On 21 February 2019, the Residential Tenancies Amendment Bill 2018 (No 2) (ACT) passed in nearly identical form as was originally presented in the Legislative Assembly on 1 November 2018. With a default commencement date of 5 March 2020 (and unless an earlier commencement date is fixed by notice) agents have plenty of time to educate themselves and seek guidance on the changes. Though these changes appear to be a conscious push to move the ACT to a more tenant friendly jurisdiction, it does also bring with it the risk of an increase in disputes and other applications before the ACAT. It is important that agents recognise this risk and integrate procedures to properly accommodate the changes to ensure both their business and the rights of the landlord remain adequately protected and (as far as is possible) uninterrupted.
One of the major changes introduced by the Bill is the restriction on a landlord’s right to refuse a tenant’s application to renovate or modify the premises. The grounds for refusal depend on the type of modification requested:
- for special modifications, a landlord may only refuse the tenant’s request if the landlord first obtains the ACAT’s prior approval. These types of modifications include:
- minor modifications, which are those alterations that can be removed so that the premises are restored to substantially the same condition as at the commencement of the agreement; or
- alterations undertaken:
- for the safety of the tenant (e.g. furniture anchors, child safety gates or fittings);
- on written recommendation of a health practitioner (e.g. safety ramps or safety rails);
- to improve the energy efficiency of the premises;
- for the security of the premises (e.g. deadlocks, security doors and alarms); or
- to allow access to telecommunication services,
- for any other alterations or modifications, a landlord must not unreasonably refuse the tenant’s application.
For a request to undertake a special modification, the landlord’s consent will be taken to have been granted if the landlord fails to make an application to the ACAT (for an order to refuse the modification) within 14 days of the tenant making the request. It is imperative then that an agent, upon receiving a modification application from a tenant, passes the tenant’s request onto the landlord as soon as possible.
The modification, whether special or otherwise, is not at the complete discretion of the tenant, however, as a landlord may impose reasonable conditions on the tenant’s modifications. Such conditions might include that the tenant:
- provide the landlord with a copy of the plans and specifications before works are carried out;
- undertake the modifications in accordance with all laws, regulations and the requirements of any relevant authority;
- uses suitably qualified tradespersons;
- takes out policies of insurance (noting the interest of the landlord) relevant for the type of works; or
- obtains and provides copies of all approvals and certificates evidencing proper completion of the works.
If the modifications improve the premises, landlords should also consider including a condition that the modifications are to remain in the premises on expiry of the agreement, though in such circumstances the tenant is likely to expect reasonable compensation or a contribution from the landlord.
Another change introduced by the Bill is the restriction on a landlord’s right to decline a tenant’s application for the keeping of pets on the premises where there is provision in the tenancy agreement allowing the landlord to do so. Like modifications, a landlord may impose conditions, but these conditions may only relate to the number of animals or the cleaning or maintenance of the premises. For any other conditions or for a landlord to validly refuse the tenant’s request, the landlord must apply to the ACAT for approval.
Where an agent receives such a request from a tenant the agent should carefully consider the conditions to be imposed so as to provide the landlord with appropriate options. These might include that the carpet is professionally cleaned (perhaps even on a number of occasions) during the term of the tenant’s occupation or that the premises is fumigated on expiry of the tenant’s occupation.
Break Lease Clause
Another major change introduced by the Bill is the limitation on the fee payable by the tenant under a ‘break lease clause’.
Though a break lease clause is optional, under the new changes, if the tenant terminates the tenancy under a break lease clause during the first half of the fixed term (subject to the fixed term being 3 years or less), the tenant will be liable for:
- where less than half the fixed term has expired, 6 weeks rent; or
- where half the fixed term has expired, 4 weeks rent,
but where the landlord enters into a new tenancy agreement for the premises prior to the expiry of the above periods (6 weeks or 4 weeks) the liability of the tenant will be reduced by an amount equal to the rent paid by the new tenant during that period. Essentially, the liability of the tenant is capped to the actual loss (in terms of rent at least) suffered by the landlord.
In relation to the tenant’s potential liability to the landlord, other than for rent, under the Bill this is now limited to:
- where half or more of the fixed term has expired, an amount equivalent to 2/3 of 1 weeks’ rent; or
- where less than half of the fixed term has expired, an amount equivalent to 1 weeks’ rent,
but only where the tenant vacates the premises more than 4 weeks before the end of the fixed term.
It should be noted, however, that these limitations only apply where the landlord enters into a new tenancy agreement within the defined period.
By capping the landlord’s right to recover from the tenant the actual loss suffered, particularly in relation to having to advertise and re-let the premises, this change is likely to lead landlords to refuse to include a break lease clause in the agreement and to instead rely on the provisions of the Act and their rights under contract law.
Though the changes introduced by the Bill do bring with them an inherent risk of encouraging the parties, whether in dispute or simply seeking clarification or approval, to seek an order from the ACAT and thereby overburden the services of the ACAT, the managing agent remains in a unique position to guide the parties to a mutual and commercial resolution within the framework of the Act and the prescribed tenancy terms. Agents then, should take the opportunity now to consider the repercussions of the changes and to start the education process with their landlord clients before the changes take effect.
If you need advice or further clarification on the changes, please do not hesitate to contact the BAL Real Estate Team.
Written by Benjamin Grady and Riley Berry.