Landlords need to become more professional and commercially savvy to attract and retain tenants in an increasingly competitive market, rental professionals warn.
A spike in the number of disputes over end-of-lease bond repayments highlights the need for better communication of landlords’ expectations and tenants’ responsibilities, they say.
Stand-offs between owners and their tenants about bond repayments are now more common than rows over used cars, disputes about household appliances or even disagreements between merchants and consumers about clothing purchases, according to NSW Fair Trading. It’s a similar story in other states and territories.
A bond is a security deposit paid by a tenant at the start of a tenancy. It is paid back at the end of the tenancy provided no money is owed to the property manager/owner for rent, damages or other costs.
‘It is a much bigger problem with private landlords who manage their own properties,’ says Gerri Keays, a rental specialist and director of Ray White Real Estate.
Keays says private landlords often have an emotional attachment to their properties and their own ideas on what constitutes reasonable wear and tear and cleanliness, the two most common causes of dispute at the end of a tenancy.
Of course, Keays has a commercial interest in lauding the merits of using an agent. But it also makes sense for the commercially minded landlord because all property agents’ fees and commissions they pay are fully tax deductible. The website of the Australian Tax Office has a section on property rentals that includes a list of more than 20 deductions.
Cleanliness tricky as it’s subjective
But making deductions against income assumes the property is earning rent and not unoccupied due to a costly and protracted dispute before a tribunal or court over its condition at the end of a tenancy.
‘Deciding on whether [a property] is clean is one of the most difficult issues to assess because it is subjective and often hard to quantify,’ Keays says.
For example, the Victorian Civil and Administrative Tribunal recently dismissed a $1500 claim against a landlord by a tenant who claimed the rental property was infested with pigeons.
It ruled the condition of the property was ‘substantially’ the same as at the start of the tenancy and that because the landlord had not been informed of the infestation there was no breach of duty.
Booming property markets in some Australian capitals, negative gearing and incentives offered by property developers have contributed to a huge increase in the number of investment properties being built and purchased.
Investment property sales have increased threefold in recent years and borrowing through DIY super to buy property has grown by more than 50 per cent a year over the past three years, according to government analysis.
Many younger buyers fearful of being priced out of the market are deferring the purchase of their first home and instead investing in property in cheaper and less desirable areas in the hope that rising prices will help them bridge the deposit gap.
Rents for houses and apartments in former mining boom cities such as Perth and Darwin are tumbling and are flat in most other capitals except Sydney. There are some niche markets, such as providing student accommodation near campuses outside the major cities, where demand is strong during the academic year.
Keays says the rental market is ‘soft and getting softer’ and recommends landlords do what is necessary to attract and retain good tenants.
Property managers typically charge about 5 to 8 per cent of gross rent.
Property owners considering using an agent need to do some homework because the sector is not covered by a nationwide set of regulations, a code of practice or restrictions on entry.
- The percentage of an agent’s properties in arrears. If it’s more than 5 per cent, ask why;
- How often an agent’s tenants go to tribunals and why;
- How much of rental payments are kept for maintenance;
- How often the rent goes into the landlord’s account;
- How easy it is to access information held by the agent. For example, are records of the tenants’ rental payments up to date; and
- How often rents are reviewed.
Buyers’ agent Richard Wakelin, director of Wakelin Property Advisory, believes a good agent needs to be commercially savvy and strategic. That includes being up to date on market conditions and tenant expectations.
Keays adds that a good agent will provide a thorough inspection of the property before the tenants move in, and then meet them before they vacate the property at the end of the lease to inform them on what they need to do to have their bond refunded.
‘The best strategy is for the tenants to get a professional cleaner and ask for a receipt they can show the landlord,’ she says.
Landlords also need to review their insurance cover to make sure they are covered for all contingencies. For example, most general house and contents policies do not cover loss of rent and malicious damage, which are the top claims from landlords renting to students.
Finally, anyone considering becoming a landlord needs to be aware of the myriad rules, regulations and authorities. There are also thousands of rules and regulations issued by state governments, councils and professional bodies.
In addition to NSW Fair Trading and other state tribunals, aggrieved tenants can petition consumer affairs bodies, local councils, equal opportunity and human rights commissions and the courts.
Tenants were ordered to pay $5000 in damages and rent arrears after leaving a house in the west Melbourne suburb of Point Cook with chipped tiles, littered with cigarette butts and reeking of pet smells.
Tenants Daniel and Alayne Burns agreed they should pay the landlord for internal and carpet steam cleaning but disputed the $850 bill, the Victorian Civil and Administrative Tribunal heard. They also disputed having to replace security lights and the chipped tiles.
A representative of the tribunal, which resolves disputes between landlords and tenants, inspected the property and agreed with the landlords, Michael Bray and Jessica Van Meersbergen, that the property needed cleaning.
The tribunal ordered compensation plus rent arrears of $2700.
The dispute is typical of the thousands that are negotiated between the parties or end up before tribunals and courts every year.
They are regularly caused by misunderstandings about the rights and responsibilities of the owner and the occupier.
More than 4000 disputes between landlords and tenants about bonds and tenancy agreements were reported to NSW Fair Trading over the past 12 months, nearly 25 per cent more than the number of complaints about household appliances, the next highest category of dispute.
Disputes about house construction and purchases and sales also featured prominently in NSW Fair Trading’s top 10 list of complaints.