How COVID-19 has impacted tenants’ and landlords’ rights: Residential Tenancies (Amendment) COVID-19 Regulation

The Residential Tenancies (Amendment) COVID‑19 Regulation 2020 generally prohibits, until 14 October 2020, subject to further extension (the moratorium period), a landlord from giving a tenant who is a member of a household financially impacted by the COVID‑19 pandemic (an impacted tenant) a termination notice for non‑payment of rental charges and provides that during the moratorium period a landlord may only evict an impacted tenant for non‑payment of rent or charges if:

• the landlord gives a termination notice or applies for a termination order at least 60 days after the commencement of the regulation
• the landlord and impacted tenant had participated in good faith in a formal rent negotiation process about the rent or charges payable
• it is fair and reasonable in the circumstances of a case for the landlord to give the termination notice or apply for the order.

The Regulation requires a landlord under a residential tenancy agreement to give at least 90 days’ notice of the termination of:

• a fixed term tenancy at the end of the term
• a periodic tenancy
• a tenancy because of a breach of the Residential Tenancy Agreement (other than non‑payment of rent or charges)
• a tenancy of 20 years or more.

It is not widely appreciated that the provisions of the Residential Tenancies Act 2010 remain in place and provide an additional element that the Tribunal may consider when deciding whether to make a termination order. These provisions are:

1. the nature of the breach;
2. any previous breaches;
3. any steps taken by the tenant to remedy the breach;
4. any steps taken by the landlord about the breach; and
5. the previous history of the tenancy.

A recent case reported from the NSW Civil and Administrative Tribunal (NCAT) on 22 July 2020, is Yahoo Serious and Serious Productions Pty Ltd (Applicants/Tenant), and Tanya Barlow and Andrew Barlow (Respondents/Landlords). The landlords sought a termination order and an order for the payment of rental bond. The tenant owed the landlord $15,000 in unpaid rental.

The tenant submitted that it was COVID‑19 impacted with the result that the moratorium regulations applied, and the Tribunal should not make a termination order based on the following:

• The arts and entertainment industry in which he has worked for more than 40 years making films was changed due to the pandemic towards home entertainment.
• Federal government funding in the form of a $250,000,000 assistance package for the entertainment industry was available and therefore he would be able to obtain financial assistance.
• He was aged 67 years.
• A health issue, for which he was hospitalised in 2018, had recently reoccurred.
• He had ongoing family law proceedings.
• He was unable to draw on his superannuation entitlement.

According to the tenant, his weekly income had been reduced by well over 85% due to the pandemic.

The landlord submitted on the other hand that:

• The tenant was not impacted by the COVID‑19 pandemic.
• The tenant did not show they had any income prior to April 2020.
• Cash flow problems that may have been suffered by the tenant occurred prior to the COVID‑19 situation arising.
• There were several properties available at a cheaper rental in that area and suggested the tenant should transfer to a more affordable property to save money.
• Due to the financial burden caused by the non-payment of rent, the landlord had taken the following steps:
  • sold all major shares
  • applied for early release of superannuation
  • exchanged to a cheaper car
  • downsized their own accommodation to save money
  • cut spending
  • negotiated extension of school fees
  • used personal savings to pay rental.

The Tribunal considered the landlords’ and tenant’s submissions and noted that there were two tests which needed to be satisfied under the COVID Regulations before the Tribunal could make a finding that the tenant was a member of a household which was impacted which would entitle the tenant to relief by way of a moratorium.

The Tribunal is required to consider if:

(a) any one or more rent paying members of the household have:

• (i) lost employment or income because of the COVID‑19 impact; or
• (ii) had a reduction in work hours or income because of the impact of the COVID‑19 pandemic; or
• (iii) had to stop work or materially reduced 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 responsibility for family ill with COVID‑19; and

(b) because of any of the above matters, the weekly household income of the household had been reduced by at least 25% compared to the weekly household income for the household before the occurrence of any matters.

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

The first test set in (a) (i) – (iii) can be satisfied by any of the three ways.

The second test set in (b) requires one of the three matters in the first test must have reduced the weekly household income “by at least 25% compared to the weekly household income to the household before the occurrence of any of those matters”.

The Tribunal in considering whether tenant was an impacted tenant determined that the tenant had no income because of the impact of the COVID‑19 pandemic and therefore satisfied the first test of the Act.

However, there was no evidence of pre-pandemic income for the tenant which would enable the second test to be satisfied. In short, for the tenant to meet the definition of an impacted tenant, it is not enough to say that the income is now zero since the definition of the impacted tenant requires a 25% reduction in income, and if the income was zero before the pandemic or if there is no evidence of what income was before the pandemic then the tenant does not meet the statutory definition of an impacted tenant.

The Tribunal found:

• The tenant did not satisfy the definition of an impacted tenant. The protection introduced to deal with the impact of the COVID‑19 pandemic did not apply to the tenant and the landlords were not precluded from obtaining orders.
• Having dispensed with the question of the COVID‑19 pandemic moratorium, the Tribunal then looked at the list of matters in the Residential Tenancies Act and found that the tenant declined an opportunity to participate in a Fair Trading rent negotiation process and was not engaged in discussions with the landlords’ agent.

In this regard the Tribunal decided that a termination order should be made after taking into account the extent of the arrears of rent, the absence of any payment of rent for almost five months, steps taken by the landlord and the fact that those steps outweighed any steps taken by the tenant.

The Tribunal did however make a suspended order until 12 August 2020 based on:

• allowing time for the tenant to seek government assistance in relation to the arts and entertainment grants
• allowing time for the tenant to seek finance for his project which was ongoing and would give rise to income
• the tenant’s ongoing family law proceedings
• the tenant being unable to draw on his superannuation entitlement
• allowing time for the tenant to consider the suggestion of the landlords’ agent that the tenant move to alternative accommodation which would reduce rental from $1,300 per week to $400 to week
• allowing time for the tenant to make other arrangements for alternative accommodation.

Takeaways

• Landlords have a procedure they must follow to prove that they have acted fairly and should engage their agents or our office to assist and manage this process to ensure that the appropriate documentation is in place if the matter goes to a hearing.
• If you are a tenant, you must have available paperwork including, and most importantly, figures relating to income prior to and after the COVID‑19 period commencement.
• Ensure cooperation and communication between landlords, tenants and Fair Trading.

At first glance the COVID‑19 pandemic moratorium appears to be weighted in favour of the tenant. This is not the case. It attempts to be comprehensive and even handed to give both parties a “fair go” and an opportunity to press their respective positions.

The COVID-19 Regulations do not supersede or replace but supplement the more general matters that the Tribunal may consider under the Residential Tenancies Act. The parties are required to negotiate in good faith and act reasonably in order to attempt to reach agreement or seek determinations relating to breaches of residential leases arising from non-payment of rent.

Should you require any further advice or assistance in relation to the above or similar matters, please do not hesitate to contact Denis Hall, National Head Property Group on +61 2 8022 1222 or email denis.hall@madisonmarcus.com.au