URGENT ALERT-RESIDENTIAL LEASES

Recently there have been discussions with clients who have investment properties in regard to whether they should be renewing a residential lease with a tenant after the tenant’s lease expires or staying on a periodic (expired) agreement (that is, effectively a hold-over).

Changes to residential tenancy laws started on 23 March 2020, with amendments to the Residential Tenancies Act 2010 and the new Residential Tenancies Regulation 2019.

The main change effecting landlords and tenants which was introduced was the new mandatory set break fees for fixed term agreements. The following break fees apply when a tenant breaks a fixed-term agreement that is entered into from 23/3/20 and is 3yrs or less:

- 4 weeks rent if less than 25% of lease expired

- 3 weeks rent if 25% or more but less than 50% of lease expired

- 2 weeks rent if 50% or more but less than 75% of lease expired

- 1 week rent if 75% or more of lease expired.

Although a lease renewal may provide certainty, in some cases, a fixed term lease may put a landlord in a worse position than having a periodic (expired) agreement.

Using the example of a 12-month tenancy agreement, a tenant would only be required to provide 2 weeks rent to their landlord to end their agreement early, if 7 months (or 58%) of the lease had expired. However, if they are on a periodic agreement, they would need to give 3 weeks notice, and marketing for a new tenant can start as soon as the tenant’s notice is received.

Another negative of asking a tenant to sign a new lease is that they may not be willing to commit to a new fixed term. In addition to this, a tenant may ask for a rent reduction as an incentive to sign a new lease.

Either way, we recommend a landlord to consult their managing agent and discuss the options before they renew a residential lease.

Disclaimer – The material contained in this newsletter does not constitute advice. Loewy Consulting Partners is not responsible for any action taken in reliance on any information contained in this newsletter. Anyone reading the newsletter should not act upon material contained in this newsletter without appropriate consultation.