Buddle Findlay Partner Daniel Kelleher discusses some of the key proposals to reform the Residential Tenancies Act 1986, as outlined by the Government in its discussion document seeking feedback on the proposals. Submissions are due by 21 October 2018.
Why the perceived need for reform?
The Residential Tenancies Act 1986 (the RTA) has governed legal arrangements between residential landlords and tenants in New Zealand for over 30 years now.
Following on from the healthy homes legislation in 2017, the Government has committed to a reform of the RTA largely in response to shifting demographics in the housing market which have seen:
The primary focus of the reforms is to provide greater protection to tenants by giving them increased security in their tenancies.
The Government has recently issued a discussion document seeking written submissions from the public on various proposals to reform the RTA. Submissions are due in by 21 October 2018, with any changes expected to come into force in 2020.
This article discusses some of the significant proposals and looks at some of the potential consequences for landlords and tenants.
Termination provisions
The Government is committed to amending the termination provisions of the RTA so that tenants who are meeting their obligations are able to stay in their homes longer and have greater control over their tenancies. To meet this objective, the Government has proposed to amend the law by:
Effect of extending notice periods
Currently, landlords can give 42 days notice to end a tenancy where:
Under the proposed reforms these termination grounds would still be available on 90 days notice, but some additional grounds would be added including where the landlord:
Extending the notice period for the above is likely to provide tenants with greater comfort that they will have enough time to find an alternative home if they are required to leave the property. However, increasing the timeframe to 90 days would reduce a landlord’s ability to swiftly deal with their property, whether it be to move back into the property themselves or sell the property with vacant possession.
Effect of removing no-cause terminations
Removing no-cause terminations is likely to make tenants feel more secure in their homes. In addition, it may also make tenants more willing to raise issues about the condition of the property as fears of retaliation from the landlord by terminating the tenancy without cause should be reduced.
If landlords are unable to rely on no-cause terminations to end periodic tenancies, they will have to follow the current process of applying to the Tenancy Tribunal for an order to terminate a tenancy. This process requires a landlord to provide a notice to the tenant of a breach. This notice gives the tenant at least 14 days to remedy the breach and where not remedied, the landlord can apply to the Tribunal for an order to terminate the tenancy. The landlord will have to present evidence in support of their application.
This process is more time consuming and costly for landlords, who have historically had the option of simply issuing a 90 day no-cause termination notice to end a periodic tenancy. If landlords consider that the proposed changes to periodic tenancies will make it too difficult to remove tenants who don’t meet their obligations, they may instead opt for fixed-term agreements or choose to not provide their properties for rent at all.
Forms of tenancy agreement
The RTA currently provides for two main types of residential tenancy agreement, being:
The Government has proposed a review of the types of tenancy agreements available. Submissions have been sought on proposals to:
Effect of providing tenants with a right to extend their fixed-term tenancy
Typically, fixed-term agreements are for a period of around 12 months and it is common for agreements to expire around January and February. With the majority of fixed-term tenancies ending in the same period, high demand can make it challenging for tenants to find alternative accommodation. Providing tenants with a right of renewal provided they have not breached their obligations during the tenancy may decrease the uncertainty that tenants typically feel around the expiry. A negative consequence of this may be that landlords instead issue a notice in respect of minor breaches of the tenancy agreement during the fixed term, in order to be able to position themselves to terminate an agreement at the end of that term.
Minimum length fixed-term agreements
A possible response to the Government’s proposals is that landlords may be inclined to offer short-term fixed tenancies as a means of avoiding extended notice periods and Tenancy Tribunal hearings under a periodic tenancy. Setting a minimum length term for fixed agreements (for example two years) could address this and provide greater security for tenants. If tenancy agreements are fixed for longer periods, landlords might also accept a lower weekly rent for a property if they know that the rental income will be steady. On the flipside, this may deter people from making their homes available for rental where their intended absence is less than any minimum fixed term.
If landlords are able to rely on longer term fixed tenancies this is likely to make managing the property and satisfying their mortgage obligations more certain too.
Open term tenancies only
An alternative option proposed by the Government is to end fixed-term tenancies and only allow periodic/open term tenancies. As with the proposed amendments to the termination provisions for periodic tenancies, this means landlords would only be allowed to terminate an agreement if the tenant is not meeting its obligations or for specified reasons permitted under the RTA.
This approach has the benefit of simplifying tenancy agreements and provides tenants with stability and increased security of tenure. However, landlords would lose the stability that fixed-term tenancies provide as under current notice periods tenants would be able to end the agreement by providing 21 days’ notice. If fixed-term tenancies are no longer an option, we suggest that the notice period for tenants to terminate should be increased to assist landlords in reducing vacancies at their properties.
Landlords, tenants and other interested parties are also being urged to have their say on:
Striking the right balance between the rights and obligations of landlord and tenant will always be a challenging thing, and now is your chance to express your views on how this should be done. As set out above, submissions close on 21 October 2018, with any changes expected to come into force in 2020.
Click here for a link to the Discussion Document.
Partner Daniel Kelleher specialises in property law and has extensive experience in property sector, corporate, banking and commercial transactions. He has particular expertise in local government projects, urban renewal projects, infrastructure and utility projects and property finance transactions. He advises local authorities, Crown entities, banks and corporates on all real estate matters including developments, acquisitions, divestments, structuring, joint ventures, limited partnerships and property finance. Contact Daniel at daniel.kelleher@buddlefindlay.com
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