While OFT advised that the Bill would not be introduced into NSW Parliament until 2010, they gave stakeholders little more than one month to make submission in relation to the Bill – a Bill which proposes some of the most radical changes in decades to the control and management of hundreds of thousands of rented residential properties in NSW.

It’s no secret that demand for residential rental accommodation is exceeding supply. The combination of increased demand and investors preferring alternate investment opportunities has resulted in an acute shortage of stock.

It must be remembered that a place to live is not a right or a privilege, but a necessity. If NSW cannot provide this, then people will have no choice but to move to a location where it is available.

Investors select an investment for a return. Investors are generally not driven by a desire to provide housing. Rather, they simply want, need and expect a return on their investment. On many occasions, those investors are dependent upon that income to meet their own living expenses and/or mortgage commitments. Not surprisingly, if investors do not have confidence in the returns flowing from their investments they will select other more certain streams of investment return.

REINSW believes that a number of the reforms proposed in the Bill will deter existing and future investment in this crucial market.

The objective of reform
 
There is clearly a pressing need for reform in some areas of the residential tenancies regime in order to shift the balance of power back towards a more equitable balance between landlords and tenants. A general observation that the balance is currently skewed in favour of tenants, at the expense of landlords, will certainly shock no one.

The OFT has stated that one of the objectives of the Bill is to “fairly balance the rights and obligations of tenants and landlords”.

Such an objective is laudable, however REINSW does not believe that the Bill meets this objective. If anything, the Bill will shift the current imbalance further in favour of the tenant.

In the current economic climate where property taxes, income tax and capital gains tax already significantly erode a landlord’s return on investment, measures that will further erode the rights of landlords will only devastate landlord confidence. Once this occurs, investors will turn to other investments, including interstate property, rather than NSW property.

REINSW’s primary concern is that any change to the residential tenancy regime must be made with a view to making investment in NSW rental properties attractive to investors. To ensure the long-term economic growth and investment in NSW, the NSW property market – upon which the Government is heavily reliant for revenue – must be attractive for both NSW and external investors.

The process of investing in and managing NSW rental properties needs to be made simpler than in other jurisdictions but it must not, in the process, become inequitable.

Clarity and certainty

Another objective of the Bill is stated to be a “[reduction in] the level of disputes, by providing greater clarity and certainty in the legislation”.

The introduction of measures that have the potential to further increase the level of disputes in residential tenancy matters cannot be justified, and will do nothing to reduce the current number of disputes in residential tenancy matters.

REINSW believes that the introduction of measures that will erode investor investor confidence, such as:

• enabling tenants to break leases with minimum notice or compensation;
• enabling tenants to conduct cosmetic repairs and alterations without a landlord’s consent;
• altering the tenants on a residential tenancy agreement (transfer and sub-letting);
  frustrating termination proceedings; and
• increasing the disparity between notifications periods to end tenancies for landlords and tenants,
  are fraught with danger and cannot be recommended nor supported.

Updating the law

The third stated objective of the Bill is that it will “modernise and update the law in line with current practices”.

There are many provisions in the current Act that work well and do not require ‘modernising’. Every change from current practice that is proposed to be made will increase compliance costs for landlord, and administrative and training costs for agents.

REINSW believes that there is little merit in updating the law to permit practices that are currently illegal or to introduce provisions that are demonstrably impractical and unworkable.

The old adage of “if it ain’t broke, don’t fix it” is particularly apt. There is simply no need to change for change’s sake.

What’s changing?
 
It’s important to note that nothing will change immediately, as the Bill has not yet been introduced into the NSW State Parliament. REINSW understands that this is scheduled to occur in 2010, so there is still time to lobby for changes to the Bill before Parliament considers it.

It’s not possible to outline all of the proposed changed in the hundreds of pages of the Bill. However, the following is a selection of some of the most significant changes.

Fixed-term tenancies

Section 98 of the Bill will enable tenants to break a lease, during the fixed term, without any special grounds by giving 14 days notice to the landlord.

This break clause will be subject only to the payment of a ‘break fee’, which will not exceed six weeks rent. Details of the maximum amount of ‘break fees’ for long-term leases (over three years) have not been released.

This single, dramatic change to current practice has the greatest potential of any of the proposed changes in the Bill to utterly destroy investor confidence in the residential tenancy market. What is the point of a landlord entering into a fixed-term tenancy that will be unable to enforced?

To rub salt into the wound, the period of notice which a landlord must give to end a fixed-term tenancy is proposed to increase from 14 days to 30 days. In circumstances where the tenant already knows when a fixed term is to end, why should this period of notice increase?

Periodic tenancies

Section 85 of the Bill increases the notice period required to be given by landlords to tenants (who are out of fixed term) from 60 days to 90 days.

While the section provides that the CTTT must now make a termination order if the notice has been validly drawn and served, the Bill still gives the CTTT jurisdiction to determine when vacant possession is to occur if a tenant challenges the landlord’s termination notice.

The Bill does not set a maximum time limit between the date the CTTT makes a termination order and the date it nominates that vacant possession is to be given by the tenant. Once served with a 90-day termination notice by the landlord, a tenant can give vacant possession at any time.

Frustration of repossessions by tenants

Section 89 of the Bill provides a mechanism whereby a tenant who is already, or habitually, in arrears can frustrate a landlord’s efforts to regain possessions of their premises on the ground of non-payment of rent.

The effect of the section is that orders for possession and warrants for possession issued by the CTTT will cease to have effect if the tenant pays their arrears at any time prior to vacant possession being given or the warrant enforced.

The tenant will not have to apply to the CTTT seeking the suspension of an order for possession or warrant. The section also makes no provision for the recoupment by the landlord of the costs incurred in obtaining the order for possession or warrant.

Cosmetic changes
 
Section 66 of the Bill provides that landlords must not unreasonably withhold consent “to a fixture, or to an alteration, addition or renovation that is of a minor or cosmetic nature”.

There is no definition of what “a minor or cosmetic nature” is, or what “an alteration, addition or renovation” is. Indeed, the terms “addition and renovation” and “minor and cosmetic nature” are almost mutually exclusive. What is minor or cosmetic to a tenant will usually not be what is minor or cosmetic to a landlord.

In addition, a minor or cosmetic change made by one tenant will not necessarily suit the next tenant. Minor or cosmetic changes may also result in damage which is irreversible.

Section 66 is backed by section 68 of the Bill, which sets out that a tenant may apply to the CTTT for an order that the tenant may install a fixture or make a renovation, alteration or addition to the residential premises without the consent of the landlord.

While the Bill contains provisions concerning the removal, rectification and cost of such matters at the end of the tenancy, the potential for dispute will occur at the beginning, during and at the end of tenancies, and landlords risk being considerably out of pocket as a result of this proposed change.

Partial transfers of tenancies or sub-letting
 
A landlord’s right to decide who inhabits a property will be able to be challenged. Section 75(5) of the Bill will enable a tenant to apply to the CTTT to review a landlord’s refusal of consent to a partial transfer or sub-letting to an additional tenant, or tenants, that the landlord would not otherwise accept as a tenant.

The CTTT will be able to permit the partial transfer or sub-letting if the landlord’s failure to consent is unreasonable (the word “unreasonable” is not defined).

The concept of permitting sub-letting without the consent of the landlord and for there to potentially be an increasing stream of sub-tenants will simply open a Pandora’s Box of issues for landlords and their agents.

Rent control
 
Section 44 of the Bill does not, unfortunately, clarify some of the past uncertainty (and case law) relating to what matter the CTTT must, or may, take into account when hearing application by a tenant that rent, or a rent increase, is excessive.

For example, there is no compulsion in the Bill for the CTTT to take the market rent of the premises into consideration when making a determination.

The way forward
 
There are a myriad of other provisions that substantially shift the balance of power further in favour of tenants. The Bill will entirely change the manner in which property manager do business, necessitating changes in day-to-day practices and procedures.

Further, much information about how the Bill will operate will be contained in a new Residential Tenancy Regulation. A draft copy of the Regulation is nowhere in sight – so it is impossible to know what other surprises may be in store!

In recent weeks, REINSW has met with the NSW Opposition in order to voice our concerns regarding the disastrous impact of the Bill. We have also requested a meeting with the OFT to discuss our submission.

REINSW believes that far from reducing the levels of disputes, the Bill will introduce a regime whereby the potential for disputes will increase significantly, and we will continue to actively lobby on behalf of members.

In a market where many landlords are already deriving a marginal return, measures such as many of those proposed in the Bill may well be the straw that breaks the camel’s back.

To view a copy of REINSW submission to OFT on the Residential Tenancies Bill 2009 (NSW), go to http://www.reinsw.com.au/rtasubmission