What landlords should know about 2021 phase 2 of the RTA changes

Ask Kiri Barfoot

Most landlords should be aware that The Residential Tenancies Amendment Act became law on 11 August 2020. Phase 1 of the changes came into effect on 12 August 2020 limiting rent increases to once every 12 months with most of the remaining changes as part of Phase 2 coming into effect on 11 February 2021.  There has certainly been a lot of coverage in the media on the topic keeping the public informed but also creating some unnecessary panic among landlords. For landlords with properties managed by Barfoot & Thompson, your property manager would have been working with you to prepare you for these changes. To keep you assured that you’ve got everything covered, we sat down with Kiri Barfoot for her thoughts on the upcoming changes.  

Some of the headlines around this legislation are framed in a way that may be alarming for landlords. What are your thoughts on this?
First off, parts of the legislation are simply serving as a formalisation of processes that, for the most part, have been the norm in property management for years. For instance, the installation of fibre has been encouraged for some time without much objection from landlords. Other changes, such as updates to the rules around fixed tenancies may shake things up a bit.  People do need to carefully examine who is being interviewed by the media and what advice they choose to take. A property developer will be impacted very differently than a person who owns one or two rental properties so your own research will be necessary before you make any big decisions.

How can landlords best navigate the new rules to avoid fines?
The fines listed for non-compliance are high, which will make people understandably nervous. In my view, there has never been a better time to have a property manager to handle these changes for you. They keep you informed of upcoming expenses related to compliance and ensure that timelines are adhered to. With regard to fixed-term updates and other more complicated issues they can apply them to your personal circumstances and give you the best tools to proceed according to what is best for you and your portfolio. 

Fixed-term tenancies are one of the major areas we are seeing changes. Can you explain it in a snapshot?
Landlords are now unable to end a periodic tenancy without a reason. This means that if your tenant wants to stay in the property after the fixed-term ends, it will automatically roll over to a periodic tenancy. A downside for landlords is that if a tenant in a current fixed-term decides to depart prematurely (such as moving to another city) they may find an alternative tenant themselves to take on the balance of the lease. Unless there is a legitimate reason for the landlord to object, the new tenant can go ahead and occupy the property.  We encourage you to speak to your property manager for advice on how to best navigate your personal decision on what sort of lease(s) you would like to offer going forward. 

What about putting your investment property on the market? What do people need to know about that?
That is one area where I am hesitant to try to give a nutshell version of the legislation as there are a lot of moving parts.  Additionally, there is no one size fits all answer as different notice periods will apply, depending on when, how, and why you are requesting for a tenant to vacate. You should make sure you have the right salesperson by your side that has expertise in investment properties so that you can secure the best sale price and that you do the right things for your tenants.

If an investment property sale is in your future - these are the notice periods you need to keep in mind.
Notice periods for unconditional sale or putting on the market after the termination date, a key change to note is that at least 90 days notice for a periodic tenancy is required if: 

  • The owner is required to give vacant possession under an unconditional sale agreement  (an increase from 42 days); 
  • The property is to be put on the market for sale by the owner within 90 days after the termination date. 

What about termination for other reasons? (Not by notice) 
Periodic tenancies can only be ended by the landlord for one of the following reasons without notice that includes very specific (and documented) anti-social behaviour, late rent payments, and potential financial hardship for the owner if a tenancy continues. This is in addition to existing provisions relating to rent arrears, damage, assault, and breaches that are still in effect. Your property manager will be able to guide you through this.

Can you summarise the phase two changes expected from 11 February 2021?
Using the Tenancy Service website as a guideline, landlords need to be aware of these changes as of 11 February 2021.

  • Security of rental tenure – Landlords will not be able to end a periodic tenancy without cause by providing 90 days’ notice. New termination grounds will be available to landlords under a periodic tenancy and the required notice periods will change.
  • Changes for fixed-term tenancies – All fixed-term tenancy agreements will convert to periodic tenancies at the end of the fixed term unless the parties agree otherwise, the tenant gives a 28-day notice, or the landlord gives notice in accordance with the termination grounds for periodic tenancies. 
  • Making minor changes – Landlords won't be able to withhold consent to minor changes to the premises, such as repairs and work that doesn't require a consent, damage the property or have an "unreasonable negative effect on any person’s enjoyment or use of any property outside the premises". Examples given by Minister Kris Faafoi include, "brackets to secure furniture and appliances against earthquake risk, baby proof the property, installation of visual fire alarms and doorbells and items to hang pictures". The landlord can impose reasonable conditions around how that minor change is carried out and tenants must remove the minor changes and remediate the property when the tenancy ends. Landlords must respond to a tenant’s request to make a change within 21 days. 
  • Prohibitions on rental bidding – Rental properties cannot be advertised without a rental price listed, and landlords cannot invite or encourage tenants to bid on the rental (pay more than the advertised rent amount).
  • Fibre broadband – Tenants can request to install fibre broadband, and landlords must agree if it can be installed at no cost to them unless specific exemptions apply.
  • Privacy and access to justice – A suppression order can remove names and identifying details from published Tenancy Tribunal decisions if a party who has applied for a suppression order is wholly or substantially successful, or if this is in the interests of the parties and the public interest. 
  • Assignment of tenancies – Landlords will have to allow tenants to transfer their "interests and responsibilities" to a new tenant unless the landlord has a "reasonable" reason to decline it. Fixed-term tenancy agreements cannot prohibit assignment. 
  • Landlord records – Not providing a tenancy agreement in writing will be an unlawful act and landlords will need to retain and provide new types of information.
    Enforcement measures being strengthened – The Regulator (the Ministry of Business, Innovation and Employment) will have new measures to take action against parties who are not meeting their obligations.
  • Changes to Tenancy Tribunal jurisdiction – The Tenancy Tribunal can hear cases and make awards up to $100,000. This is a change from $50,000.

Is there anything you want to share in closing?
Landlords can look to their property managers for advice, guidance, and to ask questions. That is what we are here for. Don’t hesitate to get in touch. 

We’ve touched on the key changes but there are other changes worth noting. You can find out more about all these changes using these links: