The NSW evictions moratorium: an explainer

Jemima Mowbray • 16/04/2020

Yesterday (15 April) the measures announced by the NSW Government on Monday to support renters kicked into gear. This means NSW now has implemented a 6 month moratorium on evictions, but it’s complicated. It doesn't cover all evictions, or all renters.

This blog post tries to answer some of your immediate questions. Who exactly does the moratorium cover? How will it work in practice? And what about the rent? We’ll try to cover some of the other details bundled up in the mix, and talk about what is missing (and desperately needed) in the package announced.

What exactly does the NSW moratorium do?

The moratorium is the big ticket item of the package. The NSW Government implemented the federally announced 6 month Evictions Moratorium in two steps:

Step 1: an interim 60 day stop on all evictions for rental arrears where the renting household has been financially impacted by COVID-19. The stop commences 15 April and is in place for 60 days from then

Step 2: after the 60 day stop, restrictions on evictions for rental arrears for COVID-19 impacted tenants will apply for 6 months. A landlord will only be able to apply for eviction for rental arrears if they can show they:

attempted to negotiate a rent reduction with the tenant in good faith
if informal negotiations failed, that the tenant and landlord have attempted mediated rent reduction negotiations through the Fair Trading dispute resolution process
and that the eviction is fair and reasonable in the circumstances of the specific case.

Who gets protected against evictions?

To be covered by the moratorium, a tenant needs to be able to demonstrate their renting household has lost 25% of their income during COVID-19. This is income after tax, and it’s the total household income, not just any one individual in the household. The ‘household’ is understood to be everyone living in the home contributing to rent, not just those listed on the tenancy agreement.

Eligibility: For you to be protected by the 60 day stop on evictions and the longer six month restrictions, your household needs to be able to demonstrate any 1 or more rent paying members of the household have:

• lost employment or income as a result of the impact of the COVID-19 pandemic, or had a reduction in work hours or income as a result of the impact of the COVID-19 pandemic, or
• had to stop working, or materially reduce the member’s work hours, because of – the member’s illness with COVID-19, or another member of the household’s illness with COVID-19, or the member’s carer responsibilities for a family member ill with COVID-19,
• and as a result of the above factors 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

Initially a tenant needs to let their landlord know they are in financial distress and demonstrate their household's loss of income (so some form of proof to show loss of employment and drop in income).

If the tenant and landlord can't come to agreement on a rent reduction, they must attempt formal mediation through the Fair Trading dispute resolution process.

Only if a landlord has failed to come to agreement with a tenant after negotiating with them in good faith through the Fair Trading process can a landlord apply to the NSW Civil and Administrative Tribunal (NCAT – the Tribunal) for eviction.

The Tribunal then has discretion to consider whether the eviction is 'fair and reasonable in the circumstances', taking into account factors including whether a fair offer was made (and rejected), whether the tenant had been meeting any new agreed commitments, the parties' financial circumstances, as well as health concerns and the public health perspective.

So what about the rent?

The obvious question follows - what about the rent? What can Covid-19 impacted tenants (and landlords for that matter) expect in terms of what will be considered a 'fair and reasonable' rent reduction offer - by Fair Trading, and by the Tribunal?

It's a lot easier in the commercial tenancy space. Commercial tenants and landlords in a similar situation can rely on the national cabinet mandatory code of conduct, which sets out a principle of proportionality, basically the idea that rent will need to be reduced in line with the tenant's lost revenue (income) - so a reduction of up to 100% of the ordinary rent payable. The mandated code gives further guidance that an overall rent reduction offer needs to include at least 50% waiver rather than deferral. It also sets out minimum periods for repayment of any remaining deferred rent.

There isn't anything similar in place for residential landlords and tenants.

We suggest renters sit down and work out their household budget considering how much they can afford on rent right now, what they anticipate is realistically affordable for them going forward, and what they can manage in terms of any unpaid rent they've accrued up to that point. We'd hope that a fair and reasonable offer is one in which the tenant isn't being asked to accept any offer that puts them into housing stress. We don't want to see renters being asked to pay more than 30% of their weekly income in housing costs (their rent, but also keeping in mind basic utilities costs like water and energy that ensure a home is liveable but are also going to start placing many households in financial stress very quickly). On top of paying for their housing, people need to be able to eat, pay for medicine and health services, and cover all the other basic necessities for the families and households during this crisis.

And any offer that is simply a deferral of rent can't be considered 'fair and reasonable'. The outcome of deferred rents for people in financial crisis is simply exacerbation of that distress down the track.

What's the deal with the land tax relief?

There's been a bit of confusion about how the announced land tax relief for residential landlords will interact with rent reductions offered to tenants. And actually there's not that much detail available about how exactly this will work. However, it is clear that the requirement for a landlord to enter into negotiations around a rent reduction does not hang on whether or not they're eligible for land tax relief, i.e. a landlord who currently isn't required to pay land tax (and so won't see any benefit from this relief measure) is still required to enter into 'good faith' negotiations to reduce rent for a tenant impacted by COVID-19.

The Treasurer when announcing the relief package earlier this week also made clear that while the waiver would be applied so any relief for the landlord was passed on, the NSW government didn't expect the land tax relief the landlord receives will cover in full the rent reduction a tenant requires. Offers of rent reduction limited to the amount the landlord received in relief that don't take account of the renter's financial circumstances can't be regarded as 'fair and reasonable'.

Will my landlord get the land tax relief?
Maybe yes, maybe no – a landlord will be eligible to a waiver of up to 25% on their land tax - if they currently pay land tax and where they reduce rent. Land value is the value of the land only. It does not include the value of the home, nor other structures and improvements. Liability for land tax is where the aggregate land value of parcels of land owned by the landlord (excluding their principal place of residence and land used for primary production) is $734K or more.

Do I only get a rent reduction equal to the land tax relief the landlord gets?
No – the land tax relief amount does not place a limit on the amount a tenant's rent can be reduced by, it might however play into any assessment of whether an offer made by the landlord is 'fair and reasonable' in the circumstances.

If my landlord doesn't get any land tax relief does that mean I won't get a rent reduction?
No – if you can show your household has been impacted by COVID-19 (we talked about the eligibility criteria above) your landlord must enter into 'good faith' negotiations with you around a rent reduction.

So what's missing?

We know there are issues that are not covered. We will continue to advocate with government to resolve these issues and others as they arise. As a quick summary:

Current changes don't allow people impacted by COVID-19 (impacted financially, but also those renters – e.g. international students – who haven't been able to travel back to Australia or have been told to return oversees) to break their leases early without penalty.
The moratorium doesn't provide any real protection from evictions for 'no grounds'. There is an announced extension on the notice period required for ending a fixed term tenancy (notices given under section 84), but general 'no grounds' evictions (section 85) remain untouched. We're really worried that landlords will make use of 'no grounds' evictions as a loophole, to evade the requirement to enter into 'good faith' negotiations on rent reduction.
There's no protection for people already facing eviction for reasons other than rental arrears. Or for people who were in a bad financial situation prior to Covid-19, that is now only exacerbated by the crisis. This is especially concerning in situations where a renter or someone in their household has health concerns placing them at higher risk during this health crisis.
People in share housing will find it tricky accessing any protections, and they - along with other lodgers - may not have any coverage under the moratorium. These renters, always vulnerable, are going to be even more at risk of eviction during this period.
And without clearer guidelines in place, the moratorium measures don't adequately addresses the imbalance of power between tenant and landlord to negotiate a fair rent reduction. Without further relief - for tenants or landlords – it's hard to see how renters, even those able to access the dispute resolution process via Fair Trading, will be able to negotiate a reduced rent that won't put them in rental stress. If not immediately, then in the future (we're very concerned about rent reductions made up primarily of deferral that simply puts off payment of an accrued unpaid rent debt leaving the renting household with large unwieldy debt down the track).

The moratorium package is a good start (and there are a few other protections we've not covered here, including restrictions on database listings for COVID-19 impacted tenants, and a one off funding boost for tenant advocacy services), but we know many renters are going to fall through the gaps. Many people could still lose their homes during this crisis.