When it comes to residential property management, there are definitive rules that must be followed in order to ensure landlords don’t end up facing a cantankerous residential tenancy tribunal member!
One of the areas that can create confusion is lease renewal and termination of tenancies and exactly what rights and responsibilities both the tenant and landlord have.
Even though this might seem like a straightforward process, landlords must dot all “i’s” and cross all “t’s” in order to prevent any future complications.
Understand the terms of lease renewal
The critical requirement with regard to any rental agreement is to have a thorough understanding of all clauses contained in the lease, particularly those pertaining to the initial term, vacancy date and lease renewal options.
Generally, lease terms will either be fixed tenancies for a specified period such as 6 or 12 months, or periodic agreements which usually “roll-over” on a monthly basis.
Essentially if you, the owner, wish to officially renew the lease or, alternatively, end the tenancy for any reason, you will need to put your intentions in writing to the tenant, regardless of the type of agreement both parties have entered into.
Landlords also need to be aware of the required timeframes for notice should they wish to alter any conditions of the lease.
Whether terminating or renewing the lease or increasing the rent, tenants must be given sufficient notice under the Residential Tenancies Acts that govern most states and territories.
Renewing the Lease without a rental increase
Lease Renewal without any increase in the going rent or changes to terms are pretty straightforward.
If a property manager is looking after the property on your behalf, you simply need to advise them that you wish to renew the lease terms, usually before the tenancy ends.
They will then notify the tenant, who can decide whether they wish to take up the renewal option, advise they will be vacating by submitting their 14 days’ notice to vacate the premises at the expiration of the lease or request to transition to a periodic agreement.
Renewing the Lease with a rental increase
For agreements with a fixed-term of less than 2 years, the landlord or agent can only increase the rent during the fixed-term if the agreement sets out the increased amount or how the increase will be calculated.
The term in the agreement must spell out the amount of the increase or the exact method of calculating the increase (e.g. a dollar amount or %). It cannot be unclear, for example statements ‘in line with the market’ or ‘by the rate of inflation’.
The landlord or agent does not need to give the tenant written notice of the increase in this instance.
For agreements with a fixed-term of 2 years or more, the rent can only be increased once in a 12-month period. A landlord must also give the tenant at least 60 days written notice.
It is important to note that a tenant can give 21 days written notice and vacate before the rent increase kicks in.
If the agreement does not specify a fixed-term or if the fixed-term period of the tenancy agreement has ended and the agreement is on a continuing (periodic) tenancy, then rent can only be increased once in a 12-month period.
The landlord must also give the tenant at least 60 days written notice before the increase starts.
This also applies where the tenancy is being renewed.
If you intend to increase the rent but still want the current tenant to stay on, you must advise them in writing at least 60 days prior to the increase coming into effect, usually at the commencement of the new lease term.
In NSW there is an official form that you must complete in order to provide the tenant with the required 60 days’ notice of a rent increase, and tenants have the right to make an application to NCAT if they feel the increase is unfair or excessive.
They must do so in writing within 30 days of receiving the notice for rent increase and it will then be up to the NCAT member as to whether or not the landlord has the right to increase the rent.
Removing a bad tenant
So what if you have one of those tenants from Hell and decide you want to take the opportunity at the expiration of the lease to “kick them to the curb”, in order to find someone who’s more likely to look after your asset?
Or perhaps you simply have plans for your premises that don’t involve tenants at all.
Well again, there are certain regulations you must follow in order to cover your backside!
If the tenant is on a fixed term tenancy and their lease is coming to an end, you will be required to give them sufficient notice to vacate, no less than 30 days and for periodic agreements, no less than 90 days for periodic agreements.m sufficient notice to vacate.
What if a tenant refuses to leave?
We’ve all heard the horror stories on current affairs programs about landlords doing the right thing and giving tenants adequate notice to vacate, only to have them remain in the property and force a stalemate of sorts.
This is every landlord’s worst nightmare and can often leave investors feeling vulnerable and helpless.
Whilst tenants do have legal recourse to dispute a notice to vacate at Tribunal and request the right to remain in the premises, they cannot simply “squat” in your property.
There is no denying that this is a difficult situation to find yourself in to say the least, but rest assured that there are steps you can take to resolve such a deadlock.
If the tenant will not cooperate with the parameters of a termination notice, application is made to The NSW Civil and Administrative Tribunal (NCAT) for possession of the property.
Once Possession has been granted, the tenant and landlord/managing agent is issued with a warrant for possession, which the agent will organise to be executed by the Sherrif in the relevant jurisdiction.
The Sherrif then contacts the agent to arrange a time to go to the property, see the tenants off the premises, change the locks and formally take possession.
I understand that this can pose a daunting prospect for landlords, particularly given the seemingly endless amount of bureaucratic red tape you need to cut through in order to regain what is rightfully yours.
But under no circumstances should you take matters into your own hands and confront belligerent tenants.
Going through the legal motions might seem frustrating, but you will see results eventually and most tenant evictions never reach such an impasse.
The important thing to understand is that you will face penalties should you decide to take the law into your own hands at any point and fail to do the right thing by your tenants according to the relevant legislation in your jurisdiction.
What if your property manager is not cooperating
If you or your managing agent neglect to issue the correct notice to vacate for instance, the tenant may take you to Tribunal to claim compensation.
In that case, you will have to issue a correct notice to vacate with correct time frames in place, which of course will delay the vacate process.
If you instruct your property manager to give the required notice to vacate to your tenants and they fail to do so, you have the right to take the managing agent to NCAT for neglecting to fulfill their obligations to you and they may be fined.
Of course, the one thing all landlords really want is a reliable rental income without any extended vacancy periods.
From this perspective, it is important when it comes to lease renewal agreements to feel that the law not only protects the tenant but you, the landlord, as well.
In NSW, should a tenant decide that they wish to move on at the end of their lease, they must issue the landlord or managing agent with a 14 day written notice of their intention to vacate at the end of their fixed term lease period, 21 days’ notice if they are on a periodic agreement.
If they are on a fixed term agreement and wish to vacate prior to the lease expiration, they are in effect “breaking the agreement”. In taking such action, the tenant will be liable for the associated break penalties which are currently 4 weeks rent if less than 25% of the fixed term has expired, 3 weeks rent if 25% or more but less than 50% of the fixed term has expired, 2 weeks rent if 50% or more but less than 75% of the fixed term has expired or 1 week’s rent if 75% or more of the fixed term has expired.
Ultimately, the law pertaining to tenancy agreements is in place to make the process of renting a property, for both the tenants and landlords, as straightforward and painless as possible.
In most cases and in my own experience, I find that nine times out of ten, if you do the right thing by the tenant, they’ll do the right thing by you, and everybody wins.
NB. The above information is based on NSW legislation. Landlords are advised to confirm the rights and responsibilities they have to the tenant within their own jurisdiction.
edited article by propertyupdate.com.au