What are my rights if my tenant can’t pay rent?
On 29 March, Scott Morrison announced that “states and territories will be moving to put a moratorium on evictions of persons as a result of financial distress … for the next six months”. This is, of course, part of the government’s response to the economic fallout of the COVID-19 epidemic. Residential tenancy law is state-based, so we will need to wait for the exact details from each of the Premiers. However, the States and Territories are moving in lockstep on these issues. Landlords can expect that the eviction moratorium will become law in each.
That means that if you’re a landlord, and your tenant can’t pay rent, you can’t evict them for the next six months.
Why has the measure been brought in?
As of time of publications, it is estimated that around a million Australians have either lost their jobs or had their hours reduced to almost nil. Those in casual or insecure employment, such as hospitality, gig economy and tourism workers, are the hardest hit.
The flow on effect is that many of these people find themselves in dire financial straits. While the government has put some protections in place, including doubling the rate of Jobseekers’ Allowance (formerly Newstart), many might struggle to pay this month’s rent.
Why should tenants get to stay if they can’t pay rent?
If you’re a landlord, you might not want to let your tenants stay ‘free of charge’. However, there are several reasons to do so.
Even putting aside the ethics of the situation, the government is keen to avoid evictions on health grounds. It’s impossible to stay inside your home if you don’t have one, and families doubling up could see the virus spread faster. That affects the whole country, since social distancing restrictions can only be lifted once the number of new cases starts to drop significantly.
Secondly, a vacant property can fall quickly into disrepair. If the choice is between letting a tenant stay without paying rent, or having an empty house, choose the former. While you can try your luck with finding a new tenant, that might become more difficult in some areas. Indications are that Airbnb landlords are pivoting to long term rental, meaning you might have more competition than usual.
What if I can’t pay my mortgage without rental income?
If you’re a landlord, the loss of rent could mean some serious hardship. 83% of residential landlords in Australia own just one investment property. They’re ‘mum and dad’ investors, with an average income of around $80,000 and a mortgage over the property. If they lose their rental income, they may not be able to meet their mortgage repayments – especially if, as in so many cases, their own job is under threat right now.
The government’s message is for landlords, tenants and banks to “sit down and work it out together”. In practical terms, that means that if your tenant can’t pay rent, let your bank know as soon as possible. All the major banks are offering six month hardship holidays on home loans, in which payments are frozen and interest capitalised on the balance on the loan.
While it hasn’t been clear in the past whether that would extend to investment properties, it is in the banks’ interest to do so. The last thing anyone, especially the banking sector, wants is to see a huge wave of investment properties go into foreclosure. Indications from the government are that they are working out a formal package that encourages landlords to seek help from their bank.
Can I ask my tenant to pay back rent?
If your tenant can’t pay rent during the crisis, can you demand that they pay back rent later? There’s no guidance from the government on residential tenancies, but at this stage, assume that the answer is no.
For commercial tenancies, they’ve been more explicit. Morrison has said “We are in unchartered territory, but the goal should be shared and that is a business can reopen on the other side, not weighed down by excessive debts because of rental arrears, a landlord has a tenant so that they can continue into the future to be able to support the investments that they have made and banks have clients.” That sounds a lot like landlords won’t be able to charge back rent.
For residential tenancies, consider negotiating with your tenant. Reduced rent is better than none at all and may not be beyond their ability. And once the crisis has passed and jobs start flowing back into the economy, you’ll be in a better position with a tenant already in situ.
If your tenant has been laid off permanently or for a yet to be determined period, the good news is that they will qualify for either the Job Seeker or Job Keeper payment. Either way the tenant will receive some income so it is likely they will be able to pay a portion, if not the whole rent. The best option is to negotiate and see what they can afford.
It’s a bitter pill to swallow for landlords who have believed that residential property is the safest investment of them all. The truth is, though, that the COVID-19 pandemic is a game changer for the world. As a landlord, working together with your tenant to keep a roof over their head is the best solution for you as well as for them.