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

 


Regulation of the Property Management Industry in New Zealand

Few people in New Zealand have a greater insight into the Property Management industry than David Faulkner. Real iQ trains more Property 


Managers than any other company in New Zealand and David sees it all. With The Real Estate Institute of New Zealand launching their campaign A Call For Change - Better Property Management, David has decided to do a free webinar in regards to the current state of the industry including looking at the following topics.
  • History of our industry and why it was not regulated
  • What has happened over the last 10 years
  • Issues that we see going around New Zealand and in dealing with enquiries for NZ RPM Level 4
  • Why everyone regardless of who you are with should get behind A Call For Change
  • What is the landlord regulation system in Wales like?
  • What David thinks regulation should look like.

 

 


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


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.


Rising rents on the horizon as government policy kicks in

  • Rent increases inevitable as companies on charge the letting fee to landlords.
  • Criticism of companies who suggest increasing rents is unfair, we explain why.

Last week, one of Wellington’s largest Property Management companies made the headlines recommending to landlords that they increase rents by $6 a week to recover the cost of the letting fee as they are forced into on charging it to the landlord. Many criticised Oxygen Property Management for taking such an approach. However in our opinion, they were simply doing their job.

Is your company charging the landlord the letting fee?

To expect a company not to try and recoup losses that their clients may face due to landlords absorbing the letting fee is utterly naive and delusional. If you believe that a landlord is not going to recover the costs from tenants then you are simply in denial or have no understanding about how business works. Recently, Prime Minister Jacinda Arden stated that she ‘hopes’ rents wont increase as a result of the letting fee being passed onto landlords. Surely this Government must have foreseen that rent increases were an inevitable consequence following their hard stance on property investors. This has left the door ajar for National to land some blows as they blame Government policy for increasing rents. They have a point, but lets not forget that National’s record on housing and in particular state housing, was far from satisfactory.

When the price of crude oil sky rocketed in recent months, you didn’t see petrol companies absorb the cost, they simply passed it on to the consumer at the pump with petrol prices hitting nearly $2.50 a litre in some parts of New Zealand. As the price of crude oil dropped, so did the prices at the pump. Why would being a landlord be any different?

The reality is that when people make decisions and especially when it comes to money and housing, the vast majority will put their own interests first. Being a landlord is no exception. They are not social housing providers.

It is not our job to house state tenants

The Property Management industry has faced one of its toughest years and has come under intense scrutiny. Many referring them as leeches, sucking extra rent out of tenants by issuing rent increases way above market rent and booting tenants out so they can claim another fee. Utter rubbish!!!

If I started a Property Management company and ran an advertising campaign telling landlords that ‘We will keep rents affordable for tenants’ I would not expect to be in business for very long. Landlords want to earn a rent to reflect the capital value of their asset. This doesn’t make them greedy, they are just trying to make their investment work. If you took two Property Management companies offering the same service for the same fee yet one says that they will earn them an extra $20 a week in rent, nearly every landlord will pick that agent.

This is the simple reality of business that many tenant groups and their supporters don’t acknowledge. Instead, many of them would rather have a rental sector owned and controlled by the state and a housing policy akin to Eastern Europe in the 1960’s. I have seen this first hand after attending two Renters United meetings, one of which was their high profile ‘Fix Renting’ launch. On both of these occasions, they have had a guest speaker or members challenge property ownership rights saying that they are unfair.

Oxygen's approach a breath of fresh air

In regards to the letter by Oxygen Property Management that sparked headlines last week, Oxygen has done what any good business operation should have done. They have researched all the options, talked to their landlords and have come up with simple solution that will ensure that their main priority, their landlords, are not out of pocket whilst protecting their own business interests. This is something that many media commentators fail to understand.

A good Property Management company does have an obligation to look after their tenants and I would be one of the first to acknowledge that too many in our industry do not do enough. Yes, it makes good business sense to look after your tenant but not to the detriment of your landlord. This doesn’t mean that you do what the landlord wants every time and simply ignore the tenant. If the a tenant makes a reasonable request for a repair and the landlord disagrees, you would strongly recommend to the landlord that they have the repair done as they may face sanctions if they neglect their responsibilities under the Residential Tenancies Act.

This again is something that some commentators either don’t understand or do not realise. Although we have a relationship with both tenant and landlord, we ultimately are employed by the landlord.

It is the landlord who hires and you and the landlord who fires you if you do not deliver results and provide value for money. All that Oxygen have done is look at the average length of a tenancy and worked out what rents will have to go up by to ensure what needs to be done to recover the letting fee. They feel as though they have come up with the best solutions for their landlords. They have been transparent, open and honest without trying to put unnecessary spin on the announcement. In my opinion, they should be applauded for their approach.

Most companies make their move with regards to the letting fee

The announcement to bring forward the date of the letting fee ban to the 12th of December took many companies by surprise. Now, as reality has set in, the industry has finally made its move with many companies now writing to their landlords explaining that they have to on charge the fee as they simply cannot absorb it.

It has been like sitting at a table of a high stake poker game. Companies big and small have been waiting to see what cards have been dealt, trying to work out what each other company may or may not do. Do I raise, call or fold?

At some point though, you have to make a call and most companies have now done this after careful consideration. Quinovic were the first to make the headlines with their ‘Tenant Fee’ being on charged to landlords but many companies had already made their move prior to this.

Some companies will undoubtedly try to absorb it to give them a market advantage but this would mean they would likely have to ‘trim fat’ out of their business. Maybe outsourcing automated tasks overseas where labour costs are cheap or compromising service levels by reducing what they offer or by overloading staff with more properties.

In order to avoid lower returns some landlords may bypass property management companies and self manage.

Online self management tools such as MyRent may see an increase in users. There will always be that human element to the business and if you cannot handle conflict and the ongoing changes to legislation, Property Management is still the best solution.

Letting fee is only part of the issue of the issue for rising rents

From what we have seen across the industry, there has been a level of ‘acceptance’ by landlords that they will have to pay the fee, though many now want their rents reviewed and increased to compensate. This is just a small part of the added costs our Coalition Government is putting on landlords.

Back in February this year, we wrote a blog warning New Zealand that everyone will have to pay for the ‘Utopian vision’ that the Government has for our country.

“Removing the speculators’ tax loophole will save taxpayers around $150 million a year once fully implemented. Total savings in the first ten years will be $1.2 billion. Labour will use this money to help 600,000 families heat and insulate their homes to modern standards.

— Labour policy on their website with regards to ring fencing losses before the 2017 election

In this article we highlighted the extra costs landlords would face which included cost of compliance with the Healthy Homes Guarantee Bill.

There is a realistic risk of a reduced rental stock in New Zealand and this will drive up rents even further. The brilliant Chief Economist of BNZ Tony Alexander, recently summed up our concerns in an interview with NZME property website OneRoof.co.nz.

Alexander identifies that the Government is creating diminishing returns due to increased costs around compliance and reducing deductibility for expenses. As it gets more and more expensive to own a rental property, investors are forced to increase rents to compensate the added costs.

Alexander also states that if there is a reduced rental pool, landlords will have a much larger pool of tenants to choose from and will become more careful around who they pick.

This will be exasperated if rental reforms are pushed through and the banning of 90 day ‘no cause eviction’ is implemented. Then, not only will you have a reduced rental stock, you will have Property Managers and landlords taking real care in who they put into a property as getting this wrong could be disastrous as the ability to remove a tenant will become far more labour intensive with added risk of litigation by the tenant and lengthy delays in Tenancy Tribunal.

It is ironic yet also somewhat predictable, that the policies created by the Government could end up hurting the people they were designed to help the most. The poor and vulnerable.

In our opinion, the best thing the Government can do is remove their policy to ring fence losses that a rental property will generate. This means that if a landlord runs a rental property at a loss in the financial year, as many small investors do, they can offset that loss against their own personal income. So, if your rental property runs at a net loss of say $10,000, you offset that against your wages, giving you a tax rebate because you would have paid too much tax. Our coalition friends, want to remove this. The result of this means that as landlords are forced into investing more money into their rental property, the ability to offset the losses will be removed exasperating the problem.

Of the thousand of properties that we see, the average property to landlord ration is about 1.4 properties per landlord. About 90% of landlords in New Zealand own one or two properties.

Naturally, this all adds to the expense of owning a rental property. This policy was aimed at high stake speculators but in fact the people who it hurts the most are ‘Mum and Dad’ investors who own no more than one or two properties and these make up about 90% of all landlords in New Zealand.

One senses that this Government is trying to ‘bully’ landlords away from property and release more stock to first home buyers, in an attempt lower house prices. However, this may well backfire as rents look set to increase further which is not good for the economy long term as there will be less disposable income. Government should revaluate what they are trying to achieve as New Zealand, like any other capitalist country, needs a strong private rental sector.

As we stated back in our article in February, everyone will have to pay more. Landlords will pay more in expenses and operating costs, tenants will pay more in rent increases and the taxpayer will pay more in subsidising housing benefits.

In conclusion, many of the reforms such as healthy homes, we have always supported yet some of the policies are starting to impact negatively as rents start to increase meaning a tougher times for landlords and tenants. In my opinion, this Government is trying to do too much too soon. Slow down and listen to people at the coalface as to what the likely impact of their policies will be. You can always ignore them and hope that things work out fine. However, ‘hope’ is not a strategy I would like to see any minister take, let alone our leader.


The Real-iQ recommendations for RTA reform

  • Is the average length of a tenancy 12 month? We don't think so!
  • We provide our solutions for pets, security of tenure and sorting out tribunal

Back In February 2018, the much anticipated Housing Stocktake of New Zealand was published. This report which was commissioned by Housing Minister Phil Twyford back in November 2017 painted a sorry picture of the housing situation in New Zealand and in particular, for renters and low income earners. The report was written by Alan Johnson of the Salvation Army, Philippa Howden-Chapman of Rental Warrant of Fitness fame, and Generation Rent author Shamubeel Eaqub. The report is fascinating reading with many recommendations that we are now seeing in front of us through the Tenancy Reform Discussion document. Hopefully, you got a chance to make a submission.

However, we have found one potential inaccuracy that leads to serious question marks as to what advice the Government is receiving.

12 month tenancies the norm? We don’t think so!

In this month’s article, we have decided to include the Real-iQ submission to the Government in regards to tenancy reforms and in this we question how they have come to the conclusion that most tenancies last 12 months. Please bear in mind that this submission is purely of the opinion of Real-iQ. Others mentioned in this article may not share all of our opinions. It would be great to get your feedback regarding our submission so please feel free to share your comments.

Our submission to the RTA reform committee

This is our response in regard to the Residential Tenancies Act Reform Document. We thank you for the opportunity to submit our views to the proposed reforms.

As New Zealand’s most recognised Property Management training company, partnering with The Skills Organisation and REINZ, few are in a better position to give a balanced view on what needs to happen with regards to renting in New Zealand.

We support many of the changes recommended in the reform document but there are other areas that are of concern and we wish to put forward our recommendations to help improve the experience of renting for tenants without penalising landlords unfairly.

Information sourced from the Housing Stocktake of New Zealand

In our opinion, landlords have been penalised enough recently following the Court of Appeal decision that stops tenants from being liable for accidental damage. This is hugely unfair. Even though this is being addressed in the Residential Tenancies Amendment Bill Number 2, it does not go far enough. We will touch on this later.

Decisions based on incorrect data

The Government is basing some of its decisions on incorrect data, in particular, the average length of a tenancy.

In paragraph 6 of the RTA Reform documentation, it states that most tenancies in New Zealand are around 12 months. The reality is that this summary is woefully inaccurate. At Real iQ we get access to Property Management data from around New Zealand which will include close to 20,000 properties under management. Only in one case have we seen a rent roll with the average length of a tenancy close to 12 months. The vast majority of what we see is in excess of two years with the longest being three and a half years. On top of this, we have contacted some of the largest companies in New Zealand such as Barfoot and Thompson, Ray White, Crockers in Auckland and Oxygen in Wellington. Between them, they will manage in excess of 30,000 properties. Again, their data correlates with our findings.

This graph from the Housing Stocktake of New Zealand shows the turnover of tenants is reducing and the report goes on to say the average length of a tenancy is over two years. Phil Twyford commissioned this report yet he insists that most tenancies last only 12 months.

The Housing Stocktake of New Zealand is a report commissioned and signed off by Housing Minister Phil Twyford. The report was compiled by Shamubeel Eaqub, Philippa Howden-Chapman and Alan Johnson back in February 2018. A lot of the recommendations around tenancy reform have come directly from this report. Under paragraph 1.4, the findings of the authors are that the average length of a tenancy is in excess of 2 years. Again, this backs up our findings throughout the industry.

One must question how and why the minister is stating that the average length of a tenancy is only 12 months. Therefore, we ask whether it is wise to make decisions when some of the data you are making the decision on is clearly flawed and inaccurate?

Removing ‘No Cause’ terminations from periodic agreements

This is a decision that we have thought long and hard about. Yes, some landlords do exploit this and if landlords do end a tenancy as a Retaliatory Notice (see section 54 of the RTA) then they should face sanction.

However, the reality is that the vast majority of tenancies end because a tenant gives notice, not the other way around.

What the reforms do not take into account is the safety and wellbeing of landlords, neighbours and in particular, Property Managers. Every year we survey the industry and put forward the question ‘Have you ever felt that your safety has been compromised as a Property Manager’?The majority of Property Managers have said yes, in particular, female Property Managers.

The job of a Property Manager can be at times risky and dangerous. You deal with conflict on a regular basis and property seems to bring the worst out of people. The risks of the role were so tragically highlighted last year when two Property Managers were shot dead in Northland.

The question we have around having to give a valid reason to end a tenancy is this. If we have to go to Tribunal to end a tenancy, how do you prove that your Property Manager felt at risk? We teach Property Managers to listen to their instincts and if they do not feel safe, do not enter. On a small amount of occasions in my previous role managing a large Property Management team, I would give 90 days’ notice to a tenant due to the fact that the Property Manager, almost always female, felt at risk entering the property. Seldom will the Police get involved as they look at these situations as civil matters. Therefore, obtaining evidence will become difficult.

Selling the rental property

Other concerns we have is around the landlord not being able to give notice to a tenant to sell a house vacant. This is hugely unfair on a landlord and I have seen numerous occasions where tenants have deliberately tried to sabotage sales due to the fact that they do not want to leave their tenancy. This can cost a landlord thousands upon thousands of dollars as tenants leave the property messy but not so bad that warrants a breach. We understand that the rental property is the tenants’ home. However, the property is owned by the landlord and they should have the ability to end a tenancy to sell a house vacant.

We see no issue with removing 42 days’ notice and extending this to 90 days’, but we feel that tenants notice period should extend from 21 days to 28 days. This will give a landlord more time to advertise their property to reduce the vacancy period.

Therefore, after careful consideration, we simply cannot support the removal of ‘no cause’ evictions. The decision is based mainly on the grounds of health and safety and the wellbeing of Property Managers up and down New Zealand. We wish for the status quo to remain for both periodic and fixed term tenancies. We do however, have an alternative recommendation in terms of penalising landlords who use ‘no cause’ evictions unlawfully.

Alternative action instead

What has always been apparent is that there is a simple lack of knowledge of rights and responsibilities. This is not just for tenants but also for landlords and disturbingly, many Property Managers as well.

Tenants already have a multitude of rights, the issue is, they do not know this, or they simply cannot be bothered challenging landlords. As such, we have an alternative suggestion to help protect tenants from being subjected to unfair evictions.

Increase exemplary damages for unlawful acts to a percentage of the annual rent income rather than a dollar amount and strengthen the penalties that can be awarded against landlords and tenants.

Example; currently the maximum amount of exemplary damages for section 54, (Retaliatory Notice) of the RTA is $4,000. It would be a far greater disincentive to make this far higher. For example, expand this to a maximum of 50% of the annual rental income. If a property rented at $450 per week then the annual rent would be $23,400. 50% of this means the maximum exemplary damages award for a Retaliatory Notice is $11,700.

Under section 13A of the RTA (Content of a Tenancy Agreement) include that a statement must be on the Tenancy Agreement notifying tenants that if they feel that they have been given unfair notice, they have the right to appeal this under section 54 of the Residential Tenancies Act. As 42-day notice periods are likely to be removed then we can extend the amount of time a tenant can apply to Tenancy Tribunal to 35 working days to give them more time.

Different Types of Tenancy

One of the recommendations the report makes is to remove the fixed term tenancy. I do see some logic in this reasoning. Fixed term tenancies can cause issues for tenants and landlords alike. However, they are particularly useful in regard to student flatting situations and gives tenants the assurance that their property cannot be sold from underneath them and it gives landlords assurance that they have tenants for the student year.

However, as the main theory around removing fixed term tenancies was due to the fact that periodic tenancies would convert to fixed term to avoid ‘no cause evictions’ then there is no point to change if the status quo remains. If a tenant is paying their rent on time and looking after the property, then there is no reason to not renew a tenancy.

Rent Increases

One recommendation that we do have is that a landlord can only do a rent increase at the renewal date of the tenancy and not half way through a fixed term.

Rarely have we seen rent increases every six months. The vast majority will offer a rent increase on an annual basis. We also have no issue with banning rent bidding.

Review Osaki ruling and we agree with Pets

This is one recommendation that we do agree with. Tenants should have the right to own a pet as they can play a major role in the emotional and mental wellbeing of tenants. It is not fair that a family in an owner-occupied property can have a dog, but tenants next door cannot without the landlord’s permission.

However, there has to be changes to the RTA to protect owners and this is where the current proposed changes in the RTA Amendment Bill Number 2 do not go far enough. Whether we like it or not, pets can and will damage rental properties. It is unfair to expect any landlord to have to pay money to rectify accidental damage caused by a pet however this will be the case under the current proposed changes in the RTA Amendment Bill Number 2. Under the proposed section 49B(3) When tenant liable it states that the tenant can only be liable for up to four weeks rent or excess of insurance, but not for each event.

The infamous Osaki case is finally being dealt with in the Residential Tenancies Reform Bill Number 2. We argue, it doesn’t go far enough with landlords unable to claim multiple insurances excesses for multiple insurance claims. This needs to change if tenants have the right to own pets

Often, insurers will look at multiple damages by a tenant as individual claims, so the landlord will have to pay multiple excesses. The tenant is only liable for up to four weeks rent. This again is unfair.

If the RTA Amendment Bill Number 2 is altered to ensure that tenants are liable for the excess on each insurance claim made by a landlord, then we will gladly support the allowance of pets.

In terms of pets, we suggest a new section of the RTA being introduced.

Section 41A Tenant’s responsibility for actions of pets.

In this, we propose the following.

On request by the tenant the landlord cannot unreasonably deny a request by a tenant to allow a pet.

Any pets allowed at the property must comply with local and statutory laws such as the Dog Control Act 1996. If the pet is a dog, then it must be registered with the local council.

The landlord can put limitations around the number of pets at the property (similar to occupants)

At conclusion of the tenancy, the tenant agrees to have the carpets commercially clean and treated for pests such as fleas.

Body corporate rules supersede any rights that a tenant may have in regard to pets.

Modifications

We agree that tenants should be allowed to make minor modifications to a rental property. Tenants will not be able to make structural changes to the property, this would be in breach of the Building Act and any local council by laws. Likewise, with electrical or plumbing work. Tenants should be allowed to hang picture hooks, put up shelving and other minor alterations.

The only concern we have around this is in regard to painting walls. Landlords should have the right to ensure that any painting is carried out to a professional standard and should have the right to say no if they have concerns around the tenant’s ability to carry out the work.

At the conclusion of the tenancy the tenant and landlord can decide to have the property restored at the tenants expense or leave the property as is.

Boarding Houses

We strongly approve of a Warrant of Fitness being introduced for boarding houses and their operators. The recommendations in the report should be implemented. New Zealand’s most vulnerable citizens often live in boarding houses and they need to be protected. Landlords in breach of standards set around a Warrant of Fitness should find their licence to operate suspended or have work orders enforced on them to make them compliant.

With an increase in short term rentals on a room by room basis, in particular around Central Otago, we believe that any property being operated under this manner with a tenancy that is greater than 28 days should come under sections Part 2A Boarding house tenancies.

RealiQ recommendation for exemplary damages

This is what we believe exemplary damages should look like. We also believe that there should be additional exemplary damages for intentional damage of a property, whether it be caused by the tenant, a guest of the tenant or a pet.

Enforcement of Tenancy Law

As stated earlier, we believe that enforcement needs to be looked at and in particular, how Tenancy Tribunal operates.

First, we will deal with exemplary damages. The current exemplary damages do not go far enough both for tenants and for landlords. We propose that the penalties should be greater and reflect the annual rent collected.

Example: Breach of section 45.1A Landlords Responsibilities is currently $4,000. This is a serious breach and should be extended to on serious cases such as the ‘Papakura swamp house’ a maximum penalty of 50% of the annual rent with a maximum ceiling of $50,000.

Likewise, the current penalties tenants may face do not go far enough. Tenants do not face exemplary damages for intentionally damaging a property. If I deliberately smashed someone’s car, I would face criminal charges. However, a tenant can deliberately damage a landlord’s property and only be charged the cost of repair and remediation.

This brings us to our final recommendation.

Automate Tribunal Orders for rent arrears only applications

Tenancy Tribunal is slow. With these reforms we predict that we will see more tenants exercising their rights (something we approve) and extending the amount of time it will take to get a hearing. Yet currently, of the 15,000 annual Tribunal hearings, roughly 68% of the hearings are for situations where the tenant is in arrears.

The Tenancy Tribunal role is to make rulings on disputes, however quite often, when a landlord makes an application solely for rent arrears, there are no disputes. What we propose is as follows.

The landlord can apply for termination on the grounds of rent arrears under either section 56 or 55 of the RTA.

When a tenant becomes 21 days or more in arrears then section 55 of the RTA applies (Termination for non-payment of rent, damage or assault).

The landlord should then send evidence to Tenancy Services proving that the tenant is 21 days or more in arrears.

If the application is solely for rent arrears then the adjudicator must provide a possession order of tenancy to the landlord giving possession to the landlord in five working days.

The tenants will be notified of the possession order. The time between possession being granted to the landlord will give the tenant time to apply for a rehearing under section 105 of the RTA. If the tenant has evidence that they have paid then a rehearing will be granted within 10 working days of the possession order being granted.

We believe that this will have the ability to half the Tenancy Tribunal wait time and lead to faster and fairer dispute resolution.

We believe following this process could half the wait time for a Tribunal hearing. Approximately 10,000 cases involving rent arrears are heard every year in Tribunal. On many occasions the tenant will not even turn up.

We agree that Tenancy Services and Tenancy Compliance Investigation Team (TCIT) should have powers to audit landlords and Property Management companies for compliance and have the powers to enter Boarding Houses. We also believe that TCIT should have the ability to issue all three options suggested under Enabling effective and efficient enforcement action.


new-zealand-parliament

Fixed on change. Why tenancy reform will benefit New Zealand

  • Radical changes proposed to Residential tenancies Act will provide more tools to property managers
  • Security of tenure may spell the end to the fixed term tenancy

Almost twelve months on from the formation of the Government, the changes around tenancy reform in New Zealand are coming thick and fast. Make no mistake, radical change is coming and particularly around the security of tenure and protecting tenants. A case I dealt with recently highlights why tenants need more security.

I received a call from a Property Manager last week asking for some guidance. The situation arose after a tenant was given 90 days notice to end the tenancy.

This is a scenario that many Property Managers, including myself, have found themselves in and many of you reading this will probably be able to relate to this story.

The Property Manager explained to me that a tenant of a particular property was demanding and very ‘nit picky’ when it came to requesting maintenance. However, although this tenant could be demanding, he looked after the property and always paid his rent on time. The landlord who had six properties with this company could sometimes drag his feet in getting things fixed and responding to requests. After a number of requests for a variety of minor maintenance issues, the landlord had simply had enough.

“Give the tenant 90 days notice” was the instruction that came across. “OK” said the Property Manager. The Property Manager then notified the tenant who asked why he had been given notice. The Property Manager in this case correctly stated that they do not have to give a reason but she would ask the landlord.

The landlord responds “Tell him my sister will be moving in after Christmas”. “OK” responded the Property Manager.

After notifying the tenant, the tenant subsequently gives the landlord 21 days notice to vacate the tenancy and move out.

Then the landlord responds to the Property Manager. “Right, can you advertise for new tenants please?”

“Hang on! You just told me your sister was moving in.”

“Yes, things have changed and she may no longer need it”

What is the Property Manager to do? Tell the landlord no we can’t and risk losing 6 managements with an annual contract value of approximately $10,000? Or do you risk it and re-advertise the property and hope the tenant does not go after you for Retaliatory Notice? If found guilty this could leave the company exposed to exemplary damages of up to $4,000.

This is not an isolated occurrence and as more and more tenants start to find their voice and speak up for their rights, more and more landlords may leave themselves and their Property Managers at risk because they make bad, ill informed decisions based on a lack of knowledge and emotion.

Laws need to evolve and landlords have to accept it.

In New Zealand, our rental laws have just become outdated and we are finally catching up with the rest of the world. The reality is that there are plenty of landlords out there who abuse their power and hide behind the Property Manager expecting them to take the fall whilst they have no care of responsibility. This was highlighted in a recent Consumer report that highlighted Property Managers were much slower in getting maintenance organised compared with the landlords who self managed. This is not because Property Managers don’t care, it is because it is much easier for a landlord to say ‘no’ or ignore the request altogether when you have a Property Manager as a go between. When you have to deal face to face with the tenant, its a lot harder to say no.

Have your say on proposed reforms to the RTA

I liken being a landlord to being a parent. No one admits to being a bad one but unfortunately in New Zealand, there are plenty of them. Whether through intent or pure ignorance of their responsibilities, many landlords get it wrong. Yes, the vast majority are good and try to do the right thing, but, like Property Managers, they can be let down by a small minority. Tenancy laws are not robust enough to deal with modern day renting and as about a third of New Zealanders now rent with many caught in the rental cycle for life, the Residential Tenancies Act has to evolve. Tenants need to be protected and looked after.

Tenants were given 90 days notice after this property hit the headlines for all the wrong reasons. The tenants rightly challenged this. No cause evictions will soon become a thing of the past. Good riddance I say.

As our Government approaches its first year anniversary, announcements of tenancy reforms are happening more and more as Phil Twyford’s masterplan starts to take shape. Between now and Christmas, we are going the see the following.

  • Proposed reforms to the Residential Tenancies Act announced in particular around the ‘security of tenure’, rent bidding and allowing tenants to have pets.
  • Stricter rules and regulations for operators of Boarding Houses with likely introduction of a Warrant of Fitness.
  • Standards and timeframe around the implementation of the Healthy Homes Guarantee Bill criteria.
  • Residential Tenancies Amendment Bill No.2 and Abolishment of Letting Fee Bill will become law.
  • And yes, the elephant in the room, there will be some announcement as to whether our industry will become regulated.

The Fixed Term Tenancy may go

The removal of ‘No Cause’ notice on periodic tenancies where the landlord can give the tenant 90 days notice without reason is the right thing to do. Yes, you will get the odd occasion where tenants who are a nuisance to society with anti-social behaviour may abuse the situation if it is not managed properly. However, situations like this will be rare and overall, this change will be to the betterment of New Zealand and it is long overdue.

The proposed reforms will scrap the 42 day notice period for family members moving into the property or vacant possession when the property sells. All notice periods to end a periodic tenancy will extended to 90 days under normal circumstances. More importantly, the landlord will also have to provide a valid reason to end the tenancy. Not liking a particular tenant isn’t a valid reason.

A potential victim of the removal of ‘No Cause’ 90 day notice is the Fixed-Term tenancy. The government have certainly done their homework around this, correctly identifying that if you have to give a valid reason to end a periodic tenancy, landlords will simply switch to Fixed-Term tenancies. With no reason required not to offer a renewal, the landlord retains control and the tenant may have to leave without good reason. As such three options have been proposed

  • Providing tenants with a right to extend their fixed-term agreement

This provides tenants with a right to extend or renew their agreement or allow tenants to move onto a periodic agreement provided that the tenant has not breached their obligations during the tenancy.

  • Specify a minimum length for a fixed-term agreement

This seems less practicable. There will be lots of situations where a landlord may want to rent his or her property out for a short period of time. Stating the minimum period may be too restrictive.

  • Remove fixed term tenancies altogether

This is the final option that has been muted as a way of dealing with the security of tenure and therefore, we will only see periodic tenancies. Landlords with properties catering for the student market around Universities will shudder at the thought of this suggestion. A tenant giving notice in July, half way through the student year could be disastrous with no rental income for six months being a real possibility.

The other unforeseen consequence of this is where a family has a holiday home. In many of the holiday hotspots, landlords offer fixed term ending around Christmas time so they can occupy the property for their Christmas holiday. This is common in places such as Wanaka. Requiring the property to have a ‘holiday’ is not a valid reason for giving tenants notice. It will be interesting to see the impact of the changes in markets such as this.

Looking across the ditch to Victoria, new rental laws have recently been passed which are very similar to what is being proposed in New Zealand. For Fixed term tenancies, landlords will only be able to end tenancies using an ‘end of fixed term’ notice to vacate at the end of a tenant’s first fixed term agreement. At the end of any subsequent fixed terms for that same tenant, the landlord will only be able to end the tenancy using one of the grounds specified in the state Residential Tenancies Act.

This reform aims to improve rental security and encourage longer term leasing arrangements between the parties, especially where a tenant has proven they can meet their obligations.

Tenants who receive an ‘end of fixed term’ notice will also be able to give 14 days’ notice to vacate the property at any time, rather than having to pay rent until the end of the fixed term. This will stop tenants missing out on new homes because they have to wait until the end of the fixed term, or paying double rent when they find a new home.

The household pet has been a victim of the housing crisis as many families have been forced to give up dogs. The new proposal is fair and reasonable as the problems arise from the tenants rather than the dog.

Who let the dogs out?

A long standing victim of the housing crisis isn’t just people, it’s pets. In fact, over three years ago, I wrote an article about the plight of families with pets looking for rental properties called ‘Gone to the Dogs’. From my own experience as a Property Manager, rarely did I have an issue in dealing with pet loving tenants. In fact on the contrary, I found pet loving tenants to be an absolute pleasure to deal with. So long as tenants provide evidence around registration of their dog, then having pets in rental properties should be a right of the tenant and not the landlord. A two year old child is just as likely to cause damage to a rental property, just leave them a set of crayons!

What we would recommend though is that landlords have the ability to ensure that carpets are commercially cleaned at the end of a tenancy along with treatment for fleas.

Why do we go to Tribunal for arrears?

A flow on affect from tenants feeling more secure could be an increase in tenants exercising their rights through the Tenancy Tribunal as there would be no fear of retribution. This would see a likely increase in Tenancy Tribunal hearings and longer wait time before you get a hearing. Tribunal has to operate quickly and fairly. Having unnecessary delays is unfair on both landlords and tenants. If there is a dispute and genuine concern about ongoing damage to a property then the landlord should be able to access tribunal quickly and vice versa for tenants.

One solution we have thought of is to remove rent arrears only applications from being heard in the Tenancy Tribunal.

This is the one area of renting which is straight forward and if a tenant is in arrears it is not a dispute. It is fact.

In 2017, there were just under 10,000 Tribunal hearings for rent arrears. This equated to approximately 65% of all Tribunal hearings.

In 2017, there were just under 10,000 Tribunal hearings for rent arrears. This equated to approximately 65% of all Tribunal hearings.

If the landlord or Property Manager can provide evidence that a tenant is more than 21 days in arrears and it is not in dispute then why should you have to go to Tenancy Tribunal to get a possession order? So long as there is no cross application then there is no dispute and possession should be granted without wasting the time of everyone involved.

Just think about the time that would be saved in Tenancy Tribunal.

  • Approximately 15,000 Tenancy Tribunal hearings take place every year
  • According to the reform discussion document, 90% of cases are lodged by landlords of which 75% are for rent arrears.
  • If the document is accurate this means that approximately 10,000 tribunal hearings will be for rent arrears.

Imagine the time saving if arrears disputes could be handled remotely without having to go to Tribunal. Once a tenant becomes say 21 days in arrears and evidence is provided then a possession order could be written up, sealed and the tenant would have to vacate the property within 7 days unless payment of the arrears is made.

In the UK, most tenancy disputes don’t even have a hearing. Parties submit evidence and a ruling is based purely on this. In today’s modern age with technology becoming so prevalent, it seems a complete waste of time and money to have to wait for a Tribunal hearing that in most cases the tenant does not even turn up for.

Other factors to discuss

The reforms are far and wide reaching. covering them all in this article would be akin to writing a book. Other factors that are in the document are as follows.

  • Outlawing rent bidding and reducing rent increases to once a year
  • Improving accountability for operators of boarding houses
  • Reviewing exemplary damages and assessing whether they go far enough
  • Look at the powers of MBIE to investigate severe alleged breaches of the RTA

Whatever comes of these changes, there is no doubt that tenant groups will become more confident about the future of renting with more power moving towards the tenant. Overall, as an industry I do not believe we have anything to fear - in fact I believe the reforms will make our job easier. Yes, there will be concerns around what happens with Fixed-Term tenancies but I have not seen anything in this document that I feel strongly opposed to. If anything, I do believe the changes will give more power to Property Managers as they will have more tools at their disposal in dealing with difficult clients whether they be landlords or tenants.

The concept of being a tenant has changed. It is no longer a temporary solution before you get your first house. For many, they do not have that luxury. I for one support many of the changes proposed.

Next thing to cover will be the standards around the Healthy Homes Guarantee Bill and regulation of our industry. Change is constant in business and in life and sometimes the amount of change we are dealing with can feel somewhat overwhelming. Rather than fight the inevitable, my belief is that we should embrace change and the companies that do this will thrive. In the case of tenancy law, it is change that needs to happen and long term, the nation will be better off for it.


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.

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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.


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