System straining as renters and landlords wrestle

You know we’re living in strange times when the government is dictating how much a landlord can charge someone to live in their property.

Measures recently announced by the Victorian Government have offered relief to landlords and a safety net for tenants. But confusion has arisen over who has access to assistance and debate has also been stirred about the balance that has been struck between renters and landlords.

It centres around the Victorian Government’s recent announcement that it will extend the ban on evictions and rental increases until December 31. 

Victorian landlords will be able to access rent relief grants of up to $3,000, under the new support scheme introduced after the state government extended its moratorium on evictions and rental increases until the end of the year.

Similarly, in the commercial sphere, the Victorian government extended its moratorium on commercial tenancy evictions and rent increases until the end of 2020 in response to Melbourne’s latest COVID lockdown.

Under the extension, evictions will continue to be banned for both residential and commercial tenancies until December 31. The restrictions were originally due to expire at the end of September.

Commercial landlords will be required to provide rent relief in proportion to the fall in turnover being experienced by eligible tenants.

Australian Property Investor Magazine posed a series questions to international finance and property group aussieproperty.com and member-based advocacy group Real Estate Institute of Victoria, to get their forthright and sometimes conflicting views on the latest measures and sought clarification for those trying to negotiate their way through the evolving system.

One-in-three tenants impacted by the coronavirus pandemic had requests for rent reductions ignored or rejected without reason, leaving some facing homelessness. 

But while tenants are no doubt doing it tough as lockdowns crunch employment and income, landlords are also facing the strain of paying off mortgages while propping up distressed renters. 

The extension of the Commercial Tenancy Relief scheme could see many small and medium sized property owners financially crippled.

“While some tenants believe the owner can’t be that hard done by because they own the asset, a lot of owners have also lost their jobs and are struggling to meet their mortgage repayments,” aussieproperty.com senior property manager Laura Scott said. 

“The increase to $3,000 rent relief is much better than the previous $2,000, however, we are finding some tenants are being declined for unknown reasons.  

“More information needs to be provided on the email declining the applicant, so we can understand why.  

“With landlords, if they halve the tenants’ rents by 50 percent, they are only entitled to the same discount off their land tax, which I don’t believe represents an even playing field,” Ms Scott said.

REIV President Leah Calnan described the current situation as a renters’ “free-for-all”.

“Many of our agents are reporting tenants who simply refuse to pay their rent either in full, or at all,” Ms Calnan said 

“We have many accounts of tenants owing thousands of dollars, where this money is unlikely to be recovered. 

“The moratorium was supposed to support those in financial hardship as a result of COVID-19, not create greater hardship and financial bankruptcy for property owners.”

On the flipside of the highly sought-after coin, many struggling renters are reluctant to ask for discounts, irrespective of market conditions.

A recent survey revealed 16 per cent said they were too “scared”, 19 per cent claimed they were confused by the system, and 12 per cent noted they were discouraged by their real estate agent’s behaviour.  

So, what advice should be given to renters experiencing these issues?

“Renters should feel comfortable enough to speak with their property manager,” Ms Scott said.

“We are constantly touching base with all our tenants providing updates and asking them to speak with us if they are facing financial difficulty. 

“If they still don’t feel comfortable speaking with their property manager, they can always touch base with Consumer Affairs Victoria, who will then make contact with the property manager to start the process.”

The process and pressures

Aussieproperty.com’s Ms Scott and REIV’s Ms Calnan explained the process — and problems — involved when tenants and landlords reach an impasse.

Ms Scott: “When a tenant comes to us requesting a rental deduction the agreement needs to work for both parties involved — there is a lot of mediation and negotiation that goes into it ensuring both parties are happy,” Ms Scott said.

“If an agreement cannot be made, then this is where Consumer Affairs becomes involved and a mediation process starts. 

“If this mediation does not resolve the issue at hand, that’s when it goes to the Victorian Civil and Administrative Tribunal (VCAT), which resolves legal disputes and cases in Victoria in a less formal setting than a court. 

“However, due to the high volumes of cases this is taking two or three months to get resolved. We would never want any of our tenants to feel that they are facing homelessness, but we need to ensure people are not trying to get “free rent” so to speak. 

“Therefore, good processes need to be in place and documents need to be submitted. If we find that someone is not doing the right thing, then we will apply to consumer affairs and then VCAT for an eviction order.”

Ms Calnan: “Wilful non-payment of rent is a ground for eviction under the Covid-19 laws. 

"However, when VCAT does make an order against a tenant, these orders are often held over until the end of the moratorium period, now extended to next year.

“In cases where a court order is given, Victoria Police have a variable policy about executing these court orders. This amounts to rent-free living with no accountability. The Tribunal already has an unworkable backlog of over 3,500 cases and it’s increasing daily.

“The processes and systems to implement government initiatives in these challenging times must be fair to all. 

“The reality is that if a rent negotiation dispute is presented to VCAT, the tenant does not have to provide any evidence that they are suffering COVID-19 financial hardship, the onus is on the property owner or estate agent to prove they are not.” 

Commercial concerns

As part of the Government’s announcement, the Victorian Small Business Commission (VSBC), which has been overseeing commercial tenancy rent negotiations, will have greater powers to enforce a rental reduction order on a landlord who refuses to respond to a tenant’s requests for rent relief.

As the public tries to make sense of the relief measures and jockey for position to capitalise on them, the VSBC has fielded more than 8,000 rent-related inquiries from small business owners and landlords over the past four months.

The Commercial Landlord Hardship Fund will offer eligible landlords grants up to $3,000 per tenancy. Commercial landlords suffering financially because they’re reducing the rent for tenants may qualify. The critical blow for landlords is that they are compelled to provide rent reductions that are proportionate to a tenant’s reduced turnover.

Ms Calnan said the scheme’s extension is likely to see many property owners “financially ruined”.  

“Many of these are self-funded retirees who have seen their ability to support themselves considerably diminished,” she said.

“Many tenants will not be required to repay waived rents and many more are unlikely to have the capacity to repay any deferred rents in the near term, if ever.”