Property and finance blog

This recent speech by the Minister for Building and Construction and Associate Minister of Finance to Wellington Property Investors Association outlines the updates to the Residential Tenancies Act - which sets out the rights and obligations of both landlords and tenants. A good read for property investors.

 

"I would like to take this opportunity to talk about the work that is being done to update the Residential Tenancies Act which sets out the rights and obligations of both landlords and tenants and provides a way to enforce those rights and obligations.

As you would expect, the Act requires tenants to pay their rent, to take reasonable care of the house they rent, and to give notice if they want to leave. In turn, landlords are required to maintain the house, allow their tenants quiet enjoyment and give reasonable notice if they want the tenants to leave.

These are all reasonable things, and the Act has served us well since it was passed in 1986. But because the way we live has changed, it has become important that we ensure that it continues to strike the right balance between the rights of landlords and tenants, and that it also meets the needs of a changing community.

Most of the time, being a landlord is a rewarding experience – the number of property investment seminars in recent years is testimony to that. But New Zealand's housing environment is quite different today from what it was when the Residential Tenancies Act first came into effect in 1986.

Since 1986, the proportion of New Zealanders renting their homes has gone up, fewer young people are flatting away from home and more older people and families with children are renting. Many of these people will either need or choose to rent for longer periods than they have in the past.

Tenants and landlords are also more culturally diverse, with more having English as a second language.

Yet another trend is that buying a house is becoming less affordable, especially for low-income earners and for people living in growth areas like Auckland, or in rural areas where quality housing is in short supply.

While the government has a range of initiatives in place to boost home ownership including Kiwisaver and Welcome Home Loans, the fact remains that the number of long-term renters is increasing. That means that you – as property investors – are an even more important player in our housing market.

People who are long term renters want stability and certainty in their lives, and the ability to put down some roots. This is important for our communities and especially for families, so that children don’t have to be moved from school to school for example. Having long term, reliable tenants is also important for property owners who want their investment looked after.

In this environment, it is more important than ever that the rights of landlords and tenants are strengthened and upheld, and that if problems do arise, that they are sorted out quickly.

The new measures include extended hours for phone advice, easier to use Tenancy Tribunal application forms, a new phone mediation service for straightforward disputes, and the introduction of online applications to facilitate quicker case turnaround.

Of course these improvements haven’t just happened overnight, and have required bedding in. For instance busy courts such as in Lower Hutt and Porirua have had a backlog of tenancy cases to get through.

But I am pleased to say that as of 10 September, the Department was exceeding expected service standards in the Wellington area with 89.1% of applications scheduled for mediation within 10 working days, and 71% reaching the Tenancy Tribunal within 20 working days. This is a huge improvement since April, when less than 40 percent were making it to the Tribunal within 20 days.

In your area, there are now regular services in Wainuiomata and Upper Hutt, as well as in Lower Hutt, Poririua and Wellington. In total there are now 85 centers where landlords and tenants can sit down with a mediator, get advice or pick up resources

These included:

• A lack of knowledge about landlord and tenant rights and obligations due to barriers such as literacy problems, language and cultural barriers.

• The varied abilities of landlords to manage property and tenants.

• The potential impact of this on the quality of rental accommodation, stability of tenure and number of disputes.

• The differing standards of rental housing and the poor condition and outdated amenities of some rental stock.

• Insecure tenures for the growing numbers of longer-term tenants – some of whom may now expect to be renters throughout their lives.

The review also found room for improvement in compliance, enforcement and dispute resolution, and there were concerns about the length of time taken to resolve disputes together with cost, lack of appropriate sanctions and difficulties associated with enforcement processes and mechanisms.

The Government has listened to these concerns and has proposed changes to the Residential Tenancies Act that will enable landlords to manage their properties more effectively while encouraging the development of a rental market that provides stable, quality housing to those who rent their homes.

A draft Residential Tenancies Bill is likely to be introduced into the House later this year. The proposed changes would make it easier to resolve tenancy disputes more quickly, fairly and cost effectively. The reforms also strike a fair balance to ensure the rights and responsibilities of both landlords and tenants are clearly spelt out and protected.

The Bill would enable the majority of tenancy disputes to be resolved quickly, fairly and cost effectively by:

• Lifting of the Tenancy Tribunal’s monetary jurisdiction to $50,000 from $12,000 and through new sanctions.

• Increasing the monetary threshold on the automatic right to use legal representation.It would also introduce:

It would also introduce:

• Clearer and fairer processes for terminating and renewing tenancies.

• New rights of entry for appraisals by real estate agents and building inspectors

• Allowing landlords to recover reasonable debt collection costs incurred in enforcing Tenancy Tribunal orders through a private debt collection agency.

• And clarifying responsibility for outgoings such as electricity, rates and water.

To create more stable tenancies it is proposed that fixed-term tenancies that expire with no new agreement being signed will automatically become periodic tenancies. Fixed-term tenants will also be allowed to apply to end a tenancy early, in the event of a substantial and unexpected rent increase.

It is also proposed to allow some tenant breaches to become unlawful acts that can result in exemplary damages being awarded, as an alternative to eviction. This gives you, as landlords, more options. These breaches would include sub-letting, assigning a tenancy without consent, over-populating the premises or becoming a problem neighbour.

 

Another aspect of the Bill addresses the problem of what happens when a tenant damages a property. This issue arose after a case in Dunedin where some tenants were held liable for damage to a property that they had no way of preventing.

In order to rectify such an unfair situation arising again, it is proposed that a tenant’s liability for damage will be limited to four times the weekly rent, if the tenant did not:

• Cause the damage intentionally or recklessly.

• Intentionally or recklessly encourage or permit another person to damage the premises.

Tenants won’t be able to hide behind flimsy excuses to avoid liability for damage, as they will have to prove grounds to the Tenancy Tribunal for limiting their liability. As is the case now, the majority of landlords will manage the risk of substantial damage through insurance, but it is likely four weeks’ rent will be sufficient to cover damage that doesn’t warrant a claim.

Another amendment would extend the Act’s coverage to more people who are renting such as tenants in boarding houses. This would allow them to get access to the same advice, information and dispute resolution services through the Tenancy Tribunal as other renters.

The Government has also instructed the Ministry of Justice to review the way in which civil debts – for example unpaid rent – can be collected faster and easier by landlords.

The regulatory reforms taking place in the building and housing sector are being done for good social, environmental and economic reasons.

Changes to the Unit Titles Act, for instance, will recognise that people are living more and more in apartment style living. We are aiming for legislation that meets the needs of people building, developing, managing and living in these complexes. We want an easy, flexible system where the rules are certain and suitable decisions can be easily made.

We want to remove the concept where one person who doesn’t want to spend money on upgrades can stop 15 others investing in the common property. We want property management to be done on a long-term basis so the money is carefully spent for the good of all.

 

The bill amending the Unit Titles Act is very near completion and may be introduced into the House later this year or early next year.

The updating of these Acts comes at a time when the government is working on a suite of reforms that are transforming the building and construction sector.

Those reforms include:

• licensing of building practitioners, to ensure that people working in the sector are competent and accountable

• the development of a product certification scheme

• the accreditation and registration of local authorities as building consent authorities, to strengthen building control at the critical consent processing and inspection stages

• a top-to-bottom review of our Building Code – the document that sets out performance requirements in our buildings.

I am expecting to receive recommendations from the Department of Building and Housing in November on how we might change the Code to improve building performance and, particularly, make our homes and buildings more environmentally sustainable.

These reforms are important to you as property investors, as you want to know that the houses you invest your savings into have been designed right, built right and inspected right, the first time.

The Building Code review in particular holds exciting possibilities for your sector. The houses of the future, and how they perform, will be a key factor in how attractive your investment property is to renters and future buyers.

Take for instance energy efficiency. If the house you own costs 30 percent less to run than your neighbours, I believe it will attract a premium in the property market.

The government has already announced measures this year that will see new and upgraded houses being built more energy efficient in future. These include more stringent insulation requirements, including double glazing, which will result in new homes using about 30 percent less energy to achieve healthy indoor temperatures.

From this November new houses in the South Island and the Central Plateau will need more insulation and double-glazing. Improvements to house insulation will take effect in most of the North Island in July 2008 and for the rest of the country from October next year.

We are also making it easier to install solar water heating systems across New Zealand.

A home built under the new standards will save between $760 and $1,800 a year on power bills, quickly making up the additional costs.

 

New requirements for energy efficient lighting in new and refitted commercial buildings will also save building owners around $8 million a year in energy costs nationally.

We are also consulting on a proposal that would make hot water systems in homes more energy efficient, and proposals for new energy efficiency standards for heating, ventilation and air conditioning systems in commercial buildings.

 

One of the proposals in the Building Code review relates to the “embodied energy” in buildings. By embodied energy, it means the energy we use to create the building – the materials that go into it, and the energy used to construct the building – the total amount of energy used to produce a final product from raw materials.

 

This is big picture stuff, and no decisions will be made over whether we should go down this path until all the necessary in-depth analysis has been done. Housing affordability, for example, is a key consideration, because it is no use having houses that Kiwis can't afford to buy.

 

It is possible that embodied energy could even lower the cost of construction in New Zealand, given that manufactures would have an incentive to conserve energy and therefore reduce their production costs – which should have flow-on effects to consumers. Such a scheme would also encourage more recycling and using fewer materials more efficiency, which would minimise construction waste – all factors which could make houses cheaper to build.

 

But as I said, this is early days. The embodied energy concept is being studied and put into practice overseas, and New Zealand needs to be exploring these issues in-depth to ensure it is on the best possible path.

 

The reforms we are making recognise that every New Zealander should live in a good quality home that is warm, dry and healthy – and ideally, cheaper to run.

 

More efficient houses and buildings are a triple win for New Zealanders’ health, our environment and for reducing our gas and electricity bills.

 

I would like to thank your association for the support you have given to the government energy efficiency initiatives and to the distribution of the Your Guide to a Smarter Home booklet.

As landlords, you make considerable investments in your properties and it is important your interests are protected. As I have said, it’s a balance, and tenants also have a right to stable and secure homes, and landlords that act appropriately.

 

The changes we are making, both the Residential Tenancies Act, and to the wider building environment, should result in better relationships between landlords and tenants and better homes for all New Zealanders."

Source: NZ Government