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

 


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.