Vacancy in properties exposes investors to a situation where they could lose money, which can ultimately derail their property investment journey, that's why it is extremely important for landlords and their property managers to ensure that tenants pay their rent on time.
According to Lisa Indge of the property management agency Let's Rent, "Vacancy [causes] major costs for our clients so we want to make sure we're preparing for that well in advance. We're contacting tenants [and landlords] about two months prior to the lease expiring and asking if they would like to stay on." However, continuity of rent is not always achieved because of several factors, and one of which is tenants failing to pay rent.
Lisa shares how property investors can deal with such issue—whether it could be settled by a negotiation or it's time to take it to the tribunal:
Can you describe the initial steps in the process of termination of the lease?
Lisa Indge: The changes in the legislation in 2010 moved towards the landlord's favor... On the 15th day, if the tenant still hasn't paid his rent, then we apply for [a] tribunal and deliver the termination notice at the same time. In other words, we mean business. You have to pay your rent—it's not an option. If the rent has not been paid within that 14-day period, on the 15th day, we're in tribunal asking for an eviction.
Is tribunal the only option if tenants fail to pay rent?
Lisa Indge: Things can go wrong in people's lives... It may be that, unfortunately, their life is completely off-track. I had to do an eviction earlier this year, and I worked with the tenant to facilitate that. So, it's not a black-and-white situation. It is when you get to tribunal. In this case, unfortunately, his business had failed, so he was trying to travel between here and the States to sort it out. We applied to [the] tribunal, we went through that process. He was in the States at the time the eviction was going to occur, so I managed to get him to pay 10 more days [of] rent so that we could push the eviction out a little bit further. He handed the property back at that point in time without us having to get the sheriff there.
So investors should opt for a negotiation first?
Lisa Indge: It is important to always negotiate because we don't want to escalate a situation where it's not necessary. In other cases where we are going to tribunal, let's say, for situations where there's mold in the property or the tenant is claiming that the landlord should give them a rent reduction because there's leak in the ceiling and it's gone on for five days, it's going to be a much more drawn out process. You'll get to the first hearing... [and] if you don't reach an agreement, then it will be put aside for hearing, which is usually about five weeks later. Then both parties have the opportunity to present evidence.
Once you get to tribunal, the decision is out of your hands because it's likely that if you have not been able to [reconcile] and reach agreement at the first hearing, the other party is going to take it all the way through to the hearing, in which case, you have a member who is going to decide, who is more than likely going to decide in the tenant's favor. They will err on the tenant's side, definitely.
To the average person on the street, it seems quite reasonable that stuff happens and you kind of have to get on with life.
How's the "negotiation process" different from applying to a tribunal?
Lisa Indge: There is definitely an attitude with the advice that tenants are receiving that they are entitled to compensation at any point... I'll give you an example of a case that we didn't take the tribunal—[where] we negotiated... The shower was leaking to a common stairwell. It was a strata repair and the tenant was given an option to receive an abatement of about $300—[and] the job was going to take about 10 working days. She decided to move out and move into an accommodation of $220 per night. She [could claim] $2,800 by the time we got to the point where the shower was completed.
I said to the owner, 'You don't want to go to tribunal on this.' I know what we think is fair, however, if you [think about the] cost to go to tribunal and the outcome is put in the hands of a member, he may well award the $2,800 because she had a medical condition that she felt required her to vacate the premises. She did also say that she didn't want to share the bathroom with the other tenants. Whether that would hold up in tribunal is questionable. So we did settle for a thousand dollars in the end.
If you said to the tenant, 'We are not renewing your lease,' then the tenant could say, 'Well, that's retaliation for the compensation that the client had to pay when the bathroom was fixed.'
While it is definitely hard to avoid tribunal when things go wrong, Lisa advises investors to try and negotiate with the tenants before anything else to keep the cost down and ensure continuity of tenancy.
Tune in to Lisa Indge's episode in The Smart Property Investment Show to find out the key to identifying quality long-term tenants to keep your cash flow steady, the importance of background checks, and whether pet owners can actually make great tenants or not.