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

 


Is this man the biggest threat to the Property Management industry?

  • Wellington City Council set to become a Property Management company if Mayor Justin Lester is re-elected

  • A bold new initiative to control rents or an attack on free enterprise as Lester looks to control the market

Lets put our cards on the table before we start. Wellington is the city I call home. I have lived here for five years with my family and we absolutely love the place. Yes, it has its pitfalls. The city feels like its crumbling as building after building is closed due to earthquake risk. The infrastructure and road network no longer feels as though it is fit for purpose and trying to get across the city can be an absolute nightmare. However, we live in a fantastic beautiful and vibrant city with plenty to see and do. The views are stunning, the harbour is picturesque and there is no shortage of great walks, vibrant coffee culture and some amazing craft beers. 

Wellington, however, has a big, big problem.

Mayor of Wellington, Justin Lester is proposing a radical solution for the Capital's rental crisis.

A perfect storm for rent increases

Rents have skyrocketed in the city with one councillor stating that Wellington will become a 'ghetto for the middle class' if rents continue to rise. And rise they have to unprecedented levels that widen the gap between the haves and have nots. According to Homes.co.nz, the capital has surpassed Auckland for rents with median rent sitting at $658 per week whilst Auckland is now at $627 per week. The situation we have now was entirely predictable and anybody with a basic understanding of economics could foresee what was going to happen.

Nearly two years ago on December 2017, I spoke at an investment seminar in Wellington saying that we were creating a 'perfect storm' for rent increases in the capital. I argued that the following would cause rents to increase by 10% over the next 12 months.

  • An anti-landlord Government making changes to legislation and taxation in an attempt to force landlords to sell properties and subsequently reducing stock.
  • Letting fees being put on to landlords who will in turn increase rents.
  • First-year student fee's being wiped meaning more people heading to the universities putting a greater demand on rental accommodation.
  • A Labour-led Government traditionally leads to an increase in governmental jobs putting further demand on rents and house prices in the capital.
  • A lack of building activity within the residential sector and a shortage of tradespeople leading to an increase in costs for people wanting to build.
  • Legislation forcing landlords to invest in their rental properties with the inception of the Healthy Homes Guarantee Bill.
  • An estimated increase in the population of about 65,000 over the next 30 years, contributing to demand outstripping supply.

There is no satisfaction in gloating and saying 'I told you so' as it was so obvious that this was going to happen. Anyone with a grasp of reality could have predicted this. A new government came to power with a philosophy that everyone would live in affordable, warm and dry homes. The subsequent outcome has lead to a shortage of stock and forced rents to increase to dangerously high levels. 

Milton Friedman would probably turn in his grave if he saw what Mayor of Wellington, Justin Lester was proposing

The public sector looks to control the market. Will it work?

In February 2018 I wrote an article about the unforeseen consequences that this well-intentioned ideology would have. I quoted the famous American economist Milton Friedman who famously once said - ‘If you put the federal government in charge of the Sahara Desert, in five years there’d be a shortage of sand.’

Clearly, Justin Lester, the Mayor of Wellington doesn't share Milton's views as the public sector is threatening to intervene in the private rental market. If Lester is re-elected as Mayor, the Wellington City Council are poised to become the first public sector Property Management company for private landlords and it will not be used as social housing. It will be renting properties on the open market in an attempt to control rents in the city. 

A trial for future changes in legislation?

It is a bold, ambitious and in our opinion, a highly controversial plan.

What the Mayor is proposing is that private landlords lease their properties to the council for a period of 10 years at market rent. The council would then sub-lease the properties on the open market at a reduced rate in an attempt to control the market. The council will have a clause written into the agreement that the rents will only increase in line with inflation for the duration of the tenancy. One suspects that this Labour based council will guarantee the lease to the tenants for a period of 10 years but they will also give the tenants the ability to give notice so tenants feel as though they have security and flexibility. Great news if you are a tenant.

This could be the blueprint for radical reform to the Residential Tenancies Act as Lester and his council could be acting as a guinea pig for the Labour-led coalition as they struggle to get a handle on the housing crisis in New Zealand. 

If they can pull it off, and it’s a very big if, other councils may follow suit which would be a major threat to Property Management companies across the country.

There are over 10,000 bonds lodged a year in the capital with rents increasing annually by approximately 10%. Inflation is growing at 1.5%

Thousands of properties required to make a difference

What will it take to make the idea work?

The council would have to sign up literally thousands of rental properties to be in a position where they can influence the market. Also, will ratepayers be happy about subsidising a giant public property management company?

The costs of running such as beast would be substantial. 

If you subsidised rents by $50 per week and let's say the council have 2,500 properties, that is a bill of $6,500,000 that the ratepayers have to pick up. And this is based on achieving 100% occupancy with no defaults on rent.

Then you would have the operational costs of running such a project. Let’s say you have 30 staff working on the project as well as all the typical expenses, I doubt you’d get much change on $10,000,000 per annum.

For this to have any impact on the rental market, we have to work out how many properties the council would have to manage to make an impact on rents. Let's look at how many rental properties there are in Wellington and to do this, we have to look at statistics from the Tenancy Services.

Wellington city has a population of about 216,000. This excludes the wider region which has a population of nearly half a million. We have collected a list of bonds lodged in Wellington over the last 12 months from statistics on the Tenancy Services website. From the period of August 2018 to July 2019, over 10,000 bonds have been lodged across the city with median rents increasing by 9.6% over the same period. With annual inflation running at a stagnant 1.5%, you can see the predicament facing the city. Increases by this amount are unsustainable.

Bonds Lodged Wellington, August 2018 to July 2019: Over 10,000

If the average length of a tenancy is about 2.5 years this would mean that Wellington would have approximately 25,000 to 30,000 rental properties owned by the private rental sector. For the Council to have any influence on the rental market, it would need to have secured at least 10% of these properties to have any influence on the market. That would mean 2,500 to 3,000 rental properties would be acquired by around 2,000 private landlords. 

If they can pull this off, expect to see Justin Lester walking up on stage at REINZ and LPMA Award ceremonies in 2020 taking out the Business Development Manager of the Year award!!

What could the impact be for the Property Management industry?

If, and it is a very big if, the council are successful, Property Management companies may find themselves at risk, and not just in Wellington as other councils may replicate this initiative. Why would you pay 8 to 10% for your property to be managed when the council will do it for free for 10 years and guarantee the rent. Think about it! If you are a landlord with no intention of selling for at least the next 10 years, on the surface, it looks like a no brainer. I simply give the council my property, they pay me market rent for 10 years and I do nothing other than pay for the odd bit of maintenance.

But is it the state's job to compete with the private sector? Surely this is an attack on free enterprise. One could even argue it is a step towards socialism. The state taking over the running of a sector that has been dominated by private Property Management companies is a scary thought.

Running a business is far from easy and the prospect of trying to compete with a giant subsidised Property Management company offering a free service for landlords is a daunting prospect for many business owners across the capital.

As an industry, we have been constantly under attack and now it appears that we are being blamed for over-inflated rental prices. The reality is basic economics along with added costs have driven up rents and this idea feels like the left-wing of the political spectrum is clutching at straws.

Why stop at rentals? 

The council could become a giant real estate company, buy properties off vendors at market price and on-sell them at a reduced rate in an attempt to control house prices. All this subsidised by the Wellington ratepayers of course. We could have a Wellington City Council petrol station company, subsidising petrol or how about a Wellington City Council power company, offering reduced power prices for tenants. The list goes on and on.

Increase supply and remove red tape

If the Wellington City Council really wants to help, then the focus should be on increasing the city's supply and making sure that the right type of properties are being built. New Zealand desperately needs three-bedroom housing and plenty of it. All across New Zealand, with the exemption of Christchurch, we have seen the wrong types of properties being built. Ironically, Christchurch is the one city in New Zealand that is relatively affordable and that is purely down to supply meeting demand. 

Look at the apartment market in Auckland, it is saturated with one and two-bedroom apartments, there is no shortage of property there. If it isn’t apartments, then its four-bedroom McMansions in the suburbs that have been built. We need to look at future demographics and build what our population needs. Plenty of compact three-bedroom housing close to the city with strong infrastructure to keep people moving is the key to any city’s success.

Instead of trying to control rents, why not subsidise landlords to install solar power?

Rather than subsidising rents, why not reduce the cost of obtaining consents or subsidise landlords to put solar power on rental properties to reduce the operational costs for tenants. It is in nobodies interest other than a handful of greedy landlords to have over-inflated rents in any of our cities and towns. If people have no disposable income, the economy will grind to halt and we will find ourselves staring down the barrel of a recession. 

So my advice to Mr Lester is to learn from your mistakes. At the last election, he campaigned on introducing the Rental Warrant of Fitness and look at how that turned out? You could count the landlords who used it on one hand.

As demonstrated, the cost of operating such a beast will be extensive and who is going to train them on how to do it? If the council acquired a flood of properties, someone has to do the basic donkey work that a Property Manager does day in day out. Who foots the bill if a property is trashed or damaged? And do ratepayers really feel happy that their hard-earned income is spent in such a frivolous way?

Yet again, this is an example of an idea thrown up out of desperation without proper consultation with industry experts. But hey, they know best, don’t they? Just look at the success of the Warrant of Fitness.

One understands the motives and we wholeheartedly agree that rents increasing at such a rate will have damaging consequences for the region as a whole. This idea, however, will not work. Increasing the supply and improving the current rental stock is the only thing that will work. 

 


Burnout: Why the Property Management industry is facing a crisis

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

  • Well being and safety are major concerns as demands increase

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

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

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

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

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

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

Greater demands on landlords following through to Property Managers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Then there is the incessant whining. 

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

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

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

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

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

Nothing has changed

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

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

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

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

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


Tenant selection turned into a lotto draw

  • Ill-conceived guidelines poorly thought out by Privacy Commissioner

  • Potential lotto draw for tenant selection created

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

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

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

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

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

 

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

Why do we have new guidelines?

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

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

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

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

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

Personal information shall not be collected by any agency unless

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

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

What is in the new guidelines?

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

GUIDE TO PRIVACY COMMISSIONER GUIDELINES

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

  • Always Justified
  • Sometimes Justified
  • Almost never Justified

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

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

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

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

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

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

Confusion reigns as lack of consultancy hinder guidelines

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

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

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

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

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

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

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

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

Credit check? only sometimes!

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

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

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

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

The importance of proof of income

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

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

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

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

Getting the balance right

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

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

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

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

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

Regards

David Faulkner

 


The broken dreams of renters united

  • Renters united launch the plan to fix renting
  • Tenant group growing in political influence with heavy weight support

On Wednesday the 11th of July, Renters United launched their 'Plan to Fix Renting' and it grabbed plenty of media attention. This small group of volunteers have certainly been successful in drawing attention to themselves and whether you are a tenant or a landlord, you have to hand it to them they are extremely well run and have some prominent public figures backing their cause.

At the launch, they had Philippa Howden-Chapman of Rental Warrant of Fitness fame presenting and supporting them. They also had Sam Huggard of New Zealand Council of Trade Union presenting and Labour MP for Rongotai Paul Eagle was present as well.

Legitimate concerns or socialism in disguise?


I decided to go along to have a look and listen to what they were proposing and to talk to some of their members. First impressions are that Renters United are a well-meaning group, fighting for the underdog. You have to admire the efforts and commitment of people such as Kate Day and Robert Whittaker who largely run the organisation. There is though an element of the group that is a little concerning with more than a hint of anti-capitalism and pro-socialist about their views. Because of this, it could have a detrimental impact on their credibility.

The fact that there has been absolutely no engagement with landlord groups or the Property Management industry is regrettable. As I wrote in my blog back in February, for every good intention a well-meaning group may have there is likely to be unforeseen consequences that can have a negative impact on what you are trying to achieve. You cannot fix renting without taking off the blinkers and listening to the thoughts and recommendations of Property Managers and landlords alike.

The most compelling of the speakers questioned the whole principle of private land ownership, and was utterly scathing of Property Managers, referring to our industry as 'Opportunistic Profiteering Parasites'. It is all very well to stand on stage and claim that our industry regularly discriminates based on race, sexual orientation, employment status and family status but to then go on and label our entire industry as parasites is a nonsense, hypocritical and discriminatory in itself. Groups like Renters United would do better to engage in meaningful debate with landlords and Property Management groups rather than call upon individuals who draw attention to themselves with such extreme and polarising views.

WHAT IS IN THE PLAN TO FIX RENTING?

What is in the plan?

There are four sections to the plan with 36 points that they want to develop to fix renting. The four sections are as follows.

  • Stable homes
  • Fair rent
  • Safe and healthy homes
  • Meaningful enforcement

Let's tackle each of these issues one by one and grade them out of 10.

Stable homes

The first part of the plan has nine steps that focus on protecting tenants from eviction. Firstly, we agree that a stable home is essential for the well-being of tenants. Stability will be beneficial for all. Children are not uprooted from schools and families will become more engaged with their local communities.

This part of the plan mainly focuses on reasons why a tenancy is ended by a landlord. There is a large emphasis on protecting the tenants against evictions and in particular, no cause evictions. A landlord will have to give a legitimate reason to end a tenancy and the tenant will have the ability to address that reason. This even comes into effect if the landlord has to sell the property. Renters United are proposing that even if a property sells, or the owner wants to reoccupy, this is not a legitimate reason to end a tenancy. If you rent out your property you could potentially be putting the property on the rental market indefinitely.

The only reason to end a tenancy will be for rent arrears, anti-social behaviour and serious damage to the property. Indefinite tenancies could become the norm. Tenants will also be able to make minor alterations to the property and be allowed to have pets. In the event of a landlord giving tenant notice, the tenant will be able to give the landlord 7 days notice. Overall, the ideology around these steps does have some logic. Tenants can stay as long as they want so long as they look after the property and pay the rent on time. Win-win for everyone.

However, the plan fails to take into account the dilemma that many landlords may find themselves in as their circumstances change. A landlord may be forced into either selling the property or having to reoccupy it.

If you do have to sell, who would want to buy a property with a permanent sitting tenant in place? What it will do is reduce the capital value of the property. The only people who will likely purchase the property are either investors or developers. It will not be available for first home buyers.

The accidental landlord could also be forced out of the rental sector. Some people become landlords not through choice but through accident whether it be through divorce, relocation or inheriting a property. If this group of landlords are forced to rent out their property indefinitely they will leave the rental sector adding to a reduction in rental stock and driving up rents even more. These are just some of the unforeseen consequences this type of ideology can create.

I do share the views that too many tenants are forced out of houses quickly when the landlords sell and extending the 42 day notice period may help. However, the recommendations made by Renters United would likely see even more landlords leaving the private rental sector. Landlords should be able to sell their assets in circumstances that suit them. You would see a greater reduction of first home buyers as they would be squeezed out of the market due to lack of available stock. This may lead to a two-tier housing sector with first home buyers forced to pay more as there will be a shortage of supply.

One thing we do agree on is the reduction of the frequency of inspections to every six months after a tenant has occupied a property for one year. Every three months is intrusive and unnecessary however if the tenant is not looking after the property and breaches are issued a landlord should have the opportunity to re-inspect following up on the breaches.
Overall, we give this section a 5 out of 10. The policies are well-meaning but will lead to a further reduction in rental stock.

Fair rent

One of the great misconceptions within the group was that landlords and property managers ramp up rents every six months. I hardly ever see this happening. I see no issue with an annual rent increase as to what they are proposing and tenants already have the power to challenge the landlord through the Tenancy Tribunal for Market Rent. Capping a rent increase goes against the concept of a free market.

The basic rule of economics is supply versus demand. Yes, rents have gone up and slightly ahead of income but the reality of the situation is simply down to a lack of rental stock. Landlords are having to make a significant investment in their properties and want an economic return. The only way this can happen is through rent increases.

This graph is the Housing Affordability Measure for all properties in New Zealand. It is based on the number of occupants of houses that spend more than 30% of their income on accommodation. As you can see, rent has been stable for over 10 years. (sourced from Ministry of Business, Innovation & Employment).

Take a look at Christchurch and Wellington as an example. Christchurch has an oversupply of rental stock available and as such we have seen rents decrease slightly compared to Wellington which has a shortage of stock and subsequently rents have increased. There is no conspiracy between landlords to fix rents in Wellington. There are no landlords preying on students who have had money given to them by the state. The issue has always been that there is not enough stock in Wellington. In particular, three bedroom properties are what New Zealand needs. This is the failure of consecutive central Governments, local councils, poor planning, increased bureaucracy and a lack of foresight. This is not the fault of landlords.

PROPERTIES FOR RENT ON TRADE ME (15TH JULY 2018)

In this chart, we highlight the impact of Supply v Demand. The average weekly rent in Wellington is $488 compared to Christchurch which is $372 (statistics obtained from MBIE) . The only way to control rents is to increase supply. State intervention is not the answer.

If you want to control rents, do not leave it to the state. New Zealand needs a strong private rental sector and if you make it difficult you will see a mass exodus of private landlords. We have already seen this as compliance costs, meth, Osaki have all lead to many landlords saying enough is enough. Let the market decide and build enough rental stock to meet the demand to control rents.

Renters United also seem to have the opinion that landlords own copious amounts of properties and nothing could be further from the truth. The vast majority own only one or two properties.

The final point that Renters United make is to scrap the letting fee. There is a sense of inevitability about this and ultimately the tenants will pay for it with rent increases as companies and landlords attempt to recover the costs.
As with every facet of business, let the market decide, not the state. If you want rents to be stable we need more stock.
This will have the opposite effect. 2 out of 10.

Safe and healthy homes

This is one section that Renters United and I agree on the majority of the proposals.

I have always argued that if you are a landlord you have a social responsibility to provide a warm dry house and as a nation, we will all collectively benefit if our housing stock is warm and dry.

The Healthy Homes Guarantee Bill will go a long way to sorting out the rental stock of New Zealand but it will take time to fix simply due to a lack of tradespeople.

A concern I have about their proposal is that there seems to be an over-emphasis on compliance with the Rental Warrant of Fitness being implemented along with a Rental Housing Quality Grade system. One or the other should suffice, having both is further unnecessary cost put on landlords and on the tax-payer. More bureaucracy, more cost.

There is also a suggestion that local councils can supplement national standards with their own specific regional needs such as ventilation in warmer climates. This is all very well but why would you limit the proposals to just rental properties? Surely all residential housing needs to come under such legislation.

One potential flaw in the plan is that if they try to rush this through, then time may be an issue. I suspect we will see a number of non-compliant rental properties this time next year due to a lack of insulation. If standards are set and the timeframe for compliance is too short we may see thousands of rental properties left derelict as the cost of getting older properties compliant will not make financial sense. This will again lead to a reduction in available rental stock and drive up rents further.
The majority of this we are onboard with 7 out of 10.

The plan to fix enforcement

Some of this we are 100% behind such as the regulation of Property Managers. I even support increasing sanctions on landlords who are in breach of the Residential Tenancies Act. There is also the recommendation that a landlords register is adopted along with a register of every rental property. The data that will be accumulated will be extremely valuable to track trends such as rents, length of tenancies and track compliance.

Whoe does tenancy tribunal favour. Vote now.

Some of the suggestions though are unbalanced. Renters United claim that the disputes process is unfair, with a power imbalance in favour of the landlord.

The current system is in our opinion extremely fair and if anything there is a bias towards the tenant. Look at the implication of the Osaki case. Tenants have no responsibility in terms of accidental damage and many, including myself, feel that this has swung too far in the tenant's favour.

Overhauling the whole disputes process including Mediation and Tribunal would be a massively expensive and an unnecessary process. Some of the changes they propose around changing Tenancy Tribunals to become focused on investigation and establishing the facts seems to be exactly what we have now. Tenancy Services provides a useful service for tenants and landlords.

The reality is tenants have plenty of rights. The main issue is that the vast majority of tenants do not know how to exercise them or simply cannot be bothered.

Another interesting idea is to anonymise tenants who appear in Tribunal so they do not fear standing up for their rights. This can work but only under special circumstances such as when the tenant applies to the Tribunal. They can be given the choice to remain anonymous and it must only apply when they are successful in their claim or when the tenant's safety is compromised.

The concept around this is that every tenant is a victim, yet there are plenty of landlords who are victims of bad and unscrupulous tenants.

The feeling that tenants are victimised through the disputes process is completely unfounded and highlights the deficiencies in this whole plan. It is too one-sided with no input from the other side. If you asked Property Managers who are dealing with disputes who the system favours, I would suspect the majority would say the tenant.
Some of this is spot on, other parts are inaccurate. 5 out of 10.

Is renting really broken?

Reviewing this leads me to the final question. Is renting really broken? Some of the current legislation is probably now out of date and needs reviewing, but overall the Residential Tenancies Act just needs some fine-tuning.

The main issues are around supply and demand of rental properties, poor quality of much of the rental stock and issues around the lack of regulation around Property Managers. If and when the industry is regulated you will see long-lasting improvement in the quality of service and qualified, regulated Property Managers will not be allowed to manage non-compliant properties. The other recommendation we have is that private landlords need to sit an exam to allow them to privately manage their own investment properties. Many of them muddle their way through the process, making mistakes and leaving them exposed to litigation.

At least the Government is trying to do something about increasing stock and the Healthy Homes Guarantee Bill will go a long way to improving the quality of rental properties, but this is going to take time.

Overall, Renters United have successfully put the spotlight on renting in New Zealand, though this whole document would have far more credibility if it had input from groups such as REINZ or NZPIA. It would be far better if we all listened to each other's concerns and adopted a collective response.