Costs breaking fixed term tenancy

[Sharon]

Curious to know the types of things pro managers seek costs for when allowing a tenant to break a fixed term contract. Obvious ones weve come up with are costs for: baseline meth test, advertising, credit check new applicants & rent liability until new person selected.
Less certain if legal to charge for other time (as per key money provision RTA) such as time on final inspections,travel, time spent showing new prospects thru or general time spent that aids the wish of tenant.
With controversial proposal to ban letting fees FTTs are probably going to be the norm so perhaps a timely discussion

[Learning]

Less certain if legal to charge for other time (as per key money provision RTA) such as time on final inspections,travel, time spent showing new prospects thru or general time spent that aids the wish of tenant.

Would these not be necessary if the fixed term expired and the tenant then departed? So not actually an added cost then? Unlawful to charge in my opinion.

Will you be refunding the tenant for time and travel saved on any inspections due before the end of the fixed term? After all, these costs would have been built into the rent they’ve been paying.

[Sharon]

and if the new tenant came in and did same after say 6 weeks?
Is it your view sec 17.1 would prevent such charges? Are you a Pm that has experience with various fish hooks in FTTs? Cheers

[Nice]

Historically we have noted on the lease agreement that we will charge a Letting Fee if the tenant breaks the Fixed Term. Because it is outlined clearly on the Lease, I have had more than one adjudicator allow this, although they generally pouint out to me that the RTA allows for 'reasonable' costs to be charged.

My counter has been to point out the actual costs (that you have listed here) plus number of viewings carried out, the hours spent on each one at $80 per hour, and the km travelled at whatever the AA published rate is for my car. I have always been able to make this higher than the Letting Fee, and come out looking good through being reasonable.

I don't see any change to this process yet IF Jacinda and company actually change anything. Other than perhaps my hourly rate increasing. And as yet they have not changed anything, only threatened it.

[Learning]

and if the new tenant came in and did same after say 6 weeks?
Is it your view sec 17.1 would prevent such charges? Are you a Pm that has experience with various fish hooks in FTTs? Cheers

Six weeks in is taking the pee a bit (unless extenuating circumstances) but regardless the costs for final inspection, showing new tenants, new credit checks, etc remain the same whether end of fixed term or earlier.

Yes I have had experience of tenants breaking fixed terms early and as long as the rent was paid up until a suitable replacement took over I haven’t worried about it.

If it was becoming a regular problem I’d look hard into why they were wanting to leave early and fix that.

[Sharon]

nice but note you've danced around the main issue. The thread is directed more at people who have experienced matters in Tribunal or people dealing with the issue daily. Obviously you look after a couple of properties and thats fine but this was more discussion about the broader issues at hand and complications arising with any ban on letting fees. Likewise there can be all sorts of reasons as to why people need to terminate a FTT, some outside control of PM or LLs. Being an experienced LL with couple of properties gather you already know this. Cheers.

[BeBe]

Also, what distinction is made for a FTT which is in it's first term - as opposed to one which has rolled over into its second or subsequent term.

[Nice]

Also, what distinction is made for a FTT which is in it's first term - as opposed to one which has rolled over into its second or subsequent term.

Why would there be any distinction ?

And they don't 'roll over', they have to be specifically renewed and agreed.

[Learning]

Also, what distinction is made for a FTT which is in it's first term - as opposed to one which has rolled over into its second or subsequent term.

Good point. If a tenant, who’s on his fourth consecutive fixed term, asks to brake his contract is he to be racked through the gasoline ignited coals, broken glass and razor blades just like any filthy midnight runner, despite saving the LL three sets of final inspections, showing perspective tenants, credit checks, ect? Of course they would. We have to mantain our evil LL persona for the public don’t we. 😋

[BeBe]

Why would there be any distinction ?

And they don't 'roll over', they have to be specifically renewed and agreed.

Indeed, some tenants are told they don't have a choice though. But more importantly, renewing is far more simple and cost effective than getting a new tenant. Landlords/property managers are not having to outlay for the normal costs in order to acquire this "renewed" agreement so is it fair and reasonable to claim for those costs through the TT?

[Learning]

nice but note you've danced around the main issue. The thread is directed more at people who have experienced matters in Tribunal or people dealing with the issue daily. Obviously you look after a couple of properties and thats fine but this was more discussion about the broader issues at hand and complications arising with any ban on letting fees.

Getting back to the point at hand... What are “people more experienced in matters with Tribunal and dealing with the issue daily” going to do with a ban on letting fees? A few will absorb the cost as a cost of doing business.(Tui ad) Many will just add a sum to the weekly rent to spread the cost over the length of the FTA.

In my very limited experience, less than 20% of tenants try to break a FTA in their first term. About 30% move on at the end and the reminder sign another FTA or extended arrangement.

So, based on the 26 FTAs I’ve seen the end of, for those who are adding the fee to the rent will, on average, be making more than double the added costs of the few who break their agreements. Or am I missing something?

[Sharon]

More and more PMs moving to Ftts already in regard to Meth testing costs and insurance provisions. If letting fees are eventually absorbed by owner (albeit artificially) is difficult to see trend with Ftts reversing for obvious reasons.
However the thrust of this thread was how people dealing with the matter on regular basis would address provisions of Sec 17 in relation to costs associated with breaking a Ftt. I accept there will be people with a couple properties can absorb this stuff and thats fine or even view it as a non event. Likewise other end of scale was feedback from "Nice" that he has been legally allowed to charge $80 per hour. Last week I sat in on a hearing where a PM wasnt allowed to charge for her petrol costs yet permitted to charge $50 for time spent running 2 open homes plus interviewing. (2 hrs over 2 days incl travel) Was then declined on time spent screening new applications on the basis this could be charged to new tenant via letting fee. The Adjudicator went on a bender about provisions Sec 17 - key money but became oblivious to the inconsistencies just created.When pointed out became a lil angry explaining only 20 minutes allocated to the hearing. Truly Breathtaking.

[Nice]

Some times they have a bad day, but yes is truely frustrating being on the end of them !

[Learning]

If letting fees are eventually absorbed by owner...

If your letting fee is $520 add $10/wk to the rent. Then not only is the fee covered over the year but if the tenant remains/renews the tenancy after the fixed term your making an extra $10/wk profit. On average, assuming you’re providing rentals people want to stay in, your quids in.

For us lowly one or two property owners it’s small potatoes. For you larger mass property empire types it’s a new BMW or fancy holiday all thanks to government policy. TT will happily provide some petrol for the hungry Bema when the odd tenant breaks their FTA despite those extra costs more than being covered by the majority who roll over FTAs.

[Wayne]

If your letting fee is $520 add $10/wk to the rent. Then not only is the fee covered over the year but if the tenant remains/renews the tenancy after the fixed term your making an extra $10/wk profit. On average, assuming you’re providing rentals people want to stay in, your quids in.

I bet most people would already be charging the extra $10/wk if they could get it anyway - the rent is not a 'cost plus' sum.
People charge what the market will bear.

Now if every LL acted in a cartel and upped their rent you'd get it.