It’s the hottest topic in Property Management amidst the Coronavirus pandemic, how are we going to deal with Rent Arrears and financial hardship? It may seem overwhelming right now, but rest assured with some thought and planning there are solutions. The important thing is to not ignore the situation and start looking at your business or property management processes and see what needs to be addressed first.
Spend some time and develop clear steps for dealing with the different scenarios that are likely to present themselves. Importantly make sure everyone from your team, landlords and tenants are all on the same page with the plan of attack and deal with each case that is presented on its own merits.
The Government is still working on addressing issues with tenancies and how renters who have lost their jobs due to COVID-19 are going to pay their rent and keep a roof over their heads. There is a moratorium because we are in extraordinary economic circumstances, but that is not an excuse to absolve people of their responsibility to pay rent. If circumstances mean that payment of rent in full is not possible, it is holding-off from payments, not a cancellation.
Let’s address some of the facts as they are now on the Moratorium on Evictions:
Moratorium On Evictions – What Exactly Does That Mean?
It means a temporary hold on something. Often that’s a legal obligation, like following a contract and paying your rent. What Prime Minister Scott Morrison actually said: “States and territories will be moving to put a moratorium on evictions of persons as a result of financial distress if they are unable to meet their commitments. And so, there will be a moratorium on evictions for the next six months under those rental arrangements”.
The moratorium on evictions is still vague for residential tenancies, with the Queensland Government set to address the boundaries surrounding this in the near future, but other states are still left in the dark as to how the terms are going to be defined.
From what the PM has said, it looks like the Federal Government and the National Cabinet want a six-month halt on evictions for those under financial distress because of Coronavirus.
A moratorium isn’t legally binding until the states and territories have changed the laws. Until there’s some sort of legislative or regulatory boundaries on it, it’s hard to enforce.
The moratorium doesn’t mean you don’t have to pay rent, it’s a holding off of payment.
There was a bit more detail for businesses, with a set of principles drawn up by the National Cabinet (that cabinet includes premiers and the territories’ chief ministers).
- Temporary moratoriums on evictions if rent isn’t paid for on commercial tenancies hit by “severe rental distress” due to Coronavirus.
- Reducing or waiving rental payments for a set time for affected tenants.
- Tenants could ask to end leases or seek out mediation on grounds of “financial distress”.
- Landlords and tenants not badly impacted by coronavirus to honour their rental agreements.
What You Should Prepare as a Property Manager or Business to Deal with Rental Hardship:
A list of the Government financial support services tenants or owners can reach out to.
Rental Hardship Application – This should list the circumstances surrounding the loss of income whether it is a reduction in hours, no longer employed or forced isolation. It should include supporting documents like a separation certificate or confirmation or they are ineligible for Centrelink, as well as the rental reduction request or payment plan.
A signed Hardship Agreement between the owner and tenant, stating the terms and conditions of the agreement, importantly listing the amount and the duration.
Here are some guidelines to help determine Rent Reduction or Payment Plan terms:
- Is the hardship case due to Coronavirus and have the tenants exhausted all avenues for financial support?
- Is the tenant actively looking for new employment in a different sector to earn some income if possible?
- Is the amount fair and won’t unnecessarily put the landlord under additional financial pressure?
- Is the duration realistic, the tenant potentially could be without work for up to 6 months, or this could all be over in 2 months? We suggest working on 4-week blocks and adjusting the agreement from there.
- Determine the new household income and work out affordability using the 30% rule.
- Chat with the tenants about looking at some budgeting tools and get them to look at other aspects of their lifestyle, what else can they cut back on – keeping a roof over your head as a priority.
- If the tenant has no capacity for paying rent, then in a worst-case scenario a break lease situation with no penalty would have to be considered.
Communication is going to be the key for businesses, property managers, landlords and tenants as we collectively navigate the moratorium until the blurred guidelines become clearer. The application form will help property managers and owners access genuine hardship cases and not waste time on anyone ‘just trying it on’. A signed agreement will set the terms and boundaries and avoid unnecessary disputes erupting throughout the hardship period.
Whilst rent reduction or payment plans are not ideal for the landlord’s who themselves are going through financial hardship and having to still meet mortgage repayments or who have either lost their jobs or suffered reduced income due to the COVID-19 crisis. All we can hope is that the Government continues to address the issues relating to residential tenancies by providing clearer boundaries and adequate financial support and incentives.
Importantly, let’s not forget normal tenancy practices should be continued including Breaches, Notice to Leave and QCAT applications in instances where genuine hardship isn’t proven or agreed in writing. This will ensure landlords are protected by the Real Estate acts and their Landlord Insurance policies.
As the COVID-19 situation continues to evolve the only certainty is that the rules and regulations concerning residential tenancy agreements will be updated and changed, and that will more than likely keep us busier than ever as we navigate these unchartered waters.