New rules for residential tenancies have been introduced as a consequence of the COVID-19 pandemic. These could cause some practical issues, particularly if the owner of a tenanted property is thinking of selling and wants to do so with vacant possession to maximise return or tap into a first home buyer market.
New restrictions on termination of tenancies
The COVID-19 Response (Urgent Management Measures) Legislation Act (“Response Act”) came into force on 26 March 2020.
These changes are in place for three months following commencement. This time period can also be extended.
Under Schedule 5, item 4 of the Response Act, no tenancy, be it periodic or fixed, may terminate or not continue during this time period unless:
- The tenant initiates termination or the tenant and landlord both agree in writing to end the tenancy.
- The landlord needs to terminate due to antisocial tenant behaviour.
- A landlord may end the tenancy in other limited circumstances. These include where the sole tenant has died, abandoned the property or rent is 60 days in arrears (rather than the usual 21 days). Generally speaking, unless the tenant wants to exit during this time period, residential tenancies are locked in place.
That prohibition extends to giving notice to terminate at the end of the three month period. Any notice needs to wait until the three months run their course.
Automatic conversion fixed-term tenancies to periodic
Fixed-term tenancies will convert to periodic tenancies when the fixed-term expires during this three month period. The only exceptions are if both landlord and tenants agree otherwise or the tenant gives notice.
A landlord that seeks to give notice to cancel a lease, on grounds which contravene this act, commits an offence. They may have to pay a fine of up to $6,500.
Notify tenants if listing
You can list a property in the meantime. But remember once the property is listed, the landlord must notify the tenant in writing as per s47(1) of the Residential Tenancies Act 1986 (“Act”).
Once the three months are up
The usual rules around terminating residential tenancies will be relevant once the 3 months is up:
- Periodic tenancy – the landlord must give the tenant at least 42 days’ written notice to end the periodic tenancy as per s51(1)(c) of the Act.
- Fixed-term – selling the property with vacant possession does not make the list enabling termination under s50 of the Act. The landlord cannot simply just cancel the lease because they wish to sell the property without tenants. They must sell the property with the tenancy.
Ultimately, if you wish to sell your tenanted investment property, you need to think about these new rules early on in the piece. During the three months to 26 June 2020 (and as extended), landlords must hold off giving any notice to terminate residential tenancies. That is unless they can reach an agreement with their tenants or the tenancy falls within the very limited exceptions.