COVID-19 | Eviction - Residential Tenants and Landlords forced to negotiate

On 15 April 2020 the NSW Government announced a complex moratorium on residential tenancy evictions (Moratorium). The Moratorium commenced on 23 March 2020 (Moratorium Start Date) and has limited scope as it will not apply to all tenants or to all evictions in NSW.

The Moratorium is described by the NSW Government as a "6 month Support Package" to alleviate forced evictions because of default in rental payments due to financial hardship caused by COVID-19.

The Moratorium requires a tenant and landlord of residential tenancies to negotiate. The process and requirement to negotiate is not optional.

How the Moratorium works for tenants

The Moratorium will apply if a rent-paying tenant in a household has:

1. lost their job; or

2. lost their income; or

3. lost their work hours; or

4. had their work hours substantially reduced,

due to COVID-19, AND the weekly household income has reduced by at least 25% (Loss of Income Test).

If the Loss of Income Test applies, there is a mandatory obligation on the landlord and tenant to negotiate before the landlord can seek an eviction order.

If the parties agree on a rent reduction, formal documented variations of the lease should be prepared as evidence of the agreement.

If informal negotiations fail, a tenant can apply to the NSW Fair Trading Dispute Resolution Services (DRS). The DSR will attempt to assist the parties to formally negotiate the rent payable under a residential tenancy agreement having regard to the specific circumstances of the landlord and the impacted tenant.

Throughout this period of negotiation and until any eviction order is made, the rent will continue to accrue.

How the Moratorium works for landlords

For any landlord the non-payment of rent is problematic. Many will have mortgage commitments or rely on rental income for day-to-day living expenses.

To assist landlords, the NSW Government has introduced land tax waivers or relief of up to 25% in 2020. However not all landlords will benefit from land tax waivers or relief, because they are not liable to pay land tax.

For those landlords that do pay land tax, the question will be whether or not the landlord will pass that saving on to the tenant.

Any land tax relief that is passed on to the tenant will need to be of the same or greater value. If an amount of greater value than the amount of the land tax relief is passed on to the tenant, then a further land tax payment deferral applies for any outstanding land tax amounts, for a further 3 months.

Any discounting of rent must be agreed by the landlord. If a rent reduction is agreed, formal documented variations of the lease should be prepared as evidence of the agreement.

Eviction

During the Moratorium period, eviction notice periods under the Residential Tenancies Act 2010 (NSW) have been extended from 30 days to 90 days. It is hoped that the additional 60 days will assist the parties to negotiate acceptable arrangements and for parties to receive any Federal Government assistance that may be applicable.

However, if informal negotiations have failed the landlord must seek assistance from the DRS. The DRS will require the parties to formally negotiate the rent payable under a residential tenancy agreement having regard to the specific circumstances of the landlord and the impacted tenant.

If after 60 days from Moratorium Start Date, the DRS considers that it is reasonable for the landlord to issue an eviction notice, the landlord may apply to the Residential Tenancies Tribunal for eviction for non-payment of rent. The landlord will be required to show that the landlord has participated, in good faith, in the formal rent negotiation process with the impacted tenant. An application for an order for termination of the lease will only be made if the Residential Tenancies Tribunal considers it fair and reasonable to do so in all of the circumstances.

Break fees payable by a tenant

For leases entered into on or after 23 March 2020, break fees payable by the tenant will be regulated by the following formula:

Where less than 25% of the fixed term has passed - 4 weeks rent will be payable;
Where more than 25% but less than 50% of the fixed term has passed - 3 weeks rent will be payable;
Where more than 50% but less than 75% of the fixed term has passed - 2 weeks rent will be payable;
Where there is less than 25% of the fixed term remaining - 1 week's rent will be payable.

In all other cases, where there is a fixed term lease has a term of 3 years or less, break fees payable by the tenant will be regulated by the following formula:

Where less than 50% of the fixed term has passed - 6 weeks rent will be payable; or
Where more than 50% of the fixed term has passed - 4 weeks rent will be payable.

Whether you are a landlord or a tenant, if you need advice in relation to negotiating leases or eviction under the Moratorium, please contact us.

The material in this article was correct at the time of publication and has been prepared for information purposes only. It should not be taken to be specific advice or be used in decision-making. All readers are advised to undertake their own research or to seek professional advice to keep abreast of any reforms and developments in the law. Brown Wright Stein Lawyers excludes all liability relating to relying on the information and ideas contained in this article.

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Corporate & Commercial, Property & DevelopmentLauren CantApril 29, 2020Simon Griesz, Deborah Kent