Residential Tenancies Amendment Bill 2018 (No 2) - A-CATastrophe?

We certainly hope not, but residential investors are likely to consider that it is, with tenants perhaps ultimately wearing the cost.

Introduced in the Legislative Assembly on 1 November 2018, the Residential Tenancies Amendment Bill 2018 (No 2) seeks to amend the Residential Tenancies Act 1997 to improve protections for tenants while enabling lessors to be consulted on issues that will affect the properties they own.[1] In summary, the changes:

  1. Restrict a lessor’s right to decline an application for the keeping of pets on the premises. If a lessor wishes to refuse consent or impose conditions on that consent (that do not relate to the number of animals or the cleaning/maintenance of the premises), the lessor must apply to the ACAT for its prior approval.

    The proposed changes do not allow for the lessor to hold additional security for damage caused to the premises, even where it is predicated that a pet will cause deterioration.
  1. Restrict a lessor’s right to decline an application to modify the premises. Where a tenant makes an application to renovate/alter the premises for the purpose of assisting the tenant in relation to:

    1. the tenant’s disability (on written advice of a health practitioner);
    2. the safety of the tenant;
    3. improving the energy efficiency of the premises; or
    4. the security of the tenant, to be known as ‘special modifications’, the lessor will only be able to decline the application if the lessor obtains the ACAT’s prior approval. For any other modification, the lessor must not unreasonably decline the application.

      It is important to note that the (currently proposed) grounds on which the ACAT may make orders in favour of the refusal are non-prescriptive, the obvious being that:
    1. the lessor would suffer significant hardship; or
    2. the special modification would result in additional maintenance cost for the lessor.

      Such grounds, without further clarification, do not provide either tenant or lessor with any certainty and may lead to inconsistent decisions by the ACAT and could prove significant barriers to obtaining consent.

      The proposed changes do not allow for the lessor to hold additional security for damage caused to the premises or to return the premises to its original condition (subject to fair wear and tear) in the event the tenant fails to comply with the lessors conditions of consent (which presumably will require the premises to be restored).
  1. Introduce capped rental increases. If a lessor wishes to increase the rent by a rental rate above that specified by regulations (10% greater than the rents component of the housing group of the CPI for Canberra), the lessor will need to obtain either the tenant’s consent or the ACAT’s prior approval.
  1. Cap the break fee payable by a tenant under a ‘break lease clause’. Where a tenancy agreement is entered into with a new tenant before the expiry of the 4 week period (if more than half of the fixed term period has expired) or 6 week period (if less than half of the fixed term period has expired) following the tenant vacating the premises, the break fee will be reduced by the amount of rent payable by the new tenant during that period.

    If the tenant vacates the premises more than 4 weeks before the end of the fixed term, the break fee will be increased to include the lessor’s reasonable costs of advertising the premises for lease and providing vacant possession but limited to:

    1. If more than half of the fixed term has expires – an amount equal to 2/3 of 1 weeks rent; or
    2. If less than half of the fixed term has expires – an amount equal to 1 week’s rent.

The conscious “push” to move the ACT to a more tenant friendly jurisdiction, perhaps which to a degree may be necessary, without incentive, a more amicable resolution process or the substitution of additional security (at least for the lessor) brings about an obvious risk of an increase to the already overburdened number of applications before the ACAT, which obviously increases the cost and risk of owning and renting land.

The question then is who is ultimately going to bear these costs? Based on the proposed reforms this clearly lays cost and risk at the feet of the lessor, but does it? One observation is that lessors will demand higher rent to cover their risk and mitigate their potential losses and if these changes are too burdensome, to invest elsewhere, reducing available rental supply.

[1] Residential Tenancies Amendment Bill 2018 (No 2), Explanatory Statement