry through advocacy, providing resources and now education.

In my opinion, they are the group that has the most political influence and are best suited to represent our industry. I have always shared their view that Property Management should come under the scope of the REA whom should be the regulator of the industry. There is simply too much cross over between Real Estate and Property Management to separate and have them regulated by separate bodies. I also do not share the views that Property Management should be self-regulated. When there are issues of poor practice that involve allegations against a Real Estate agent and a Property Manager, it would be far too confusing for the consumer to have to complain to two separate parties. Keeping the entire industry governed by one body is the only logical answer.

We believe that the New Zealand Property Management Level 4 Qualification will be the qualification of choice for the industry and our goal is to have the entire industry qualified or working towards it by December 2020.

We believe that by partnering REINZ, we will be providing the industry with the best resources, training and support and we will be actively promoting Property Managers to become members of REINZ.

I am fully aware that not all Property Managers and companies will want to be associated with REINZ. Consumers should always have choice and REINZ is no different. If people do not want to be a member of REINZ then I would encourage them to become a member of IPMA. Real iQ works with companies who are associated with IPMA and this group also does good work by its members.

I have learnt in business that you will not get 100% agreement from all parties. A debate is healthy so long as it is carried out on the correct platform. It should not be a case of us versus them, it should be a case of collectively sitting down and seeking the best way forward for our industry.

We are proud of what we have achieved in our very short history, but we are fully aware that the task of improving our industry has only just begun. We cannot do it alone and this is why we are proud to have partnered with REINZ, who we feel is best suited to lead the charge to regulate the industry.

As ever, we welcome your feedback.


methamphetamine-in-container

Busted!! The rise and fall of the methamphetamine industry

In August 2014 two-year-old Emma Lita-Bourne died after suffering a brain haemorrhage. The story made the news the following winter after a coroner reported that the condition of the property had contributed to the little girl’s death.
The property was contaminated and it wasn’t methamphetamine.

Instead, dampness and mould had played a significant contributing factor into the death of young Emma according to the coroner. It was a story that highlighted the sorry state of many rental properties around New Zealand and in particular, Housing New Zealand.

If that wasn’t bad enough, last year a BRANZ report was released stating that up to 1,600 deaths a year could be attributed to the poor condition of New Zealand housing.

Yet somehow, the poor condition of New Zealand’s rental stock has not been the focus that it should have been. Instead, New Zealanders have been gripped by the fear of owning or living in a Meth contaminated property. It has now become clear that this country has potentially wasted hundreds of millions of dollars on what appears to be nothing more than fake news and, in some cases, scaremongering that has led us to this ‘moral panic’.

Emma Lita-Bourne died only two years old and the poor condition of property she lived in contributed to her death according to the coroner. No one has been able to name me a tenant who died from living in a meth contaminated property

Housing New Zealand has spent approximately $100 million on testing and decontamination work. What has the private sector spent? Probably about the same. Yet no one anywhere can name an individual who has died because they have been exposed to one of these properties.

Somewhere along the line, we’ve completely got our priorities wrong!

A brief history of the industry

I have seen the Methamphetamine testing and cleaning industry evolve from its early days at the start of the decade all the way up to its zenith. I also have to confess that in the early days of the industry, even I was sucked into it, becoming a ‘Methsolutions Certified Sampler’ whatever credibility that qualification had.

I even appeared on the front page of the Manawatu Standard back in November 2013stating that properties will need to be proven to be ‘meth free’ before being rented out.

We have been writing about the Meth Testing industry for over two years questioning the validity of it. In January this year, we predicted that the Government would review it's stance on Meth and we were proven to be right.

However, as the problem grew, after a while, you start to question yourself. Is all the money being spent on this necessary? Has anyone actually got seriously ill from living in a property? Who is policing the testers and the decontamination companies?

It became apparent to me that there was a big problem back in February 2016. I was invited to speak at a Property Management training day in Auckland and before my presentation, a highly respected legal consultant presented before me. His presentation was going to be on the new Health and Safety at Work Act, but it was soon to be hijacked around the risks of methamphetamine contamination. He stated that under the new Health and Safety at Work Act, every rental property would have to be tested for methamphetamine contamination and every property manager was putting themselves at risk by going into untested properties. It all seemed a bit over the top to me.

At the end of his presentation, he then proudly announced that his company had just launched their new ‘meth testing service’.

Scaremongering? I’ll let you make up your own mind.

What this presentation did though was prompt me to start researching the industry. If he was getting into it, who else was?

The results shocked me. In a two-month window between 1st May 2016 and 30th June 2016, at least twenty companies had been set up to do work within the testing and remediation sector. None had been set up during the same period the previous year.

In July 2016 I wrote an article ‘Welcome to the Wild West of Meth Testing’ arguing that the industry was wide open to corruption with a massive increase in the number of companies being set up without regulation.

After getting plenty of support from that article, I became convinced that what we were witnessing was at best scaremongering with some dubious tactics and at worst, a money-making scam.

TO VIEW THE GLUCKMAN REPORT CLICK HERE

Was it all a great big scam?

Well, it is too early to tell, but it does need to be investigated. If you give the benefit of the doubt to the early pioneers in this industry they may have been acting on incorrect information or they are only catering to the demand created by decisions that came out of the Tenancy Tribunal.  I will be the first to admit that not everyone who works in this industry are bad people. I have met many operators who genuinely believe in what they are doing, one, in particular, only started his company after his brother became a meth addict. If you’re in business, it has to be for the right reasons.

But as reality begins to bite, many of these individuals will soon be looking for a new job or career as the industry has been dealt a near fatal blow by Sir Peter Gluckman and I for one applaud him.

There is no doubt that there will be literally hundreds of landlords and tenants now seeking some retribution and probably with some justification. We are already seeing the public and media outcry, looking for someone to blame. Housing New Zealand, The National Party!

Who is to blame?

One thing being in business does teach you is that when things go wrong, rarely is it the fault of one person. This sorry state of affairs is no different and there are multiple reasons why it escalated to become the scandal it has.

The Tenancy Tribunal

For three years now, I have been collecting Tenancy Tribunal decisions on cases that involve methamphetamine. They make for some interesting reading and one of the key issues is the lack of clarity as to what you can and cannot claim for. There is also a wide range of damages awarded for relatively low levels of contamination.

Here are some simple examples.

  • Case Number 4005320 13th June 2016

The tenant is ordered to pay $35,764.72 to the landlord the highest reading of eight tests was 2.6 micrograms and only three were above the then guidelines of 0.5 micrograms. The entire property was refurbished after recommendations by the company Prodecon.

  • Case Number 4065206 20th March 2017

The tenant is ordered to pay $3007.83 for decontamination and $2,318.50 for testing with a reading of 2.5 micrograms. That’s a $30,000 difference.

  • Case Number 4083990 1st June 2017

The tenant is ordered to pay for cleaning and testing due to contamination even though the highest reading is well under Ministry of Health guidelines.

Yet probably one of the most controversial decisions was made by Adjudicator Hogan who released a tenant from a fixed term tenancy back in March 2016 stating that any level of methamphetamine was too high. In this case, the highest reading was 0.17 micrograms.

It was the Tenancy Tribunal who came to the conclusion as to what was acceptable or uninhabitable. The reality is that they made rulings based on a Ministry of Health document written back in 2010 for Guidelines for the Remediation of Clandestine Methamphetamine Laboratory Sites. This document stated that levels of contamination for labs should not exceed 0.5 micrograms.

In the Tribunal’s eyes, once a property had sufficient traces of meth, it was deemed to be health risk even though the likelihood is that it was through use rather than manufacturing and this was the first big mistake.

A prime example is when you get a reading of 212 micrograms as we saw in one case late last year, you can presume that it is a lab. Yet these cases are few and far between.

By making that decision the Tenancy Tribunal opened the floodgates.

The media

The media often printed images such as this but rarely questioned the validity of the statistics.

There is a sense of hypocrisy from certain media outlets when you read the scandalous stories about how millions have been wasted, tenants have been unnecessarily evicted and landlords have been left out of pocket.

Yet the same outlets that are writing these stories were quick to run the shock and horror stories around how 40% of properties tested are contaminated by Meth. The Meth Map was a clever marketing technique developed by Methsolutions. They used to release it every quarter and it was lapped up by media outlets highlighting the ‘Scourge of Meth Contamination’. The big headlines that you saw only lead to more and more fear and played into the hands of the companies that did the testing. Some reporting simply threw paraffin over the flame and this fed the frenzy and moral panic.

It was only in the Spring of 2017 that more and more scrutiny was being put into the industry by the media.

The Meth Map was a particular irritant to me. The reality is that amounts as minuscule as 0.05 micrograms were identified on the Meth Map as a contaminated property. A microgram is one-millionth of a gram. 0.05 micrograms are 500,000,000 of a gram. Yet even after the updated standards, 1.5 micrograms were set, we still saw the Meth Map highlighting that 40% of properties were contaminated. This, in my opinion, is deceptive and misleading. Yet no one from the media ever questioned it.

Standards New Zealand

Regardless of your political position, some of the responsibility lies with the National Party. This happened on their watch and they were too slow to act. You also have to look at the selection process for the Standards Committee that was set up in 2016.

Why was Sir Peter Gluckman not involved in this or Dr Nick Kim who has long been outspoken about the money being wasted. In retrospect, the committee should have been made up purely by scientists because, at the end of the day, this is what it is about.

How can people involved in property contribute on something that they have no knowledge about? Were people with a commercial interest in the industry appropriately balanced out by more independent experts?

The selection of the committee appears to be flawed. It was decided that trying to differentiate between Labs and third-hand smoke was too difficult, so an unworkable standard was set.

The testing an decontamination companies

At some point, you have to look at how some of these operators have gone about their business. I often heard cases of testing companies making recommendations as to who to use in regards to decontamination. An industry that went from having a handful of operators in 2015 exploded into well over 100 by the end of 2016. Some of the training was through a two-hour Skype session and away you go, you are now a professional tester.

Not all operators are bad, and I have met some good, hard-working people within the industry. But the reality is that many joined it as they saw the gravy train running out of the station and they had to get onboard.

What happens next?

Is this the beginning of the end for many in this industry? It has certainly been dealt a devastating blow as I simply do not see the need for composite testing anymore and the NZS 8510 Guidelines must surely change to reflect this.

Would I rent out a property if it had readings of under 15 micrograms which is the new guideline being recommended in the Gluckman report? Yes, I would, and more importantly, I would be happy to live in it.

The reality is though many wouldn’t and the stigma that goes with a property will stick.

No one wants to be the Property Manager who rented out the contaminated property to the young solo mum whose toddler got sick and nearly died. The fear of litigation and recrimination is too great and as such a risk-averse approach has evolved.

Sir Peter Gluckman's report leads to some fascinating reading. Only two people in New Zealand are linked to poisoning through Methamphetamine intake via a contaminated container. No other confirmed cases have been reported.

Yet the numbers do not lie, and we should as an industry move on. The Gluckman report does have some compelling facts to back up its validity.

  • Of over 13,000 surface swipes taken over 75% had methamphetamine levels under 1.5 micrograms
  • The average level for positive samples was only 2.7 micrograms
  • Less than 1% tested above 30 micrograms suggesting a low prevalence of properties potentially used for manufacturing.
  • Since 2013 a national register monitoring diseases, injuries and illnesses from hazardous substances has been maintained. Between 2014 and 2016, two cases of food poisoning (from the same household) were attributed to methamphetamine intake via a contaminated container. No other confirmed cases have been reported.
  • 74 meth labs were detected in 2016 and 50 of those were in rental properties. This number is decreasing as most methamphetamine is imported. In 2009 it was 135.
  • There are currently 680,000 rental properties in New Zealand. Let’s say that Police identified 50% of the meth labs and there are 100 in rental properties in New Zealand. This means that you have 0.015% chance of having a rental property used as a meth lab.

My views are as follows

  • Standards New Zealand guidelines implemented for testing and decontamination of methamphetamine-contaminated properties needs to be reviewed and updated, immediately. In the meantime, Tenancy Tribunal adjudicators must read and understand the Gluckman report as soon they can so they can take into account in the cases coming before them.
  • REA has stated that Real Estate agents are not obligated to disclose confirmed results below 15 micrograms per 100cm2 unless asked.
  • Insurance companies will be reviewing this report at great length with meetings and discussions taking place up and down the country. My view is that they will eventually stop taking the approach that Meth Testing should be compulsory due to the fact that the latest report makes the recommendation to stop doing composite testing.
  • Tenants should not expect compensation because, at the end of the day, many of them have committed an unlawful act in the property they were renting by smoking meth in the property. That itself gives the landlord the right to ask the tenancy tribunal to terminate the tenancy.

In conclusion

I am fully aware that the default mindset for many Property Management businesses will be to take a ‘risk-averse’ approach until we hear otherwise. However, in my opinion, this report provides enough evidence to think otherwise. Some people have suggested that the report is ‘politically motivated’ to release more state housing. There may be some truth in that, however, some people have made suggestions that Sir Peter Gluckman is being influenced by the Government.  I totally reject this suggestion, he is a man of integrity and accusing the Government of having no regard for the health and well-being of the occupants of these properties is a nonsense. No Government of this country would take such an approach.

HNZ has spent $100 million alone in cleaning and decontamination. This is taxpayer’s money. How many houses could have been installed with central heating or double glazing? If you had allocated $15,000 on heating for each of these houses you would have covered over 6,500 properties. This is more beneficial to people of New Zealand. Just ask the family of Emma Lita-Bourne.


18 degrees celsius. Putting the heat on landlords

  • Why the Healthy Homes Guarantee Bill is going to be a game changer for landlords and tenants in New Zealand
  • Tens of thousands of rental properties may soon become non-compliant

“This is my generation’s nuclear-free moment and I am determined that we will tackle it head on.

— Prime Minister Jacinda Arden talking about climate change

As winter approaches, few will dispute that the majority of rental properties in New Zealand are not up to standard.
Thousands of tenants up and down the country live in cold, damp properties that makes a mockery of our global clean green image.

Late last year a bill was passed through Parliament that will literally change the face the housing in New Zealand forever, yet many people are unaware as to the true impact of this legislation and the cost of compliance.

How warm is your rent roll? Take our one minute survey

The Healthy Homes Guarantee Bill became law in December 2017 and many landlords are utterly oblivious as to the impact of this bill. The Labour backed bill passed through Parliament at the second attempt late last year due to the fact that it had support from the previous National Government coalition partners the Maori Party and from United Futures. Because of this, it passed through the first reading by one vote.
This bill is in our opinion, the single biggest piece of legislation for tenancy law since the introduction of the Residential Tenancies Act back in 1986. It is simply going to change the face of renting forever.
Along with Labour stating that they are going to build 100,000 new houses, we are seeing the largest and probably most ambitious undertaking by any government surrounding housing in New Zealand since the Labour Savage Government of 1936.

Why is this bill so significant and what is going to be the impact for both landlords and tenants?

The bill focuses on the ability of tenants to be able to keep their rental property warm and dry using energy efficient heating. The penalties for landlords who do not comply with this bill will be severe and we believe that the majority of rental properties across this country would not meet the criteria if it was set today.

What does the bill focus on?

The Healthy Homes Guarantee bill states that all rental properties must meet the following standards.

  • Standards about the indoor temperatures that must be capable of being achieved in the premises. We believe that this will be 18 degree Celsius.
  • Probably likely that the source of heating must be energy efficient.
  • These standards have already been set.
  • Moisture ingress.
  • Draught stopping.

If landlords fail to meet obligations in respect of healthy homes standards, then they may potentially face exemplary damages of up to $4,000 plus they will face a work order instructing them to get the property to the standards before they can rent it out.

18 Degree Celsius

World Health Organisation recommendation for minimum indoor temperature

How many rentals many rentals will comply?

The big question we are all asking at the moment is what are the standards going to be? As yet we do not know but if you read between the lines one can assume that the indoor temperature capable of being achieved will be 18 degrees Celsius. This is the temperature set by the World Health Organisation as to what constitutes a suitable minimum indoor temperature for a home.

Many properties around New Zealand simply would not be able to achieve this and to get our current rental stock up to standard is going to be a monumental task. Particularly as we have a shortage of skilled tradespeople and the Government is promising to deliver 100,000 new homes over the next ten years. If you're looking for a new business opportunity, heat pumps, central heating and double glazing is probably the way to go.

We are unsure as to when the standards will be set yet they will become enforceable at the earliest 1st July 2019 but no later than 1st July 2024. Each Tenancy Agreement and renewal or variation will need to have a statement on it stating that the property complies with the Healthy Homes Guarantee Bill. Failure to do so is also an unlawful act with exemplary damages up to $500.

Baby boomer landlords struggle to accept change

It was interesting to gauge the response of an audience of investors that I recently spoke to at an Investor Evening in Christchurch about the changes that they will face. As I explained the impact of this bill and the potential costs associated with improving the current rental stock I watched carefully assessing what the audience thought about it. I think it is fair to say that most of the audience, particularly the older generation really struggled with what I was telling them.

Baby Boomer landlords have generally been able to do what they like with regards to their investment portfolio, but things have changed and many of them don’t like it. I remember being a Property Manager about 10 years ago. When a landlord told you to do something you simply did it without question. Now, it is not so simple, taking shortcuts with regards to maintenance treating tenants poorly could see you end up in Tenancy Tribunal as tenants become more aware of their rights. Do not expect a warm greeting from your local adjudicator if you breach this legislation. The temperature in Tribunal will be as cold as the property you provide for your tenants.

This student flat in Dunedin will not cut the mustard when it comes to the HHG Bill. If tenants cannot achieve an indoor temperature of 18 Degrees Celsius, landlords may face exemplary damages of up to $4,000.

Landlords face double blow as negative gearing to go

The amount that landlords budget for repairs, maintenance and improvements will likely more than double over the next few years to ensure that their stock meets the criteria set in the Healthy Homes Guarantee Bill. Many older properties may simply end up being demolished as the cost of making them compliant will simply not add up.

What will be a double whammy for landlords will be the removal of negative gearing. This is when landlords can offset their losses from their rental investment against their own personal income. Many, including myself think this is a bad move. In some cases investors may be able to offset about $4,000 to $5,000 from tax rebates on a single rental property.

This would go a long way to helping landlords front up with the added costs around compliance. Instead, many small Mum and Dad investors are going to be punished. Labour's policy around negative gearing is to remove tax loopholes which they claim the biggest users are large-scale speculators who own multiple rentals and use losses on new acquisitions to continually reduce their tax. Some may do so, but in our opinion it is the small Mum and Dad investors who own one or two properties that will be hurt the most. Some may be forced into selling their asset when they realise the costs associated with compliance no longer make it financially viable to own it.

Rental warrant of fitness to become compulsory

We have long suspected that the Rental Warrant of Fitness (RWOF) will at some stage be written into law and we believe the Healthy Homes Guarantee Bill will be the instrument for this to happen. Why else would the recent national census ask the question as to whether the property you live in has more than an A4 piece the size of mould in it? This is one of the criteria's under the Rental Warrant of Fitness.

Although the rollout of the scheme in Wellington has been a flop, there is enough support for the RWOF across the power brokers of New Zealand politics and expect it to be incorporated into the standards set around the Healthy Homes Guarantee Bill.

This will mean that every rental property will have to meet the criteria set by the RWOF and have assessments carried out probably every three years at a cost of around $250 to landlords.

This could become a new revenue stream for Property Managers as we see no reason as to why they cannot carry out these checks.

There is no doubt that successful Property Management is based primarily around people skills. However, we predict that more emphasis will be placed on Property Managers having more in-depth knowledge of the property that they manage and eventually move towards Asset Management.

Short term pain for long term gain

Overall, we believe that the Healthy Homes Guarantee Bill in conjunction with the Rental Warrant of Fitness will benefit New Zealand long term. Housing is a basic human necessity and everyone should live in a warm, dry, compliant property. However, the cost of this exercise will be born by everybody. Landlords will have more costs, taxpayers will have to contribute to housing supplements and tenants are already facing greater hikes in rents.

Long term though, it is an investment worth making. It will contribute to a healthier nation with less pressure put on our already straining healthcare system. We will also see a more productive economy with a happier, healthier workforce taking less time off for sicknesses caused by unhealthy housing.

However, Labour could have done better by not hitting investors hard by removing negative gearing. One feels at times they are out of touch with the thousands of property investors up and down the country. Do they really think that they are all evil, wealthy capitalists, pouring hot tar on the poor peasant tenants below? This is the impression we get, particularly when you read their policies on the Labour party website. Many landlords will find themselves being pushed to the limit.

The reality is often opposite. Instead, Mum and Dad investors who own one property simply see an investment in property as a way of funding their retirement. They are about to get hit with a sledgehammer, penalised for being proactive and not looking at the state to look after them in retirement. That simply isn't fair.