The Residential Tenancies Amendment COVID-19 Regulation 2020 introduces a 6 month moratorium period which commenced on 15 April 2020 (‘moratorium period’) that applies to both residential tenancies and boarding houses in New South Wales.
This article discusses the application of the regulations to residential tenancies. For more information on boarding houses please review our boarding houses article here.
During the moratorium period, certain restrictions apply to landlords under a residential tenancy agreements (other than social housing agreements).
This article gives guidance to Landlord’s and Managing Agents for negotiations with COVID-19 impacted tenants during the moratorium period.
Termination Dates Extended For Certain Termination Notices
During the moratorium period, landlords must give at least 90 days’ notice to end:
- A fixed term tenancy at the end of the term (increased from 30 days’ notice); or
- A periodic tenancy (no change – still 90 days’ notice); or
- A tenancy because of a breach of the residential tenancy agreement other than for non-payment of rent or charges (increased from 14 days’ notice); or
- A tenancy of 20 years or more (no change – subject to a tribunal order giving at least 90days notice).
The 90 day notice period generally applies to the above termination notices issued during the moratorium period regardless of whether the tenant is affected by COVID-19.
However, the 90 day notice period does not apply to termination notices arising from:
- Non-payment of rent or charges where the tenant is not a COVID-19 affected tenant;
- The Landlord’s sale of the property that provides for vacant possession;
- Serious damage to the property or injury to landlord caused by the tenant;
- Harassment, threatening or abusive behaviour by the tenant;
- The landlord suffering hardship;
- Use of the property by the tenant for illegal purposes; and
- Non-compliance with rectification orders by the tenant.
The existing notice periods and termination procedures apply to the above circumstances.
Who is a COVID-19 Impacted Tenant?
It is a tenant under a residential tenancy agreement (other than social housing agreements) who is a member of household financially impacted by the COVID-19 pandemic.
A household includes any tenants or other persons living together in the same residential premises.
A tenant is impacted where any 1 or more rent paying members of the household have been impacted by the COVID-19 pandemic through lost employment or income or reduction in work hours and the weekly household income has been reduced by at least 25% after tax, when compared to the weekly household income before those mattes occurred (‘impacted tenant’).
This includes members that have had to stop working or materially reduce hours because of:
- The member’s illness with COVID-19; or
- Another member of the household’s illness with COVID-19; or
- The member’s carer’s responsibilities for a family member ill with COVID-19.
The weekly household income means the total weekly income (including government payments) of the rent-paying members of the household who regularly contribute to rent under the residential tenancy agreement.
What restrictions apply to a COVID-19 Impacted Tenant?
During the moratorium period, a landlord is prohibited from serving eviction notices or applying to a tribunal for termination orders against a COVID-19 impacted tenant arising solely from a failure to pay rent or charges unless:
- The landlord serves the termination notice or applies for a termination order at least 60 days after regulation commenced on 15 April 2020;
- The landlord and impacted tenant have participated, in good faith, a formal rent negotiation process about the rent and charges payable, and
- It is fair and reasonable in the circumstances for the landlord to give the termination notice or apply for the order.
What is a formal rent negotiation process?
A formal rent negotiation process involves the parties participating in a dispute resolution process facilitated by the NSW Fair Trading to negotiate the rent payable having regard to the specific circumstances of both parties.
NSW Fair Trading website contains useful information and guidance on preliminary steps to assist landlord and tenants reaching an agreement before proceeding to the formal dispute resolution process.
Dialogue between the landlord and tenant is usually initiated by a written request from the impacted tenant for a rent reduction.
NSW Fair Trading suggests that the tenant’s initial written request should include details of the tenant’s original household income, its change in circumstances due to COVID-19 and impact on the household income, its proposed rent offering proportionate to the new household income and any additional income support received.
A Landlord acting in good faith should be prepared to consider and negotiate the rent payments with a COVID-19 impacted tenant according to the tenant’s circumstances as well as their own.
Relevant landlord considerations include whether the landlord relies upon the rent to cover mortgage repayments, other sources income available to the landlord to meet its financial commitments and access to COVID-19 loan relief packages (such as loan deferrals).
Having regard to the circumstances of both parties, the parties should consider an appropriate rent reduction, the period in which to apply the reduction, and whether it is appropriate for the rent in arears to be waived or be repayable at a later stage.
There is no requirement to reach an agreement with respect to the whole 6 month moratorium period.
It may be appropriate to reach an agreement for a shorter period (NSW Fair Trading guidance suggests at least 6 weeks) and assess the situation further. Any agreement reached should be appropriately documented in writing.
It is appropriate for the landlord to request proof of the impacted tenant’s circumstances as a requirement to the agreed rent relief. This may include proof of lost employment / stand-down / loss of work hours or reasons for not being able to work due to COVID-19 illness, proof of Government income support, and proof of prior income.
If an agreement cannot be reached, either party may initiate the formal dispute resolution process through NSW Fair Trading by completing a Tenancy Complaint Form on their web site.
When is it fair and reasonable to issue a termination notice to a COVID-19 Impacted Tenant?
Whether a termination notice or order is fair and reasonable will ultimately be decided by the NSW Civil and Administration Tribunal (‘Tribunal’) having regard to the circumstances.
Under the regulations, the Tribunal may have regard to following matters when making a determination:
- Any advice provided by NSW Fair Trading on the conduct of the parties during the formal negotiation process (including whether the landlord or impacted tenant made or refused a reasonable offer concerning rent);
- Whether the impacted tenant has continued to make any payments toward rent;
- Any financial hardship experienced and the general financial position of either party;
- Availability and affordability of reasonable alternative accommodation for the impacted tenant;
- Any special vulnerability of the impacted tenant; and
- Public health objectives of ensuring citizens remain in their homes and prevent all avoidable movements of person.
What if a tenant is not impacted by COVID-19?
Tenants who are not impacted by COVID-19 need to honour their existing tenancy agreements and keep paying rent and charges in full according to those terms. Failure to comply with their existing agreements risks termination and eviction.
Landlord’s may be eligible for Land Tax Relief
The NSW government is introducing land tax relief measures to support Landlords manage their rental properties including a reduction of up to 25% of the land tax payable for 2020.
To be eligible for the land tax support package:
- You must have a land tax liability in 2020;
- Have a COVID-19 affected tenant (according to the criteria outlined above);
- You reduce the rent of the affected tenant by at least as much as the tax reduction; and
- The land tax must directly relate to the property for which rent has been reduced.
The application process is currently being developed by Revenue NSW.
How can HWL Ebsworth help you?
At HWL Ebsworth our team is made up of Partners, Special Counsel and property experts dedicated to providing support to our clients in relation to the widespread ramifications of the COVID-19 pandemic, including providing guidance and advice to landlords and managing agents negotiating with COVID-19 affected tenants and documenting agreed arrangements.
This article was written by Christopher Conolly, Partner and Maged Jebeile, Special Counsel.