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Radical reforms up for discussion

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The Government has released a discussion paper as a prelude to what will be a comprehensive reform of the residential tenancy market. The changes to be “discussed” come on top of a number of changes either in place or on the way.

The new proposals up for discussion include:

  • Removing the “no cause” right of landlords to terminate tenancies. Termination would be limited to “specific and justifiable criteria”.
  • Increasing a landlords’ notice period to 90 days in all cases (from 42 days where the owner or their family member requires the premises to live in or the property has been sold with vacant possession.
  • Limiting rent increases to once a year (from six months currently), removing the practice of rental bidding, beefing up the rights of tenants to challenge rent they consider is higher than market rent, and requiring landlords to include a formula to show how they will calculate future rent increases. There appears to be little discussion on the 12 month limitation, which the Government says it is “committed” to.
  • Reviewing the rules governing fixed term tenancy agreements including giving the tenant the right to extend or renew their fixed term agreement or move onto a periodic agreement. It is also likely that the minimum duration for a fixed-term tenancy would increase, and two years is mentioned as an example, and
  • Increasing the rights of tenants to keep pets and make “reasonable” modifications to the property.
  • Of these changes, the “no cause” clause is likely to be the most problematic for landlords. The effect is that a 90 day notice to vacate will only apply where the landlord:
  • Intends to carry out extensive alterations, refurbishment, repairs or redevelopment of the premises and it would not be possible for the tenant to continue to live there while the work was being undertaken, or
  • Intends to change the use of the premises, e.g. from residential to commercial, or
  • If a person, such as a mortgagor, becomes entitled to possession and needs the tenant to vacate the premises to meet requirements relating to a mortgagee sale process

Where these situations don’t apply a landlord would need to obtain a Termination Order from the Tenancy Tribunal, which can only be granted in certain situations specified in the Act – for example, where the rent is at least 21 days in arrears. This will make termination more difficult.

Extending the notice period from 42 days to 90 days may also be problematic where a property is sold. This will complicate a sale and may make homebuyers less inclined to buy a rental.

Having longer fixed term tenancies will be welcomed by some landlords and tenants, but specifying a minimum term of two years will not. Market evidence suggests that tenants generally do not like leases longer than 12 months, mostly because their personal circumstances may change.

Extending the rental increase period from 6 to 12 months may work against a tenant as landlords will be more likely to schedule reviews annually and link the increases to metrics like inflation, rates rises, property value, and so on.

On the positive side, the discussion document does not propose a warrant of fitness for rental properties. It is being considered for boarding houses.

The reforms are unlikely to become law before mid-2020.

Comment about the proposed reforms may be made online at research.net/r/rta-reform-survey. Submissions must be in by 5pm, 21 October 2018.

Frank Newman is an independent property analyst and commentator. He may be contacted at frank@newman.co.nz