Life as a Landlord

[flyernzl]

Recently we had a friend call us. This friend lives in Melbourne, but has a rental property in west Auckland. The tenant has recently moved out of that property, so the friend had come over to Auckland for a week to see how it was all going. Her request was that I go with her to visit the now vacant property, carry out a full property inspection, and see what would need to be done to keep the place compliant.

Although the property has been under management from one of the larger real estate firms, as soon as I walked into the place I could see problems. There was an iron burn mark in the living room carpet, there were holes cut into the wall lining to allow for a sound system installation, some of the curtains had been ripped and were hanging loose, and all of the lightshades had disappeared.
“Any claim on the tenants for this damage?” I asked.
“No”, she replied. “This is the first I knew about it, and the entire bond has already been refunded to the tenants”.
So that’s a few hundred dollars down the drain.

No point in going there then. I produced my property inspection form and tape measure and got busy.

By measuring up the living room and entering those dimensions into the Tenancy Services online calculator I found that the living area will need 6.2kw of heating. There is an open doorway from the living area into the main hall, so a door will need to be installed in that doorway otherwise the legally defined living area will include all the hallway and front foyer, and that will need a lot more power to heat. There is a flued wood burner already installed with a label that says 9.2kw, but she will need to check if that is compliant.

The ceiling insulation appears to be fairly new and compliant, but the under-house insulation has gaps and some segments have been removed. That will need work. Also, the under-house is around a third concrete car parking with the rest is just soil. As it is enclosed, there will need to be a moisture barrier installed, and then all that soil area permanently walled off so future tenants cannot stack sharp items on the polythene which could rip or puncture it.

Although there is a rangehood in the kitchen and a three-in-one light, heat and fan fitting in the bathroom neither of these vent to the outside. Despite there being opening windows in both of these areas, new extractor fans are going to be required by legislation.

So apart from the damage left by the departing tenants, that is going to be some thousands of dollars of capital expense she is going to face over the next couple of years.

Here is a lady who bought this house before she departed overseas for work with the intention, when she finally returns, of moving in herself. It is interesting to contemplate that if she moved in right now, she would not have to spend any of that money or do any of that work. The house, for an owner occupier, would be considered perfectly sound safe and healthy.

All of tenancy law is now is based on the unspoken assumption that a rental house is and always will be a rental house. For ever.

Within our society there has always been quite a number of people who are home owners but, for a number of reasons, may not be living in that house right now. They may have been transferred overseas on work furlough, they may have departed on a protracted holiday, they could be elsewhere looking after family members, or (like our friend) may have bought with the intention of moving in once they have returned from overseas.

Traditionally, these people have rented out their house for a year or two while they are away. This would have provided them with in income to pay the inevitable and ongoing costs of property ownership and also provided some security to the place rather than leaving it empty and vulnerable. As a side benefit to society, the availability of these properties have contributed markedly to the rental property pool.

Now, however, with the considerable and ever-escalating costs of making a house tenancy compliant, this option no longer makes financial sense. That supply has died. Add in the difficulty of getting much in the way of recompense for any tenant damage, and it now makes more sense to keep the place empty and just let you cousin pop by every couple of weeks to mow the lawns and empty the letterbox.

So a sizeable pool of available rentals has now been removed from the market, just at the time we are facing a nationwide shortage of rental properties. We are left with headlines like “Record-breaking rents expected around the country for summer”, while quite reasonable houses sit gathering cobwebs because their owners see no reward in funding the considerable expense of being allowed to offer them on the rental market.

Having contributed so much so quickly to the scarcity of rental housing, the Government is now considering making even more unlikely that people will rent out their home for the medium term. The latest novel idea is to remove the ability of a landlord to terminate a tenancy unless they can prove, in front of a Tenancy Tribunal Adjudicator, that the tenant has transgressed against either their Tenancy Agreement or the Tenancy Act. They call it “removal of the no-reason termination”, which is rubbish. No landlord ever gets rid of a tenant for no reason, there is always a reason, it is just that we all know that to give the reason is to give cause for argument. Under the new proposals, once a tenant is in the property they will basically be there for life. Who is going to rent out their house while they are away under those terms? The government is trying to rush policy through without taking stock, without properly consulting those in the business, and failing to appreciate the inevitable and undesirable consequences.

Sure, times are tough for renters, but no private property owner can be compelled to be a landlord. As in any market transaction, there has to be a benefit to both sides. Punish and demonise landlords and the supply of rentals dries up, the social housing queues grow longer, the costs to the Government of housing the needy and the desperate in motels escalates, and the shock-horror headlines in media grow ever more strident. These new laws are bringing us to a crisis with rental accommodation. It does not need to be this way.

[DaveW]

What is the return on doing the repairs and upgrade and the rent increase for meeting the extra demand?

[Don't believe the Hype]

What is the return on doing the repairs and upgrade and the rent increase for meeting the extra demand?

This is a great question and one that is hard to answer as there is some blurred lines between what rent you could achieve had you not done the upgrades etc - which in the recent market has been nearly always more than the previous tenant was paying and the price you could achieve with the upgrades.

In my market we see an investment of around $15k+ in a reno/upgrade of a property delivering between $100 a week more than a reasonable condition home that wasn't upgraded but up to $250 a week from what the previous tenant was paying.

Some might say spend as little as possible to and get the additional $100/wk but if you're getting a painter in to touch up and a carpet guy in to match carpet colour etc you end up paying more over the longer term so if we do a renovation it's complete and a one time touch - we know it's done and we wont have to go back to it for 5 years... as well as trying to offer the best properties in the area and charge at the higher end of market to (hopefully) get us a better quality tenant.

We also don't think we should be renting out properties that are below a given standard which is easier to do once you're an established investor but we also charge appropriately for the product we offer.

[flyernzl]

Residential Tenancy Disputes

Tenant advocates frequently claim that private-sector residential tenants are powerless pawns in the hands of greedy and uncaring landlords. They claim that when a tenant makes a request for their landlord to fix something on the property that they are entitled to have fixed, the landlord either ignores them or terminates the tenancy in retaliation.

These claims exist, I believe, because of the widespread ignorance of actual tenancy law and the relative powers of both landlord and tenant. As part of my involvement with the Citizens Advice Bureau I present talks on renting to groups of tenants and also to CAB volunteers, and when I discuss the steps of the dispute resolution process I invariably encounter blank astonishment. Few have heard of the correct dispute settlement process, and even fewer realise that it applies to the disputes tenants may have with landlords as well as disputes landlords have with tenants.

All residential tenancies within New Zealand are governed by the Residential Tenancies Act, and this Act applies to all residential letting with very few exceptions. The Act has been in existence since 1986, and neither landlord nor tenant are able to contract out of this Act.

Within this Act, there is laid out a specific and workable sequence for the resolution of tenancy disputes.

Obviously, the first step in any resolution would be to contact the other party to discuss the problem. This may solve the issue quickly without any further action being required.

If there is no acceptable outcome then the tenant, rather than just grumbling and complaining, should serve a 14-Day Notice on the landlord. The 14-Day Notice is a legal notice to comply, and a tenant can issue a 14-Day Notice to the landlord or property manager if they think that these people are not keeping their obligations under either the Act or the Tenancy Agreement. This Notice is a legal demand, and is an essential step in the process, yet I have found that very few tenants are aware of its existence. There is a template for the 14 day notice on the Tenancy services website.

There is an important distinction between the owner of the rental property and the landlord. For self-managing landlords, the owners and the landlord will be the same individual. However, where the owner of the property passes the selection of the tenants, the signing of the Tenancy Agreement and the day-to-day management of the property, the landlord may well be the property manager. It is important that the 14 Day notice is delivered to the correct person. Where the property owner lives out of the country or is away for more than 21 days they are required to appoint someone who is resident as their property manager, and the tenant must be advised of this.

If the landlord does not comply within that 14 day time then the tenant can move on to a claim at the Tenancy Tribunal.

The Tenancy Tribunal is a specialist court that can award compensation or order repairs up to a value of $50,000. It’s faster than going to a normal court. It’s also a lot cheaper – the application fee is $20.44
The Order that is issued may include the requirement to repair, maintain or upgrade the rental property, and possibly a money order that requires the landlord to pay restitution or damages.


When I lay out this sequence in front of tenants I normally get one of two reactions. Either they say “If I do that the landlord will evict me” or “If I demand this then the landlord will put the rent up”.

However, it is an unlawful act for a landlord to end a tenancy in retaliation for a tenant exercising a right under the tenancy agreement, the relevant law, or by making a complaint relating to the tenancy. This is called a ‘retaliatory notice’ under the Residential Tenancies Act. Tenants who take direct action against landlords are able to challenge an alleged retaliatory notice up to 28 working days after it has been issued. On the tenant’s application, the Tribunal can overturn a landlord’s notice to end a tenancy if they believe that the landlord gave the notice as a consequence of actions taken by the tenant in exercising their rights. Thus there is no reason for a tenant to fear termination of the tenancy when asking the landlord for the property to be maintained in good condition.

In many cases that I see, the tenant admits that they are paying a rent well below market levels. In this case, their fear that improvements to the property will result in a rent increase may be well founded. However, if they decide not to pursue their claim on these grounds, what they are really saying is “I’d sooner have cheap and nasty rather than good at reasonable cost”. That may be their choice, but then they actually have no grounds for complaint. By paying cheap they get cheap.

Thus when we hear calls for strengthening the laws around tenancy issues and for imposing increasingly draconian requirements on landlords, perhaps the real question we should be asking is “How do we educate our tenants about the powers they already have and how to use them?” It is pointless bringing in more draconian and tenant-friendly legislation when the existing laws are actually fit for purpose.

I have personally presented talks to several tenant migrant groups covering these topics, and there are some established presentations like the ‘Ready to Rent’ programs run in Hawkes Bay, but the time and resources employed in discussing proposed strengthening of the legislation may well be more usefully spent on tenant education.

[Perry]

Despite their 'official' and professed (BS) axiom of "compliance with the RTA.," in the professed 'attitude' of the Tenancy Services and Compliance Team - all LLs are bastards and all tenants are angels.

So, LLs (or LL groups) would be wasting their time with trying to help change such a blatantly socialist-entrenched, pro-tenant, anti-LL perspective in a gummint organisation like the Tenancy Services Compliance and Investigation Team. (Cough, choke, wheeze, gasp)

[Learning]

Residential Tenancy Disputes
When I lay out this sequence in front of tenants I normally get one of two reactions. Either they say “If I do that the landlord will evict me” or “If I demand this then the landlord will put the rent up”.

However, it is an unlawful act for a landlord to end a tenancy in retaliation for a tenant exercising a right under the tenancy agreement, the relevant law, or by making a complaint relating to the tenancy. This is called a ‘retaliatory notice’ under the Residential Tenancies Act.

However, with the rental shortage the power balance is well over in the LL's court. For most regions there's a queue of a dozen families, with applications in hand, ready to pounce on any rental opportunity and the LL's know it.

Unfortunately in many cases the tenant's fears of "retaliation" is not only justified but accurate. It's down to the tenant to prove that the sudden notification of rent rise to "new higher market rates" is retaliation and not just coincidental timing. They need to weigh up the risk of TT action against the black mark such action would cause. Any TT order flagging their name for any future tenancy applications would place them on the bottom of a very thick pile. Regardless of the TT action being justified and up held, or not.

TT doesn't help the situation with their throw a dart at a selection of precedents to see which one to follow approach. The same case, with the same evidence, presented in the same manor, to half a dozen different adjudicators would, no doubt, result in half a dozen completely different rulings. Ranging from LL being tared and feathered to tenant hung drawn and quartered. Consistency is seemingly nonexistent.

[Keys]

The Act has been in existence since 1986, and neither landlord nor tenant are able to contract out of this Act.

Not "quite" correct. See 11 (2)

[Wayne]

Not "quite" correct. See 11 (2)

Fair comment - the LL cannot reduce the tenants rights but can reduce their own (or increase their obligations).

[Keys]

Wayne. The most common one is the landlord accepting a shorter termination time frame to assist in removing bad tenants.

[flyernzl]

Sandra has a problem.
Sandra and her husband Terry live in a small house down a private right-of-way. They have been there for a few years, and like the location. It is handy to Terry’s work, and Sandra can easily catch the bus to her part-time job as a teachers aide.

The neighbouring house on the road frontage is a rental, and some months ago new tenants moved in. Although the previous occupants were pleasant and quiet, the new tenants are not. After they had lived there for just two nights Sandra heard them screaming at each other, obviously holding a noisy and heated domestic argument. This has now become a regular occurrence. They also take drugs, get drunk regularly, fight, have large and intimidating gang members visiting, play deafening music until the early hours, and regularly have the police calling on them.

“So what”, Sandra asked, “Can we do about it?”
“Find out who is the landlord”, she was told, “And ask them to take action”.

The landlords, she has now discovered, are Housing New Zealand.
Sandra spoke to the property manager there, and voiced her concerns.

“We can discuss the problem with those tenants” she was told, “And help them to behave better. We have an overall aim of maintaining sustainable tenancies and to help people remain in, or get back to, a state of well-being and assist them to lead happy, balanced, fulfilling lives.”
“But what about us?” asked Sandra. “If these people continue carry on like this, will you get rid of them? They are causing havoc in the neighbourhood!”
“Like all landlords, we work under the Residential Tenancies Act” said the manager. “There are provisions under that Act to terminate the tenancies of people who exhibit anti-social behaviour. However, we have been instructed by the Government that we are not to use this provision, and instead we must work with our clients to help them live better lives”.
“While we suffer!” said Sandra.

Not content with leaving the neighbours of HNZ houses vulnerable to feral tenants like these, the Government is now considering removing the ability for all landlords to terminate a tenancy with what they call a 90 day ‘no reason’ notice. This change would apply to both Housing New Zealand and all private landlords.

Sandra is not a tenant. She and Terry own their own home, but they now have to put up with neighbours from hell. They could sell, but why should they be forced out? And who would buy? So this move affects everyone – owner-occupiers, the good tenants next to the problem tenants, and landlords.

The publicity around this proposal seems to be based on some fundamental misconceptions around the powers of landlords and their behaviour.

There is actually no such thing as a ‘No Reason 90-day Termination Notice’. There is always a reason why a landlord would issue such a notice. To actually state the reason is to give grounds for an argument and for the subsequent making of false promises about improvements in behaviour and conduct, promises that are seldom if ever kept. Every sane landlord’s fundamental desire is to keep every rental property tenanted for each and every day of the year. That’s the way they maximise their cashflow and thus their income. No landlord terminates a tenancy just on a whim, because they feel like it. A days vacancy is a days rent they can never ever recover, and most terminations result in a week or more between tenants moving out and the new tenants moving in. That is income permanently and irrevocably lost.

Contrary to widespread belief, a landlord cannot evict a tenant. ‘Eviction’ sounds great in the shock-horror media stories, but no residential landlord actually has the power to evict. He can terminate a tenancy within the legal timeframes, but if the tenant then refuses to leave the property the landlord must then go to the Tenancy Tribunal and ask for a Possession Order. If then, despite the Possession Order and the presence of a Bailiff, the tenant still occupies the property the landlord must then go to the District Court with his Possession Order and request an Eviction Order. If the District Court issues that Order he must then take that to the police for them to actually carry out the eviction. Thus an eviction is a matter for the District Court and the Police, never the landlord. The popular image of jackbooted landlords evicting tenants left right and centre is pure fabrication.

If the proposal to remove 90 day notice termination proceeds, any disruptive and socially undesirable tenants could only be removed by a Tenancy Tribunal ruling. This would need proof from their neighbours as witnesses to their misdeed. Sandra, like most people, would be fearful of giving evidence in front of a Tenancy Adjudicator against their feral neighbours while their intimidating gang associates look on. This opens up the potential for verbal abuse and physical retaliation.

It is likely that this change will be accompanied by the removal of the fixed-term tenancy option so, in effect, all tenancies will be periodic, only terminating either when the tenant chooses to depart or can be proven to have breached either the Tenancy Act or the tenancy agreement. Even on a sale of the property the tenant would have the right to remain. The property may well be trapped into the rental market, and if sold, that would have to be to another landlord, not a potential owner-occupier. Would people rent out their own home while they are away overseas for a year or two? Probably not, as under this proposal it would be impossible to regain occupation of the property when they return. Once a rental, always a rental. Thus we would see these houses sitting empty and dusty while the homeless huddle shivering in the streets.

So who would benefit if the Governments proposal to eliminate the 90 day notice option is adopted?
Feral and life-incompetent tenants.
Who would suffer?
All other housing occupants, both owner-occupiers and good tenants.

Wherever you live, however you live, regardless of your home ownership status, your life could easily be made miserable, your sleep ruined, and your family threatened because no landlord, public or private, would be able to control the behaviour of those who would now have unfettered occupation of their property.

[Wayne]

Wherever you live, however you live, regardless of your home ownership status, your life could easily be made miserable, your sleep ruined, and your family threatened because no landlord, public or private, would be able to control the behaviour of those who would now have unfettered occupation of their property.

Of course if the new neighbours had brought the place Sandra would have no recourse what so ever.
Just a thought - because people rent should we be able to control their lives? Just putting it out there.

[Bob Kane]

Just a thought - because people rent should we be able to control their lives?

Yes, of course.
Or more accurately, the landlord should be able to control his house.
What is wrong with that?

[flyernzl]

You can smash bash and crash your own car.

Try that with a rental car and Mr Hertz and/or Mr Avis will be most unhappy.

[McDuck]

You can smash bash and crash your own car.

Try that with a rental car and Mr Hertz and/or Mr Avis will be most unhappy.

You're talking about ownership.

When anyone enters into any sort of contract, say a rental agreement, some of the rights of ownership are lost.

or partially lost.

I picked up a book on the subject once, at the economics library of some big Technical institute.

It was very old, very wordy, but very succinct as to what ownership meant.

It's nothing more than a collection of rights.



I'll share it with you now, so you can cut to the chase.

From foggy memory,

1, The right to admit access.
2,The right to restrict access.
3, The right to sell on,
4, the right to use and profit from use.

I'm thinking rental is a variation of the last one.

And a landlord sells off some of those rights, for a while.

basically, you cant have both the money and the rights too.


Conversely, the renter does not buy total rights.

It's worth mentioning, that the Govt can remove any property owner's rights .

There are several laws that reveal property ownership rights to be less solid than people would hope.



On a side note, there are some very strange property beliefs out there.
I'm sure we have all heard of the childhood classic, "Finders keepers, losers weepers".
It rhymes, so it must be true.

[artemis]

If some or all of these changes come in, expect them to be reversed if we have a National government in 2020. National has already said they will change the bright line rule back to 2 years.

There would be an upside for landlords though as some sell up (after terminating tenants) and take their CGT free gains. Others terminate even slightly risky tenants. Smaller rental pool >>> higher rents, better tenants. Oh, not so good for taxpayers as social housing waiting lists continue to skyrocket.