Submission: Draft Residential Tenancies Act Regulation 2010

 

The TU welcomes the opportunity to make this submission on the draft Residential Tenancies Regulation 2010 (NSW) (the draft Regulation).

This submission is made on our own behalf, and on behalf of the network of Tenants Advice and Advocacy Services.

As well as referring to the draft Regulation, this submission refers to the Residential Tenancies Act 2010 (NSW) (the Act),the Residential Tenancies Act 1987 (NSW) (the 1987 Act) and the Residential Tenancies Regulation 2006 (the 2006 Regulation)

Part 2 Residential tenancy agreements

4 Standard form of residential tenancy agreement

We support the prescription of a standard form of agreement. See our discussion of Schedule 1.

5 Prohibited terms

We support the prohibition of this term. It supports well-established principles of competition and fair trading.

6 Condition reports

We support the prescription of a form for condition reports. See our discussion of Schedule 2.

Part 3 Rights and obligations of landlords and tenants

7 Disclosure of information to tenants generally: s 26(1) of Act

Subject to some qualifications discussed below, we support the prescription of each of the matters at cl 7(a)-(e) as 'material facts'.

• Clause 7(a). We submit that the reference point of 'the residential premises' may be too narrow, and that it is appropriate that landlords and their agents should be required to disclose that the 'the residential premises or any of the adjoining properties' have been subject to serious flood or bushfire in the previous five years.
• Clause 7(b). We are concerned that some landlords and tenants may believe wrongly that a landlord's disclosure of 'significant health or safety risks' per cl 7(b) absolves the landlord of their obligation to provide the premises in a state fit for habitation and to provide and maintain the premises in a reasonable state of repair. We submit that a 'note' to the contrary should be included in the clause.

We also submit that two additional material facts should be prescribed.

First, the fact that the landlord lives in adjoining premises should be a prescribed material fact. In many cases this fact will significantly affect the tenant's enjoyment of the premises, even if it does not represent a breach of their contractual right to reasonable peace, comfort and privacy. It is reasonable to require that this fact should be disclosed.

Secondly, the existence of any interest in the premises by a person not party to the residential tenancy agreement (a 'third party interest'), along with the nature of the interest and the identity of the person, should be a prescribed material fact. Examples of third party interests would include:

• the interest of a co-owner (whether a tenant in common, or a joint tenant) who is not also a party to the agreement;
• the interest of a head-landlord;
• a mortgage;
• an easement.

These interests give rights to third parties that may substantially affect the rights of a tenant under a residential tenancy agreement, and requiring that they be disclosed would generally help prevent disputes from arising.

This is important, because where the rights of a tenant and the rights of a third party co-owner come into conflict, the way the law deals with the conflict may be surprising. For example, where there is a third party who co-owns the premises as a tenant in common with the landlord, the law as stated by the NSW Court of Appeal in New South Wales v Koumdjiev [2005] NSWCA 247 provides that the tenant (that is, the tenant under the residential tenancy agreement) takes their right to occupy the premises subject to the continuing right of possession enjoyed by the third party.

The third party has no right to receive rent from the tenant, nor to terminate the agreement between the tenant and the landlord, but they are entitled to occupy the premises along with the tenant. Where there is a third party who co-owns the premises as a joint tenant (as distinct from a tenant in common) with the landlord, the law operates quite differently: in these cases, the right to occupy the premises cannot be divided, so the landlord's grant of the right to occupy under the residential tenancy agreement fails – that is, the tenant does not have a legal right to occupy the premises.

We acknowledge that conflicts between the rights of tenants and third party co-owners rarely get to such a point – but it is not unheard of. In Catanzariti v Whitehouse [1981] 55 FLR 426, a tenant suffered considerable disruption and inconvenience when his landlord's estranged wife and co-owner of the premises – a fact unknown by the tenant when he entered into the contract – exercised her right to occupy and moved in with the tenant, initially against his will (uncertain of his legal position, the tenant subsequently agreed to let her occupy a room). When the third party co-owner interfered with some of the tenant's goods, the tenant commenced proceedings, but conceded – 'rightly', according to the Federal Court – that the co-owner was not bound by his agreement with the landlord, and had not disposed of her right to occupy; the court also held that the third party co-owner owed no obligations in respect of the tenant's quiet enjoyment (her interference with his goods, however, was held to be tortious).*

* We submit, with respect to the Federal Court, that there is doubt as to whether Catanzariti v Whitehouse properly applies the law. Throughout the judgement, the husband and wife are referred to as 'joint tenants'. According to the law as stated in New South Wales v Koumdjiev (which makes no reference to Catanzariti v Whitehouse), this should mean that the husband's grant of a right to occupy to the tenant failed, so that the tenant had no valid right of occupation at all. Had the husband and wife been tenants in common rather than joint tenants, the decision would be consistent with New South Wales v Koumdjiev.

Despite the rarity of such a conflict, we submit that the precipitating circumstances – a co-owner being left off a tenancy agreement – are much more common, so the potential for conflict is actually widespread. If the Regulation were to require disclosure of third party co-owners, we expect that few would actually be disclosed; rather, landlords and agents would take greater care to ensure that all co-owners are included as parties to their residential tenancy agreements.

Disclosure is also important in relation to the other third party interests, such as mortgages, easements and the interests of head-landlords, because it would help ensure that the tenant is alert to events and actions associated with the exercise of the third party's rights. For example, disclosure of a mortgage would help ensure that the tenant pays attention to correspondence and notices from a mortgagee proposing to take possession of the premises. From our experience, this correspondence is often overlooked by tenants, because it is addressed anonymously to 'the resident' and may come from an institution with which the tenant has no relationship: in other words, the correspondence may look like junk mail. If a tenant knows the premises are subject to a mortgage held by a certain institution, correspondence from the institution is much less likely to be overlooked.

We also submit that the standard form of agreement should provide for any prescribed material facts, including third party interests and their holders, to be recorded in the agreement, and to provide that where a landlord does not so record a material fact, the landlord warrants that the fact does not exist. We will return to this in our discussion of the standard form of agreement, further below.

10 Water efficiency measures required for payment of usage charges by tenants

We support the prescription of the water efficiency measures at cl 10(a)-(c). We would also support the prescription of dual-flush toilets, and submit that this measure should be prescribed in a future regulation.

Additional matter – prescribed information in termination notices

We submit that the Regulation should prescribe, per s 82(1)(d) of the Act, the following two pieces of information for inclusion in termination notices.

First, we submit that all termination notices given to tenants should contain the following statements:

If you do not vacate in response to this termination notice, the landlord may apply to the Consumer, Trader and Tenancy Tribunal for an order terminating your tenancy and returning possession of the premises to the landlord. The Tribunal will determine if and when your tenancy should end.

For further information about your rights, you can contact:

• Fair Trading NSW, Phone: 13 32 20, Web: www.fair-trading.nsw.gov.au
• Law Access, Phone: 1300 888 529, Web: www.lawaccess.nsw.gov.au
• Your local Tenants Advice and Advocacy Service, Web: www.tenants.org.au

Secondly, we submit that the Regulation should prescribe that where a termination notice is given to a tenant on the ground that the tenant has breached a term of the agreement, the notice must include particulars of the breach.

We also submit that Fair Trading should develop model termination notices, for possible prescription as standard forms, per s 224(2)(c), under a future regulation.

Additional matter – prescribed maximum break fee for agreements with a fixed term of three years or more

We submit that the Regulation should prescribe, per s 107(5), that a break fee for agreements for a term of three years or more should be limited per 107(4). This is an appropriate precaution, considering that break fees are a new feature of residential tenancies law in New South Wales.

Part 4 Exemptions

11 Effect of early vacation of residential premises

We oppose this exemption. The benefit of s 110(2) of the Act is that it allows tenants who are moving at the instigation of their landlord to avoid paying 'double rent' (that is, rent for their new premises, and rent for their own premises for the period of their own termination notice). We submit that there is no good reason why tenants who are moving because of a landlord's 'end of fixed term' termination notice should not have the benefit of s 110(2). We note there is no discussion of the clause in the RIS.

12 Refuge or crisis accommodation

This clause qualifies the exemption of refuge or crisis accommodation at s 8(d) of the Act. We submit that the qualification is appropriate.

14 Heritage properties

We submit that this exemption should have an additional criterion: that the landlord and tenant agree in writing that the Act will not apply because the premises comprise, or are part of, a heritage item.

16 Trial residential park agreements

We oppose this exemption.

We note the detailed submission on this point by the Parks and Villages Service. Persons who rent caravans for use as a residence are often very disadvantaged persons, and if excluded from both the Act and the Residential Parks Act 1998 (NSW) would be subject to the inadequate provisions of the common law only. Until such time as legislation is enacted for occupancy agreements for all renters not otherwise subject to residential tenancies legislation, the Regulation should make no provision for this exemption.

17 Life tenancies under wills

We oppose this exemption in its current form.

Insofar as it would affect persons who hold a life tenancy, we submit that the exemption is strictly unnecessary, because a life tenancy, or 'life estate', is a form of freehold estate and is already not subject to the Act. (Life tenants are no more tenants under the Act than are tenants in common or joint tenants in an estate in fee simple: they have full possession and use of the property (subject to the law of wastes), have no landlord and pay no rent – indeed, life tenants may grant leases of their property and any rents accrue to them. See Butt (2006) Law Land, 5th edition: chapter 10.) We acknowledge, however, that it may be useful to make clear that this form of proprietary interest is not subject to the Act.

On its present wording, however, the exemption would apply to 'residential premises that are subject to a life tenancy' (cl 17(1), emphasis added), and so would affect anyone who is a tenant under a residential tenancy granted by a life tenant. Say, for example, B grants a life tenancy in respect of a certain property to his widow C, who later goes into a nursing home and lets the property under a residential tenancy agreement to D. Clause 17 would operate to exclude the agreement between C and D from the Act. In the ordinary course of events, D would be unaware of the particular nature of C's title to the property, and hence unaware that his residential tenancy agreement is not covered by the Act. We submit that there is no good reason for such an exemption.

We submit, therefore, that the exemption should be expressed to apply to 'persons who hold a life tenancy or life estate, being a freehold estate'. We further submit that the exemption should not be qualified by reference to life tenancies 'under wills', because life tenancies may be created otherwise.

18 Residential colleges in educational institutions

This clause exempts 'residential colleges', as defined, from the Act, except in two sets of circumstances.

The first set of circumstances is where the landlord and tenant agree to be subject to the Act (in other words, they 'opt in') (cl 18(2)(b); the second is where the college is funded under the National Rent Affordability Scheme (cl 18(2)(c)). We support each of these provisions.

We submit that the definitions of 'residential college' and 'educational institution' represent an improvement on 'any part of an educational institution' per s 6 of the Residential Tenancies Act 1987 (NSW), but could be strengthened with some minor changes to the wording of two elements. First, 'constituted by or under an Act' adds little to the definitions, because it describes any corporation. We submit 'constituted by an Act' may be more appropriate. Secondly, 'affiliated with the institution' may be read widely to include any number of incidental or informal connections between a person or body and the institution. We submit 'formally affiliated with the institution' more appropriately describes a formal relationship in which the institution has actively adopted the person or body.

Additional matter – certain social housing providers

We submit that the Regulation should provide, per s 12(1) of the Act, that Divisions 2-5 of Part 7 of the Act do not apply to social housing tenancy agreements to which either of the following social housing providers (as defined at s 136 of the Act) are parties:

• 'a registered community housing provider within the meaning of the Housing Act 2001', or
• 'an organisation for the time being registered under Part 5 of the Aboriginal Housing Act 1998'.

The agreements of these organisations are excluded from the definition of social housing tenancy agreement at cl 5 of the 2006 Regulation. We submit that they should remain excluded pending specific consultation on the matter with representatives of these organisations and their tenants respectively.

Part 5 Enforcement

20 Times for making applications to the Tribunal

We submit that the time limits are appropriate, except in two respects.

First, the time limit at cl 20(3) – 7 days – is too long. This period represents half the notice period given by the tenant; when one adds to this the time taken for the Tribunal to list the application for hearing, the notice of hearing would likely arrive after the end of the notice period. This means that a tenant giving a termination notice under s 98 could not vacate at the end of the notice period and be assured that their notice will not be subsequently revoked and the termination of their tenancy turned into an abandonment. We submit that a time limit of 2 working days is appropriate; landlords and agents should be prepared to act quickly on a s 98 notice.

Secondly, the time limit at cl 20(8) – 3 months – is too short. In particular, where the tenant has vacated in order to go overseas, or go into prison, they may be unable to make an application within 3 months. We submit that 12 months is more appropriate. We note that the time limit under the current law is 6 years.

21 Monetary limit of jurisdiction of Tribunal

We submit that both the amounts are appropriate.

22 Penalty notice offences and penalties

We support the prescription of penalty notice offences.

Part 6 Miscellaneous

23 Interest payable on rental bonds

We submit that the prescribed rate should refer to a balance of $100 000, instead of $1 000. This would go some way towards reflecting the scale of funds held by the Rental Bond Board and sharing a small portion of the return on these funds with tenants. These funds, after all, belong to tenants.

Schedule 1 – Standard Form Agreement

Written residential tenancy agreements are often the first place parties turn to for information on residential tenancy law. By compiling a standard form agreement that is clear and easy to understand, minor disputes between landlords and tenants should be kept to a minimum.

We generally support the proposed standard form agreement, subject to the following comments. The headings and numbering reflect those of the clauses in the standard form of agreement.

Unnumbered (front page) – term of the agreement. An appropriate heading is required before 'The term of this agreement is: – ...'

Important information – condition report. A condition report is required by the Act and may be included in a standard form residential tenancy agreement (s 29) – but such an inclusion is not proposed in the draft Regulation. We submit that if no condition report is to be included in the standard form agreement, then an appropriate reference should appear in the 'Important Information' section of the agreement (or, alternatively, in the 'Notes' section). Failure to refer to a condition report in the standard form agreement could result in parties unwittingly overlooking their obligation to complete a condition report.

Important information – information about residential tenancies law. We support the inclusion of the reference to Fair Trading for information for both landlords and tenants. We submit that the standard form of agreement should also include a reference to Law Access and to the Tenants Advice and Advocacy Services for information and other services for tenants.

Clause 2.1 – copy of agreement. This subclause is difficult to understand. We submit that it should be redrafted to end at 'signed'.

Clause 5 – rent increases. The placement of the 'cross out' direction makes this clause difficult to understand. We submit the direction should expressly refer to the whole clause (ie 'cross out this clause if there is to be no rent increase under the agreement') and placed at the end of the clause.

Clauses 17.5 and 18.2 – light globes. We submit that these clauses should be deleted. They have no legislative basis, are overly prescriptive and unnecessary, and would invite disputes of a very trivial nature. Light globes are consumables that come in a range of and shapes, colours and sizes; some are brighter than others; some are more efficient in their use of energy. It should fall upon the occupant of premises (whether landlord or tenant at the relevant time) to determine if and when spent light globes should be replenished.

Clause 23 – landlord's access to premises. We submit that the word 'only' is awkwardly placed and should be moved, so that the clause reads '–‰ may enter the residential premises only in the following circumstances–‰'.

Clause 29 – locks and security devices. There are two concerns with the terms proposed at clause 29:

• Provision of keys. Section 70 of the Act requires a landlord to give a copy of keys, opening devices or other information to open locks or security devices to 'every tenant named in the residential tenancy agreement'. Clause 29.1 refers to the singular 'tenant'. To avoid doubt, this clause should be rephrased to reflect the requirements of the Act.
• Quiet enjoyment. Clause 29.5, as proposed, would allow landlords to withhold keys for up to 7 days after changing locks. We submit that such a delay is inconsistent with the tenant's right to quiet enjoyment of the premises, and that the standard form of agreement should provide that a landlord agrees to provide a copy of the key immediately.

Clause 35 – by laws. On its present wording, this clause would allow landlords to withhold by laws for up to seven days from the commencement of a tenancy. We submit that copies of by laws should be provided to tenants immediately on taking possession of premises, because that is when tenants become bound by them. This would help prevent innocent breaches of by laws and disputes.

Clauses 42 and 43 – pets and cleaning. The inclusion of proposed clauses 42 and 43 would standardise additional terms in residential tenancy agreements about the keeping of pets. These proposals warrant careful consideration, because the legislative basis for prescribing terms relating to pets is slender. The Act does countenance that landlords may exercise control over tenants' decisions to share a home with a pet, but refers expressly to the keeping of animals only in s 19, which prevents landlords from including terms in a residential tenancy agreement that require tenants to have carpets professionally cleaned at the end of the tenancy – except where the landlord permits the tenant to keep an animal.

The 1987 Act and the current standard form agreement (at schedule 1 of the 2006 Regulation) contain no terms about pets, so they are left to negotiation between a landlord and tenant. The residential tenancy agreement currently published by the Real Estate Institute includes a term that prohibits the keeping of pets without the landlord's written consent. The TU is aware of cases where a tenant has obtained or kept a pet with the landlord's oral or constructive consent, only to have this used as the basis for a notice of termination when a disagreement over some unrelated issue has arisen.

The additional term at cl 42 would avoid issues of this kind, because it would shift the default position for landlords from 'not allowed unless I say' to 'allowed unless I say'. However, cl 42 requires amendment to allow it to operate effectively. The proposed clause is both opt-in (in that it requires animals to be listed in order to give the term effect) and opt-out (in that it invites parties to cross out the clause if it is not agreed to). This presents a problem for written agreements that do not include a list of animals, and do not have the clause crossed out. In resolving disputes about the keeping of animals in such cases, arbitrators will have to rely on the parties' understanding of the agreement at the commencement of the tenancy. Reliable evidence on this point may be difficult to obtain, and the proposed additional term of the agreement will offer no assistance. The clause would be better expressed in broader terms, while retaining the option of crossing it out if it is not agreed to.

Clause 43 would allow a landlord to impose on a tenant an obligation to have carpets professionally cleaned if the tenant keeps an animal during the tenancy. We submit that, on its present wording, the obligation is too broad. It would apply regardless of the type of animal kept by a tenant, or how long it is kept for. It makes no reference to the condition of carpets either at the commencement or the conclusion of the tenancy, and seems to assume that the keeping of animals will always result in soiled carpets. In the absence of an amendment to s 19(3) of the Act, we submit that the standard form of agreement can be used to make reasonable limitations limit on the obligation. It is also necessary to make clear, per s 19(3), that cl 43 can only apply if the landlord permits the tenant to keep an animal on the residential premises. As proposed, clause 43 would do neither of these things.

We submit that the clause should be expressed in narrower terms, to ensure that the keeping of an animal is not the sole test to determine whether an outgoing tenant should have carpets professionally cleaned. A term requiring carpets to be professionally cleaned, if, having regard to their condition at the commencement of the tenancy, such cleaning is required as a result of the keeping of an animal, would not be inconsistent with section 19(3) of the Act.

We submit, therefore, that cls 42 and 43 should be redrafted along the following lines:

ADDITIONAL TERMS – PETS

[Clause 42 may be included by negotiation - cross out if not applicable]

42. The landlord agrees that the tenant may keep animals on the residential premises.

[If clause 42 applies, then clause 43 may also be included by negotiation – cross out if not applicable]

43. The tenant agrees to have the carpet professionally cleaned or pay for such cleaning at the end of the tenancy if:

43.1. the tenant keeps an animal on the premises at any time during the tenancy; and

43.2. having regard to condition of the carpets at the commencement of the tenancy, as noted in the ingoing condition report, such cleaning is required as a result of the keeping of the animal.

Additional matter – disclosure of material facts

We submitted earlier that the standard form of agreement should provide for recording in the agreement any prescribed material facts (which, as we submitted, should include third party interests) and that the agreement should also provide that where a material fact is not so recorded, the landlord warrants that the fact does not exist.

We submit that the benefit of such provisions would be two-fold: first, it would be a practical reminder to landlords and their agents of their obligation to disclose material facts; and secondly, it would give tenants a remedy in contract where a material fact is not disclosed. This is important, because the disclosure provisions at s 26 of the Act are backed by a penalty, but otherwise provide no remedies to tenants.

The following examples show how these provisions would work:

• Prospective tenant X and landlord Y are preparing to enter into an agreement in relation to premises that have been the scene of a serious violent crime in the preceding 5 years. Y should disclose this fact, and in so doing record a short statement to that effect in the residential tenancy agreement. Y, however, decides to conceal the fact, and records no statement in the agreement. In the absence of the statement, the agreement provides that Y warrants that he is not aware of any serious violent offence having taken place on the premises in the preceding 5 years. Y, therefore, is in breach of this warranty. When X subsequently discovers the fact of the crime, X may use Y's breach as grounds for a termination notice.
• Prospective tenant X and landlord Y are preparing to enter into an agreement in relation premises that are co-owned by Z and subject to a mortgage held by ABC Bank. Y should disclose both these interests – or, more likely, disclose the mortgage and ensure that Z signs as a party to the agreement. Let's say Y remembers to disclose the mortgage interest (he properly records 'Mortgage – ABC Bank' in the space in the agreement) but neglects to have Z sign on as a party and to disclose Z as a third party interest. The agreement, therefore, provides that Y warrants that the only third party interest in the premises is the mortgage held by ABC Bank. When X receives a letter addressed 'to the resident' from ABC Bank, X will be sure to read it and not dismiss it as junk mail. When Z later attends the premises and asserts her right to occupy them, X may use Y's breach of the warranty as grounds for a termination notice.

Schedule 2 – Condition Report

An easy to complete condition report is essential to ensuring disputes over rental bonds are reduced. We generally support the proposed standard condition report, subject to the following comments.

There is no reference to implications for failing to correctly complete (or incorrectly completing) a condition report. We submit there are two alterations that could be made to the standard condition report in order to rectify this:

• At paragraph 2 in the 'HOW TO COMPLETE' section, the phrase 'must inspect the residential premises' should be strongly emphasised.
• At paragraph 1 in the 'IMPORTANT NOTES ABOUT THIS REPORT' section, it should be made clear that an incorrectly or improperly completed condition report may not be recognised as evidence of the condition of premises at the commencement of the tenancy.

The proposed inclusion of mould and insect pests on the standard condition report should not be considered. Any visible mould or insect pests can be easily recorded in other places on a condition report, and there is nothing to be gained by recording the absence of visible mould or insect pests.

The absence of mould or insect pests on a visual inspection during the first seven days of a tenancy cannot be regarded as an indication that they are not present, or likely to occur. Problems of this nature are easily concealed for short periods, or may be controlled without eradication so as to reoccur when treatment is discontinued. It follows, then, that the presence of such problems at the conclusion of a tenancy will not always be as a result of the tenant's intentional or negligent damage to the residential premises. There are numerous reported decisions of the CTTT in which landlords have been found liable for problems caused by mould and insect pests in rented premises.

The condition report is a means of establishing whether or not cleaning or repairs are required at the end of a tenancy, and is often used as the basis for deciding whether or not to claim the bond. It offers little in determining liability for cleaning or repairs, as this could arise from either the landlord's or the tenant's negligence. Where disputes arise, evidence of liability is always required. Reported Tribunal cases indicate that causes of mould and insect pest outbreaks can be difficult to establish. Including mould and insect pests in the standard condition report will bring these issues to prominence in bond disputes before the CTTT, but will not assist the Tribunal in determining liability.

We note the inclusion of proposed clause 7(b) of the draft Regulation, which will require landlords to disclose to proposed tenants whether residential premises are subject to any significant health or safety risks that are not apparent on inspection of the premises. We submit that landlords will be required to disclose ongoing infestations of mould or insect pests under this obligation, so affected tenants will be on notice to be vigilant against further outbreaks that are within their control.

The condition report should require landlords to record the date (if known) that the maximum flow rate of taps and showerheads were last measured and found to be water efficient, in compliance with proposed clause 10 of the draft Regulation. This would put parties on notice of the need to be more or less stringent in their testing of water flow rates when completing an ingoing condition report.

The proposed standard condition report combines, in most cases, two or three listed items in each row. While it may seem convenient to group items together, isolating each item for specific comment would significantly reduce the prospect of condition reports being incorrectly filled out.

Heating/Air Conditioning' appears twice in the proposed standard condition report: at both the LOUNGE ROOM and DINING ROOM sections. We submit that it should appear only once, and should be moved to the GENERAL section, to allow for premises where heating or air conditioning appliances are installed elsewhere.

Schedule 3 – Penalty notice offences

We understand the offences prescribed are ones that are not the most serious (in particular, lockouts), and for which questions of evidence and proof are straightforward. We submit that this is appropriate.