The latest landlord guide: the rules imposed by the new tenancy law taking effect next month

The Residential Tenancies Act, introduced in 1986, is about to undergo its biggest changes in 35 years. These are widely regarded as the most restrictive and stringent amendments ever imposed on landlords, and are expected to influence their willingness to rent out properties. As a landlord, even if you entrust your rental property to an excellent property manager, you still need to understand and comply with the new rules.

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What restrictions will landlords face?

Although the amendment appears to take full effect on 11 February 2021, its implementation can actually be divided into three stages. Below, we outline the boundaries for landlords by both timing and subject.

 

Stage one:

Timing: August 2020

Subject: frequency of rent increases

Rent may be increased no more than once every 12 months.

 

Stage two

Timing: from 11 February 2021

Subjects:

• Terminating a tenancy

Landlords will no longer be able to end a periodic tenancy without a reason by giving 90 days’ notice. They may terminate a tenancy only on specified grounds, and notice periods have also changed. For example, 90 days’ notice applies when a landlord intends to sell the property, while 63 days’ notice applies when the landlord or a family member intends to move in.

• When a tenancy expires

Unless the parties agree otherwise, or the tenant gives 28 days’ notice to end the tenancy, all fixed-term tenancies will automatically become periodic tenancies when the fixed term ends. Landlords must then follow the rules for periodic tenancies and cannot terminate them without a reason.

• Minor changes

Landlords must agree to tenants’ requests to make minor changes to a property, although they may impose reasonable conditions on how the work is done. At the end of the tenancy, tenants must remove the changes made during their tenancy and restore the property.

If a tenant requests fibre broadband and the network provider can install it free of charge, the landlord must agree to the installation.

• Rental bidding prohibited

Rental properties cannot be advertised without stating the rent: every property must have an advertised price. Landlords must also not invite or encourage tenants to bid on the rent.

• Permission to assign or sublet

Tenants under all tenancy agreements may request to assign or sublet their tenancy. Landlords must consider these requests and cannot refuse them without a reason.

• Privacy protection

When a tenancy dispute goes before the Tenancy Tribunal, tenants may request privacy protection to avoid being blacklisted.

• Documentation requirements

Landlords will be required to keep more detailed tenancy records, and failing to provide a written tenancy agreement will be unlawful. Landlords must also have records of all expenses and repair receipts ready to submit to the Ministry of Business, Innovation and Employment (MBIE) if required.

• Stronger penalties

The enforcement powers of the tenancy regulator, the Ministry of Business, Innovation and Employment (MBIE), have been clarified and strengthened.

The maximum amount the Tenancy Tribunal can award will rise to NZ$100,000, with heavier and stricter penalties for landlords with 6 or more tenancies.

 

Stage three

Timing: from 11 August 2021

Subject: withdrawing from a tenancy because of family violence

Tenants experiencing family violence may withdraw from a tenancy of any duration without financial penalty by providing appropriate evidence and giving their landlord just 2 days’ notice. If the person leaving is the sole tenant, the tenancy will end. If other tenants remain, they will receive a proportionate rent reduction for two weeks.

For further details, please see https://mp.weixin.qq.com/s/fWNTe_x8eLVR1LUFT7t6UQ

The amendment sparked a strong reaction as soon as it was introduced, with interested parties taking sides to praise or criticise it. As the date of full implementation approaches, commentary and predictions have grown louder. Broadly speaking, they centre on the following questions:

Will large numbers of rental homes be left empty?

The NZ Herald reported the views of an investor named John Kenel. He said he would consider leaving the rental market: “Unfortunately, that means I will leave more homes empty.”

 “I invest in old houses for redevelopment. In the past, I could rent them out temporarily at relatively low cost before development began. Now that has become too difficult.” Kenel said many investors he knew had said they would stop renting out properties. In his view, “The government has no understanding of cause and effect in housing.”

Kenel declined to disclose how many properties he owned, but said he had several. For most landlords, however, leaving homes empty may not be in their interests because of the adverse tax and lending consequences.

Landlords who choose not to rent out their homes may lose deductions for some expenses, including interest. They may also breach their lending covenants with the bank, giving it the right to call in the loan regardless of whether repayments are up to date. Insurance issues may arise too. Whenever a home becomes vacant, the policyholder must notify the insurer because an unoccupied property carries greater risk.

Others believe overseas investors may be more inclined to leave homes empty. For those under little financial pressure, renting a property out brings risks such as troublesome tenants and seemingly endless repair requests, which are clearly much greater than those involved in simply waiting for the property to appreciate and generate capital gains.

 

Will more homes come onto the market?

Some professionals also believe the tenancy reforms will prompt many investors to leave the rental market, predicting that numerous rental properties will be listed for sale from next month. Economist Shamubeel Eaqub is sceptical, however, arguing that if landlords sell their homes, “the properties will be bought by people who are currently tenants or occupiers”.

Some commentators suggest that if investors no longer want to hold onto their properties, house prices might remain stable, at least at the lower end of the market. This would help first-home buyers enter the market.

 

Will landlords who follow the rules take over the market?

The investment market also has a way of sifting participants. New rules may cause some who cannot adapt to leave, while attracting other investors who understand the rules and know how to work within them.

Jane, a landlord with three properties, welcomes the amendments. She said she had never encountered a tenant problem that could not be resolved amicably. “I may lose a little rent along the way, but that is part of being a landlord. Landlords are in a relatively advantageous position, and tenants need to be treated with respect. In return, landlords will receive respect from their tenants.” She believes that “unlike other investments, renting out property requires you to act according to your conscience. But when many people fail to do so, government intervention really is needed.”

 

Will rents keep rising?

Former REINZ chief executive Bindi Norwell said a survey found that 46% of landlords and investors were highly likely to sell their rental properties if their right to give 90 days’ notice was removed. She believes this would further reduce the supply of rental properties and could push rents higher.

Property accountant Anthony Appleton-Tattersal believes: “In the short term, these changes are frightening for landlords. In the long term, the inevitable consequence will be higher rents and property prices. Landlords who stick it out will ultimately always win.”

 

Will troublesome tenants find it harder to secure a home?

Although Appleton-Tattersal regards claims that “most landlords will leave the market” as mere talk, he maintains: “Tenants with poor records will certainly have few opportunities.” Appleton-Tattersall said: “The potential risks of renting a home to a problematic tenant will now be very high, so most landlords may prefer to leave their properties empty rather than rent them to bad tenants.”

Norwell made a similar prediction, saying tenants without good rental records could face considerable difficulty finding a rental, as evicting troublesome tenants would become increasingly difficult.