Since August last year, broad changes to the Residential Tenancies Act (RTA) started taking effect, and as of 11 February 2021, the bulk of these reforms are now in action. Changes to the laws within the Act impact both landlords and tenants, so it’s important to understand the intricacies around what these substantial changes can mean for everyone involved.
Many of the tenancy law changes are controversial and there are plenty of speculations flying around about how the reform will impact the rental market in the long-term. In this blog we explore why the Act has been updated, and how the changes actually affect landlords and their rental properties.
Why has the Residential Tenancies Act changed?
The biggest overhaul of our country’s tenancy laws in 35 years - the reforms have been introduced to modernise New Zealand’s rental laws, and align them with the present day realities of renting in New Zealand.
Legislation needed to be updated to respond to changing trends in the rental market - our country has a shortage of rental properties, which means as a landlord you have a huge pool of tenants to choose from and it’s a high level of competition for tenants. Escalating house prices have resulted in NZ’s rate of home ownership dropping to 64.5%, the lowest level since 1951. The number of kiwi renters is growing, as well as the numbers of people renting for life.
The reforms ensure that the law appropriately balances the rights and responsibilities of tenants and landlords - improving tenants’ security and stability while also protecting a landlord’s interest in their property.
What are the key reforms and what do they mean?
Landlords Now Need a Reason to End a Tenancy
One of the most significant changes is that as a landlord, you can no longer end a tenancy without cause - instead, you now have to give a reason which meets the criteria specified in the law to end a tenancy. You can give 63 days notice if you require the property for you or your family to move into, and 90 days notice if you are selling the property or start extensive development on the property.
The main area of concern around these changes is that if you want to end a tenancy due to unpaid rent or repeated antisocial behaviour from the tenant, landlords will have to issue the tenant three notices within a 90 day period before they can apply to the Tenancy Tribunal to end the tenancy. This will make it harder for a landlord to remove a disruptive tenant, but it doesn’t actually give any more security to good tenants whose tenancy agreements come to an end due to changes like the property being sold or renovated.
There are of course exceptions for particularly difficult tenants - if they are at least 21 days in arrears for rent, if they have caused or threatened to cause significant damage, have assaulted or threatened to assault someone, have used the house for illegal activity, or have abandoned the property.
If you are a landlord, the inability to remove troublesome tenants as easily means you will need to be more vigilant in selecting your tenants, and be aware of the more complex process you’ll need to go through to prove to the Tenancy Tribunal that tenants are not treating your property properly.
Changes to Rental Bidding and Increases
Rent bidding has been officially outlawed, and rental property adverts must now show a price, to avoid bidding wars between renters which drives the prices up. Prospective tenants are still allowed to offer to pay more for a property if they want, however landlords must not invite or encourage bids for rent.
Rent increases are now limited to once a year - previously the minimum period between rent increases was six months. Both of these changes are put in place to ensure fairness when it comes to applying for a rental property, and to improve stability for tenants who can now only be subject to rent increases once a year.
The penalty amounts for engaging in rent bidding or raising rent more than once a year will be increased in line with rental increases since 2006 when the penalty amounts were set.
Fixed-Term Tenancies Now Roll Into Periodic Tenancies
To improve tenant security, fixed-term tenancy will now automatically become period tenancies at the end of the fixed term. This situation applies unless the landlord and tenant agree otherwise, the tenant gives notice, or the landlord gives notice using one of the specified reasons.
Fixed-Term tenancies will also not automatically convert to periodic tenancies if the parties agree to extend, renew or end the fixed-term tenancy.
Tenants Can Make Minor Changes
Tenants can now request permission to make minor changes or add minor fittings to the property, and landlords cannot decline if the change is minor. Examples of these low risk changes include replacing or adding curtains, baby-proofing, hanging up pictures, or adding fire alarms and doorbells.
However, tenants are responsible for any costs associated with the installation and reversal of any minor change they request. The good news is that landlords can refuse any modifications that cannot be changed back at the end of the tenancy, so you’re not risking permanent changes. Under the reform, landlords can also place reasonable conditions around how the change is carried out, so you aren’t giving up too much control over these small changes to your property.
Other changes worth noting:
- Fibre Broadband: tenants can request fibre broadband, and landlords can’t refuse if it's of no added cost to them.
- Name Suppression: applicants at the Tenancy Tribunal can now apply to have name suppression so they won’t be blacklisted.
- Family Violence: tenants who need to leave a rental property quickly due to family violence will be able to provide the landlord with a family violence withdrawal notice.
- Transitional and Emergency Housing: the reform also clarifies that the Residential Tenancies Act does not apply to Government-funded transitional and emergency housing, unless the provider and the tenant chose to opt in.
- Tenancy Tribunal jurisdiction: the Tenancy Tribunal can now hear cases and make awards up to $100,000, which is an increase up from $50,000.
For a detailed summary of the changes to Tenancy laws, head to Tenancy.govt.nz
Finding a Balance
At the heart of the changes is the desire for renters to have more security and stability, spending longer time periods in rental properties and making it feel more like a home. The difficulty is balancing this while still protecting landlord’s investments and ensuring they continue to have the tools to manage their property.
We may see some interesting repercussions in the short-term, such as landlords using property managers instead of managing properties themselves, or even going as far as selling their rental properties if they feel that the changes weigh too heavily in tenant’s favour. Landlords are likely to be more stringent when it comes to tenant selection criteria and this could bring increased costs - leading to rent prices going up.
Ultimately, the reforms are a move in the right direction, but the dust needs to settle before we can determine how the changes will affect the rental market in the future. If you have questions about how these law changes will affect you and your rental property, get in touch with us and one of our advisors can help.