UPDATE ON CHANGES TO RESIDENTIAL TENANCY PROCEDURES IN NSW DUE TO COVID19
The NSW Government has introduced new regulations regarding residential tenancies as a consequence of the COVID-19 pandemic.
The regulations came into effect on 15 April 2020.
Generally, the regulations create a 6 month moratorium period give an impacted tenant:
- A termination notice for non-payment of rent or charges; or
- Applying to NCAT for a termination order relating to a termination notice given for non-payment of rent or charges; or
- Otherwise applying to NCAT for a termination order solely on the ground for failure to pay rent or charges.
This moratorium period is predicated solely on the tenant being classified as an impacted tenant.
The regulations define a household as being impacted by the COVID-19 pandemic if:
Any 1 or more of the rent paying members of the household have –
- Lost employment or income as a result of the COVID-19 pandemic; or
- Had a reduction in work hours or income as a result of the COVID-19 pandemic; or
- Had to stop working, or materially reduce that household member’s work hours because:
- That household member’s illness with COVID-19; or
- Another member of the household’s illness with COVID-19; or
- The member’s carer responsibilities for a family member ill with COVID-19.
- As a result of any of the matters stated above, the weekly household income for the household has been reduced by at least 25% compared to the weekly household income for the household before any of the matters set out in paragraph (a) occurred.
For purposes of clarification, weekly household income means the total of weekly income, including any government payments, received by each rent-paying member of the household.
THIS WOULD MEAN THAT INCOME WOULD INCLUDE ALL CENTRELINK PAYMENTS, RENT ASSISTANCE AND ANY OTHER EXCEPTIONAL PAYMENTS MADE BY THE COMMONWEALTH OR STATE GOVERNMENT FOR RENT ASSISTANCE OR OTHER FINANCIAL ASSISTANCE DURING TO COVID-19 EMERGENCY.
Therefore, it is a two-pronged test to determine whether a household is impacted by the COVID-19 pandemic:
- Any 1 or more of the rent-paying members of the household must satisfy one or more of the tests set out in paragraph (a) above:
- The weekly household income for the household has been reduced by at least 25%.
‘Household’ is defined as a tenant or any other persons living together in the same residential premises.
'Rent paying member’ is defined as a member of the household who regularly contributes towards the rent payable under the residential tenancy agreement.
WE SEE SOME DIFFICULTIES WITH THE IMPLEMENTATION OF THIS LEGISLATION. TAKE FOR INSTANCE A SCENARIO WHERE THERE ARE FOUR PEOPLE RESIDING IN THE PREMISES. THE MOTHER AND FATHER AND TWO ADULT CHILDREN. THE MOTHER AND FATHER ARE NAMED AS THE TENANTS ON THE RESIDENTIAL AGREEMENT. THE CHILDREN ARE NOT. AS A CONSEQUENCE OF THE COVID-19 PANDEMIC, THE SON LOSES HIS JOB. HOW ARE YOU TO KNOW WHETHER HE IS IN FACT A RENT PAYING MEMBER OF THE HOUSEHOLD? IS HE? IF NOT, THEN THE REGULATIONS WOULD NOT APPLY TO THIS HOUSEHOLD. IF HE DOES, HOW ARE YOU TO KNOW? THERE APPEARS TO BE NO MECHANISM FOR DETERMINING WHETHER OR NOT HE DOES OR DOES NOT ‘REGULARLY’ CONTRIBUTE OT THE RENT PAYABLE.
The regulations do provide an exception to the moratorium on termination of tenancies for impacted tenants.
Despite the moratorium, a landlord may give a termination notice or apply for a termination order, if:
- The termination notice is given, or the application to NCAT is made, at least 60 days after the commencement of the regulation. IN OTHER WORDS, NO TERMINATION NOTICE OR APPLICATION TO NCAT CAN BE MADE WITH RESPECT TO AN IMPACTED TENANT AT LEAST UNTIL 16 JUNE 2020.
- The landlord, has participated, in good faith, in a formal rent negotiation process with the impacted tenant. THERE IS NOT SET PROCEDURE SET OUT IN THE REGULATIONS FOR THIS PROCESS. ‘IN GOOD FAITH’ IS A FAIRLY SUBJECTIVE TEST. IF EITHER PARTY WILL NOT NEGOTIATE, THEN IT IS OPEN TO THE OTHER TO APPLY TO THE NSW FAIR TRADING DISPUTE RESOLUTION SERVICE TO ASSIST IN THE NEGOTIATION.
- It is fair and reasonable in the circumstances of the case for the landlord to give the termination notice or apply for the order. AGAIN, ‘FAIR AND REASONABLE’ IS A SUBJECTIVE TERM. THIS TEST IS NOT EXPANDED UPON IN THE REGULATIONS AND IS OPEN TO A WIDE RANGE OF INTERPRETATIONS.
If an application is made to NCAT, the regulations set out matters that the Tribunal may take into account in determining whether to make a termination order. They include:
- Any advice provided by NSW Fair Trading relating to the participation of the landlord or impacted tenant in the formal rent negotiation process, including whether the landlord or tenant refused, or refused to make, a reasonable offer about rent. THIS IS A MARKED DEPARTURE FORM THE USUAL RULE THAT WHAT IS SAID IN MEDIATION, STAYS IN MEDIATION. THIS ALSO PRE-SUPPOSES THAT THE PARTIES HAVE AVAILED THEMSELVES OF THE FAIR TRADING DISPUTE RESOLUTION SERVICE. THE REGULATIONS DO NOT MAKE THIS MANDATORY. THEY MERELY STATE THAT THE LANDLORD HAS IN GOOD FAITH PARTICIPATED IN A RENT NEGOTIATION PROCESS WITH THE TENANT. IF THAT IS THE CASE THEN IT IS SUGGESTED THAT THE PROCESS IS WELL DOCUMENTED SO THAT EVIDENCE CAN BE GIVEN TO THE TRIBUNAL IF NECESSARY.
- Whether the impacted tenant has continued to make payments towards rent. IT IS IMPORTANT TO REMIND IMPACTED TENANTS (IN FACT ALL TENANTS) THAT THEIR OBLIGATION TO PAY RENT DOES NOT CEASE MERELY BECAUSE OF THE COVID-19 SITUATION).
- The nature of any financial hardship experienced by the landlord or impacted tenant, including the general financial position of each party. THIS DOES MEAN FULL AND FRANK DISCLOSURE BY BOTH PARTIES OF THEIR FINANCIAL POSITION. IN THE CASE OF A LANDLORD, THIS WOULD MEAN DISCLOSURE OF ALL ASSETS AND LIABILITIES, NOT JUST RELATING TO THE PARTICULAR RENTAL PROPERTY, IF THE LANDLORD IS CLAIMING HARDSHIP BECAUSE OF THE NON-PAYMENT OF RENT BY THE TENANT. DISCUSSIONS WITH BANKS REGARDING MORTGAGE RELIEF WOULD BE INCLUDED IN THIS DISCLOSURE. FROM THE TENANTS POINT OF VIEW, IT WOULD NOT ONLY MEAN PROOF OF LOSS OF INCOME, BUT ALSO DETAILS OF ANY ASSETS AND SAVINGS IN BANK ACCOUNTS. DARE WE SAY IT, BUT IT WOULD ALSO INCLUDE WHETHER THE TENANT HAS ACCESSED OR INTENDS TO ACCESS SUPERANNUATION AS PERMITTED BY THE GOVERNMENT.
- The availability and affordability of reasonable alternative accommodation for the impacted tenant. THIS WOULD TEND TO MEAN THAT A LANDLORD WOULD BE REQUIRED TO PRODUCE EVIDENCE FROM REPUTABLE WEBSITES AS THE AVAILABILITY OF OTHER ACCOMMODATION AND THE RENTAL PAYABLE FOR THAT ACCOMMODATION.
- The Public health objectives of:
- Ensuring citizens remain in their homes:
- Preventing all avoidable movement of persons. THIS REGULATION WAS WRITTEN AT A TIME WHEN WE WERE IN EFFECTIVE ‘LOCK-DOWN’. RESTRICTIONS HAVE SINCE EASED. THE TRIBUNAL WOULD HAVE TO TAKE INTO ACCOUNT PUBLIC HEALTH DIRECTIVES AT THE TIME WHEN THE APPLICATION WAS BEING CONSIDERED.
It should again be stressed that the regulations only apply to IMPACTED TENANTS (as defined above).
The do not apply to tenants who are not IMPACTED. Therefore, with respect to those tenants, the existing laws and procedures continue to apply – i.e. you can give termination notices for unpaid rent and you can seek termination orders.
There is an indication on the Fair Trading website that IMPACTED TENANTS can negotiate with the landlord for a rent reduction. That is an implicit, rather than explicit, interpretation of the regulations.
It comes from that regulation which states that a landlord cannot issue a termination notice or apply to NCAT for at least 60 days after the regulations came into effect, unless the landlord has participated, in good faith, in a formal rent negotiation process with the IMPACTED TENANT.
The regulations do not make it clear what form of agreement can be entered into by the landlord and tenant. This leaves the path open to deal with a number of scenarios. For instance, the agreement may be to reduce the rent until the tenant has commenced receiving job-keeper or job-seeker payments (this potentially may only be a few weeks).
While it is not contained in the regulations, the NSW Fair Trading website does acknowledge that there is no obligation on a landlord to waive recovery of any rent reduction. Therefore, the agreement may provide that rent will be reduced for a fixed period of time and thereafter the tenant will pay the normal rent plus an amount more to repay the reduced amount. IT IS THEREFORE OF THE UTMOST IMPORTANCE THAT ANY AGREEMENT THAT IS ENTERED INTO IS CLEAR IN ITS TERMS SO THAT THERE IS NO AMBIGUITY ABOUT ITS MEANING.
Should you require any further information or wish to discuss any aspect of the regulations, please do not hesitate to contact us.