On 17 February 2020, the New Zealand Labour-led Coalition Government released the proposed changes to the Residential Tenancies Act 1986.

For those of you that don’t fully understand what this piece of legislation is, it is the law governing the letting and on-going rental of an investment property in New Zealand. The legislation covers everything from what information must be recorded on a Tenancy agreement to what security money is permitted for collection at the beginning of a Tenancy.

Back in 2019, the Government announced that a raft of changes would be proposed and likely enacted prior to the 2020 General Election. The changes outlined in that announcement were “the removal of the 90-day no cause termination”, “banning rental bidding”, “increasing notice periods on sale or owner moving in” and more…

With the release of the draft legislation yesterday we now know exactly what is being changed and the change is significant. Numerous sections have been amended and there are additions such as the “3 strike anti-social notice” that will have a profound impact across the industry.

Anti-Social Behaviour:

Probably the most contentious issue is the removal of the 90-day “no cause” termination and replacement of that legislation with the “3 strike anti-social behaviour” policy.

This change has been well documented and outlines a specific process that must be followed such as written documentation that is provided to the Tenant of each anti-social event, followed by requirement to issue a 90-day notice within 28 days of the third documented breach.

Further restrictions such as Section 3 specify limitations:

(3) However, the Tribunal must not make the order if satisfied that—

(a) doing so would be unfair because of the circumstances in which the behaviour occurred or the notices were given; or

(b) in making the application, the landlord was motivated wholly or partly by the exercise or proposed exercise by the tenant of any right, power, authority, or remedy conferred on the tenant by the tenancy agreement or by this or any other Act or any complaint by the tenant against the landlord relating to the tenancy (unless the Tribunal is satisfied that the purported exercise or the complaint was or would be vexatious or frivolous to such an extent that the landlord was justified in making the application).

Pecuniary Penalty Orders:

The changes introduce a new $50,000 penalty for Landlords that own or manage more than 6 rental properties in New Zealand.

Here’s a quick extract of this section:

109B Tribunal may make pecuniary penalty orders

(1) The Tribunal may, on the application of the chief executive, order a landlord to pay to the Crown the pecuniary penalty that the Tribunal determines to be appropriate if the Tribunal is satisfied that,—

(a) at the time of committing the unlawful act, the landlord was a landlord with 6 or more tenancies (see section 2(2B)); and

(b) the landlord intentionally committed an unlawful act under any of the following provisions:

(i) section 45(1A) or 66I(4) (landlord’s responsibilities: cleanliness, maintenance, smoke alarms, healthy homes standards, and buildings, health, and safety requirements):

(ii) section 45(1AB) or 66I(5) (landlord’s responsibilities: contaminated premises):

(iii) section 54(3) (retaliatory notice of termination):

(iv) section 60AA (acting to terminate without grounds):

(v) section 137(2) (contracting to contravene or evade the provisions of this Act).

(2) The chief executive may not make an application under subsection (1) later than 12 months from the date on which the chief executive first became aware of the unlawful act.

109C Maximum amount of pecuniary penalty

The maximum amount of pecuniary penalty for an unlawful act referred to in section 109B is $50,000.

109D Considerations for Tribunal in determining pecuniary penalty

In determining an appropriate pecuniary penalty, the Tribunal must have regard to all relevant matters, including—

(a) the nature and extent of the unlawful act; and

(b) the nature and extent of any loss or damage suffered by any person because of the unlawful act; and

(c) any gains made or losses avoided by the landlord in the unlawful act; and

(d) the circumstances in which the unlawful act took place.

109E Only 1 pecuniary penalty order may be made for same conduct

If conduct by a landlord constitutes an unlawful act under 2 or more provisions, proceedings may be brought against that landlord for the unlawful act under any 1 or more of the provisions, but no landlord is liable to more than 1 pecuniary penalty order for the same conduct.

Mandatory rental receipts and written tenancy agreements:

The proposed changes will make written tenancy agreements mandatory. No longer will it be acceptable to enforce a “verbal” tenancy agreement through the Tenancy tribunal.

Likewise, providing a tenant with receipts for payments made to the Landlord will become a requirement and a Landlord that breaches that provision can be subject to a fine.

Expansion of Tenancy Compliance powers:

The proposed changes will also grant the Tenancy Compliance team additional powers such as the ability to issue infringement notices for infringement offences, improvement notices and enforce undertakings.

What we’ll likely see is a more proactive approach from the compliance team in ensuring that all rental properties are up-to-standard and where they aren’t, the cumbersome process of issuing charges through the Tenancy Tribunal is negated and replaced with the Compliance team’s ability to issue infringements and fines on their own.

Conclusion:

The cost of being a “bad landlord” is going to be significant. The cost of being a “bad property manager” is going to be event greater.

The proposed changes to legislation are going to reshape our rental industry and what we’re going to see is an increase in management by property management companies. Private Landlords aren’t going to risk dealing with the significantly larger unlawful acts and penalties as well as additional penalties that could make or break an investors investment.