Tony Brazier

www.braziers.co.nz

Tony Brazier

The Press - Wednesday 16 November 2011

Evaluating Lease Termination

The earthquakes have thrown many a curve ball for landlords and tenants alike. Among these is the issue of ‘uninhabitability’ under Section 59 as was discussed in a previous article. The contentiousness of such issues has never been so acute with the sheer volume for the Tenancy Tribunal and the fact that these issues have become so emotionalized. The heat hasn’t come off the Tenancy Tribunal yet as it courageously chomps its way through these and other earthquake specific problems.

One other section of the Residential Tenancies Act that has become very popular ,due to the horrific nature of these natural phenomenon, is Section 66. This section covers when a tenant wishes to be released from a fixed tenancy because of the severe hardship suffered due to unforeseen circumstances occurring after they have signed up for the fixed period, e.g.12 months. After the devastating effects of the recent seismic activity it is easy to see how this section has come into play more often. After February many tenants bolted from the city and set themselves up elsewhere. Now they find themselves having to argue their case for staying away. Others have persevered for many months before the frustrations have necessitated for them a move elsewhere, only to find they are still bound by their tenancy agreement.

Needless to say there are many home-owners who would love the opportunity to just ‘up-sticks’ and start over elsewhere but unfortunately for them the bank manager is not likely to let them away any time soon either. Regardless of this many tenants have been let to break their leases as landlords have felt sorry for their plight even though, in some circumstances, the personal tragedy of the landlord far outweighs that of the tenant. Therefore, landlords and Property Managers should all totally familiarize themselves with the wording of S66 and the test that is required in order for a tenant to be allowed to reduce or terminate the existing lease terms before they get too lenient.

Although, in the present circumstances, it may be easy enough for the tenant to provide evidence of severe hardship, (albeit that shifting elsewhere is a personal choice,) the Act requires that the hardship they suffer would have to be shown to be greater than the hardship suffered by the landlord should the tenancy be reduced or terminated. I suspect, after having several conversations with investors, that the landlords, considering themselves as providers of a service to their tenants, are forgetting that they too have been through the mill of unforeseen circumstances and may be underestimating the financial damage to themselves if they succumb too easily to this request.

Some landlords, and dare I say it, adjudications have made the assumption that because the landlord can get ‘Loss of Rent’ insurance then this is a cure-all for them and a reason to let the tenant go. Not so. Even if a landlord does have this insurance, and many don’t, it does not automatically mean that the insurer is going to pay out on the strength of a Tribunal Sealed Order. The landlord may have to prove that the property was uninhabitable as well. When they can’t, because it was the tenant’s problem and not the property’s, then the landlord is left hanging high and dry.

It is imperative for a landlord to think very carefully about how losing their tenant could affect their financial situation and make a good case of it. Losing your rental income is always a disaster of some magnitude. The Tenancy Tribunal Adjudicators can only work with what they are given on the day and cannot make assumptions nor put words in people’s mouths. Nor are they mind-readers. Therefore the landlord will, at times, have to swallow some pride and admit that they are struggling financially. They may have to admit this to their Property Manager which doesn’t come easily, but is absolutely necessary to get the true balanced picture across through that manager.

Naturally the Property Manager has to check that the information given can be made public in the Tribunal, (which does have observers on occasion,) and has the full permission of the landlord. Due to what I have learned from following various cases of clients and other investors, it is only recently that I have instructed my own managers to encourage these inquiries of their owner clients as it has became apparent that only one side of the story was often being told and not by the landlord themselves. In stretching the limits of various sections of the Act, the aftermath of the earthquakes requires that anyone who goes to the Tribunal to sort their differences needs to be mindful that their case on the day is only as good as their preparation. Whereas one side of the argument is often easily empathized with, the other will often require some educating of all present.

Section 66 and its issues are starting to fade back to more normal numbers as time goes by. As we move closer to our rebuild other sections of the Residential Tenancies Act will be sorely tested and their limits will definitely be stretched. For example, as a community we look forward to getting our houses and rented dwellings repaired. EQC have set themselves the daunting task of inspecting over 47,500 dwellings in the weeks leading up to 19 December. This goal is all very well but it requires the tolerance and cooperation of all of these home owners and when the property is rented, their tenants. It will be interesting to see whether the requirements of Section 48 can be adhered to in the panic to get this goal achieved. But that’s an issue for another day.

Tony Brazier has worked in the property industry for 23 years and owns a real estate company selling and managing residential and investment properties.

This columns information is of a general nature only. Readers should seek professional advice before acting upon it.