Termination of lease for COVID-19 impacted tenants

 

As property managers should already be aware, the COVID-19 impact on leases, tenants and landlords alike has been something that is unprecedented. Sudden mass unemployment has left many tenants unable to pay their rent in full and in some cases at all.

We have previously discussed the need for open communication with our landlords and tenants as well as the Government’s solution to unexpected homelessness of “closing” the tribunal application process for non-payment of rent on behalf of the agent or landlord. This has necessitated a discussion between landlord and tenant for the possibility of a negotiated rent reduction.

While it is understood that many landlords could also face financial hardship during these times, we at the college are hearing that many landlords are not entertaining such negotiations. For those tenants that are affected by COVID-19 related hardship, the NSW Government has announced further changes for residential tenants facing financial hardship due to COVID-19.

From 14 May 2020, tenants who are unable to negotiate a rent reduction with their landlord can seek to terminate their lease through NCAT. If a termination order is made under the relevant law, compensation (break fee) may be payable to the landlord of not more than two weeks rent.

The Residential Tenancies Act 2010 sets out how an “impacted tenant” is defined:

S228B When a household is impacted by COVID-19 pandemic:

1) For the purposes of this Part, a household is impacted by the COVID-19 pandemic if:

a) any 1 or more rent-paying members of the household have:

i) lost employment or income as a result of the impact of the COVID-19 pandemic, or

ii) had a reduction in work hours or income as a result of the impact of the COVID-19 pandemic, or

iii) had to stop working, or materially reduce the member’s work hours, because of:

A) the member’s illness with COVID-19, or

B) another member of the household’s illness with COVID-19, or

C) the member’s carer responsibilities for a family member ill with COVID-19, and

b) as a result of any of the matters stated in paragraph (a), the weekly household income for the household has been reduced by at least 25% compared to the weekly household income for the household before the occurrence of any of the matters.

2) In this section:

“weekly household income” means the total of the weekly income, including any government payments, received by each rent-paying member of the household.

For the tribunal to make a determination to terminate the lease at the request of the tenant they will apply s228C which states the following:

1) The Tribunal may, on application by an impacted tenant, make a termination order if satisfied that, during the moratorium period:

a) the impacted tenant has, by written notice given to the landlord or landlord’s agent, asked the landlord to participate in a formal rent negotiation process and the landlord:

i) has not responded to the notice within 7 days of the impacted tenant making the request, or

ii) has refused to participate in a formal rent negotiation process, or

iii) has agreed to participate in, but has subsequently failed to respond to or participate in the process, or

b) the landlord:

i) does not respond to notice of any part of the formal negotiation process given by NSW Fair Trading within 7 days of the giving of the notice, or

ii) fails to participate in, or stops participating in, the formal rent negotiation process, or

c) the impacted tenant and the landlord have participated in a formal rent negotiation process in good faith but are not able to reach an agreement that would avoid financial hardship for the impacted tenant because of:

i) the amount of rent that would be payable under an arrangement the landlord could agree to, or

ii) the amount of unpaid rent that has accrued, or will accrue, if the agreement is not terminated.

2) For the purposes of determining any of the matters stated in subsection (1), the Tribunal may have regard to the following:

a) any advice provided by NSW Fair Trading relating to the participation of the landlord or impacted tenant in the formal rent negotiation process, including whether the landlord or impacted tenant refused, or refused to make, a reasonable offer about rent,

b) whether the impacted tenant has continued to make any payments towards the rent,

c) the nature of any financial hardship experienced by the landlord or impacted tenant, including the general financial position of each party,

d) any special vulnerability of the impacted tenant,

e) any other matter the Tribunal considers relevant.

3) An impacted tenant may make an application under this section without giving the landlord a termination notice.

4) An impacted tenant must give a copy of the application to the landlord or landlord’s agent.

5) If the Tribunal makes the termination order, the Tribunal may also order the impacted tenant pay compensation to the landlord of an amount of not more than 2 weeks rent.