When tenants cannot pay their rent
Your tenant has lost their job because of the CoronaVirus crisis and is finding it difficult to pay their bills.
Your property manager contacts you and says your tenant cannot afford to pay their rent. What do you do?
There has been a lot of uncertainty around this as the Government works through the many issues arising from the fallout of Covid-19.
On March 29 last, the National Cabinet announced the eviction moratorium. As rental law is a state and territory matter, the legislation and legal enforcement of this was handed to them.
Tasmania was the first to do so, pre-empting the National Cabinet decision with a four-month ban on evictions. It’s likely a good indication of what other states and territories will do.
The Tasmanian legislation prohibits commercial and residential landlords from serving notice to vacate for rent arrears for the duration of the ‘emergency period’, unless:
Severe hardship is an established part of tenancy law. It allows parties to apply for a fixed-term lease to be terminated without penalty. It is possible a landlord could argue financial hardship based on needing rent to cover their own debts, but commissioners (or tribunals in other jurisdictions) are likely to scrutinise such applications closely.
Tenants not paying rent or reducing their rent
At this point, if your tenant doesn't pay their rent, their debt will keep accruing. This could mean they are subject to eviction once the moratorium ends.
As a landlord most of us have mortgages, rates and maintenance costs related to the property. If not a mortgage, it may be your source of income. This places all in a difficult situation.
Queensland has now released the COVID-19 rental grant. This is available for Queenslanders who have lost their jobs due to the impacts of COVID-19 and who do not have access to other financial assistance. It is only available to those who need it most and have exhausted all their other options.
The COVID-19 Rental Grant (see above) is a one-off payment of up to 4 weeks rent (maximum of $2000) available to those affected by the COVID-19 pandemic who do not have access to other financial assistance.
The grant is paid directly to the lessor/owner.
This is granted based on the tenant providing evidence of having made all attempts to make a payment arrangement however were declined.
This is a tricky situation and needs to be handled with the utmost care.
The issues to be aware of from your side are that Landlord’s insurance (as with all insurance policies) is subject to its terms and conditions so it is important to be aware of those when considering your insurance as a fallback.
This may include the normal practice of issuing the standard notices for arrears, Notice To Remedy and then Notice to Vacate if a tenant falls into rental arrears for any reason including Covid-19 hardship. Even though the Notice to Vacate won't be enforceable during the Moratorium, if the property managers don't issue the Notices as per the legislative requirements then this could impact the insurance policies, should you need to lodge a future claim.
The Queensland government has said that they are working with insurers to ensure they honour existing policies.
We have heard that one agency has said that their legal representative stated ‘that we must continue not to reduce any rental amounts as such, and instead if tenants have exhausted all avenues for financial assistance, then we can look at entering into a payment plan with the tenant where the rent must be paid back.
This means the rent stays the same, the Tenancy Agreement stays the same, however the tenants are given more time to pay the arrears. This ensures the owner is still covered by their Landlord’s insurance.
It is important to be aware of the financial support packages that governments are offering for tenants, and ensure they have pursued all avenues in respect to accessing these.
Help for those who need it
The Australian Tax Office (ATO) has made available the essential information needed by individuals and businesses experiencing financial hardship as a result of the COVID-19 pandemic. ATO assistance is available via their:
The Coronavirus has not impacted everyone equally, and not all of the various support packages will be relevant to you. The Australian treasury department has put together various factsheets and you are encouraged to download and read those that relate to where you have been impacted directly:
The following links are to State based information around rental relief for tenants:
Banks and other lending institutions are offering relief packages for mortgagor’s adversely impacted financially by COVID-19.
Relief packages offered differ from lender to lender and depending on whether the borrowings were for a home loan, personal loan or credit card.
Some of these packages include:
If you have available funds that can be redrawn from your home loan, and you are applying for a mortgage repayment deferral, be aware that those additional funds will be frozen / locked and will remain inaccessible by you until after the conclusion of the relief period.
Therefore, you may want to consider first withdrawing the excess amount sitting against your home loan prior to being formally approved for mortgage relief.
Similar measures are in place to offer assistance to Small Businesses.
While these relief measures may seem enticing to borrowers, their purpose is to provide relief and lenders may require evidence that the relief is needed.
What borrower doesn’t want a repayment holiday? The challenge is that just as your work colleagues may allow your work to build up while you are on leave, meaning you have extra to do upon your return, so too it is here.
Pausing your repayments for three to six months will still ‘cost you’ in that the interest payable over the ‘holiday’ period will be capitalised into the loan (i.e. added to the debt).
Example: You have a $400,000 loan and are paying 3% interest p/a, over 25 years.
The interest bill on this would be $6,037.63 over 6 months (assuming that was the length of the repayment pause).
Adding this ‘missed interest’ to your loan means that in six months the amount you will owe will have increased to $406,037.63.
Because of the six month ‘interest holiday’:
The above assumes you make the required payments only, however, additional payments and/or payments made more regularly will improve this borrower’s position.
Mortgage holders, financially impacted by the COVID-19 Pandemic, do have avenues of support available to them. Where someone has the financial capability to stay on top of their current repayments we recommend they do. Even partial payments will be better in the long run than no payments, assuming someone has the capacity to make these.
The Australian Banking Association have announced that bank customers applying for payment deferrals as a result of the COVID-19 pandemic will not have a missed payment or hardship flag appear on their credit file.
Be sure to apply for hardship relief prior to missing any mortgage repayment. It’s the date you apply for that that will determine the start date. Thus, if you miss a payment after you register for hardship, but before you are (formerly) approved, you will not be disadvantaged.
Repayments missed prior to applying for hardship relief will be recorded as a default on your credit file! So, if you missed a payment in recent weeks and have not yet applied for hardship relief, we suggest that you catch up on that missing payment immediately; or speak directly with your lender if not.
MRD is on YOUR side | Here to help!
Differences in people’s circumstances, situations, lenders and relief packages make for lots of confusion right now, but don’t panic!
We are all in this together and MRD will do whatever we can to help anyone we can - even if you have never done business with us to date!
We do a lot of things brilliantly but that does not extend to reading crystal balls. Yes, we are happy to assist you to obtain favourable outcomes but we need to know who to help. Leave your best contact details below, remembering to communicate exactly how you would like us to assist you at this time. We may be living through strange and somewhat turbulent times but that does not mean you can’t come out the other side in a strong position regardless.