Changing legislation and landlord insurance

Rental regulations around Australia are set to change in 2020 as the number of Australian renters continues to climb.

TenantWhile the specifics of the reforms differ across the states and territories, key changes are being implemented that have the potential to impact landlord insurance.

NSW, Victoria and the ACT have already legislated changes with all three governments moving to give tenants more control over their environment, with fewer restrictions on pets, permission to make minor modifications to rental properties, limitations on rent hikes and no penalties for domestic violence victims who break a lease.

Implications for insurance

A number of the rental reforms have the potential to impact landlord insurance cover, and landlords and agents should review existing policies to ensure cover is adequate.

Key changes and insurance cover (make sure you check the legislation in your state to determine the exact impacts on your investment):

Pets

In many jurisdictions, landlords will not be able to refuse tenants keeping pets at the rental.

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While it is the responsibility of the tenant to repair any damage caused by their pet, in the event they fail to make good, landlords may look to their insurance.

Many landlord insurance providers do not offer cover for pet damage at all, may impose low claim limits or place restrictions on cover (such as naming the pet on the lease).

Landlords should check that their policy includes pet damage, the limits of cover and any conditions.

EBM RentCover policies provide up to $65,000 for pet damage and place no onerous conditions on cover.

Modifications

Tenants in most states and territories will be able to make minor modifications to their rentals without landlord permission.

As any type of work at the property increases the risk of accidental damage, landlords will need to check they have cover for this as some insurers only offer this as an additional level of cover (EBM RentCover automatically provides up to $65,000 cover for accidental damage).

Certain works also need to be undertaken by licenced trades, such as plumbing and electrical, and failure to do so could void the insurance.

In addition, there could also be an increased liability risk from injury or property damage.

Repair RenovateAnd while most legislation includes provisions for the tenant to return the premises to its un-modified state upon the end of the lease, if they don’t, the landlord may need to claim for tenant damage on their insurance.

Modifications (minor or otherwise) made without the landlord’s consent were previously considered by many insurers to be ‘deliberate’ or tenant-related damage.

Most insurers do not offer cover for this type of damage.

EBM RentCover considers tenant-related damage claims on a case-by-case basis.

Breaking leases

Being implemented and under consideration are new rules concerning breaking leases and tenants not incurring penalties for doing so (primarily in domestic violence situations).

Any changes to responsibilities for broken leases which result in landlords being left out-of-pocket could impact loss of rent claims.

Policies should be reviewed to check loss of rent provisions and the terms and conditions that apply to claims.

Minimum standards

UnderinsuredIn general, the condition of a premises can have a direct impact on whether an insurer will take on the risk and offer cover.

The introduction of minimum standards may contribute to an insurers’ assessment of the property’s risk profile.

Substandard properties (those which fail to meet health and safety requirements, which already exist in various acts, regulations and codes) are unlikely to be insurable.

In addition, it is already a condition of most building policies that the premises must be maintained and failure to undertake maintenance can void a policy.

State of play

The rules are shifting for landlords and tenants.

Here’s what you need to know to stay ahead of the game.

Australian Capital Territory

New residential tenancy laws came into effect on 1 November 2019 including:

PetsPets

Tenants can have a pet without the landlord’s consent unless there is a specific clause in their contract.

Then, a landlord must seek approval from ACAT if they want to refuse permission.

Rent increases

Rents can only increase by 10 per cent more than the Canberra CPI unless the increase is permitted in the tenancy agreement, agreed by both the landlord and tenant or approved by ACAT.

Special modifications

Tenants can make minor modifications to the property, such as adding picture hooks, without landlord permission.

They can also make other modifications in special circumstances, such as alterations that improve safety, access to telecommunication services, secure the property, or assist tenants with a disability.

Breaking LeaseBreaking lease

Landlords will no longer calculate break lease fees based on the rent.

Tenants will have to pay the costs incurred by the landlord, i.e. the lost rent, before a new tenant is found and the costs of re-advertising the property.

New South Wales

More than 130 changes to residential tenancy law in New South Wales will come into action on 23 March 2020 covering:

Minimum housing standards

Properties will need to meet new minimum standards to be fit for habitation including:

  • structural soundness
  • adequate light and ventilation
  • electricity and gas supply for lighting and heating
  • plumbing and drainage including hot and cold water
  • private bathroom and washing facilities

Smoke AlarmsSmoke alarms

There are new penalties for landlords who fail to install and maintain smoke alarms.

Tenants are now obligated to notify the landlord if a smoke alarm needs repair or if they choose to replace a battery.

Minor renovations

Tenants will be permitted to undertake minor alterations without consent, such as hanging picture hooks, installing curtains and safety devices, replacing toilet seats and planting a herb garden.

Set fees for breaking lease

New break fees will apply for tenants who cancel a fixed-term agreement.

Costs range from four weeks’ rent if they are less than 25 per cent into the term of the lease, to one weeks’ rent if the lease is already 75 per cent over.

This applies to contracts entered after 23 March 2020.

Northern Territory

The Northern Territory is currently undertaking a rental legislation review. Matters under consideration include:

  • Charging break lease fees
  • Condition reports
  • Rent increases
  • Terminating leases
  • Serving notices
  • Repairs

Queensland

Changes to the rental laws in Queensland are still under consultation and are expected to cover five priority areas:

  • Housing quality and minimum standards
  • Renting with pets
  • Minor modifications
  • Domestic and family violence
  • Ending a tenancy fairly

South Australia

South Australia overhauled its residential tenancies legislation several years ago to incorporate new requirements governing a landlord’s right to enter premises and termination of agreements. The reforms have been effective since July 2017.

Tasmania

TasmaniaThe Tasmanian Government passed new tenancy legislation in 2018 in a bid to improve access and affordability to rental housing and assist victims fleeing family violence.

The reforms included changes to bond payments and implemented accommodation requirements of the National Disability Insurance Scheme.

The Tasmanian Select Committee on Housing Affordability may recommend further changes and is due to report on 5 March 2020.

Victoria

Victoria’s rental reform will come into effect mid-year and will affect leases signed after 1 July 2020. Reforms include:

Minimum standards

Property owners will have a duty to ensure their rental property meets new minimum standards to be set in April 2020.

A register will be established blacklisting residential rental providers and agents who fail to meet their obligations.

Rent

Rent increases outside fixed-term agreements will be limited to once a year.

For rent increases during a fixed-term rental agreement, the amount or calculation method must be set out in the agreement.

PetsPets

Renters can keep pets with consent.

Landlords can apply to VCAT for an order that it is reasonable to refuse permission.

Minor modifications

Renters will be able to make prescribed minor modifications to the property without the landlord’s permission.

A list of prescribed modifications is due to be released in April 2020.

Landlords can request the property be returned to its original condition before tenants vacate.

RenovationUrgent repairs

Urgent repairs now include problems with air conditioning, safety devices and any fault or damage which makes the property unsafe or insecure, including pests, mould or damp.

Landlords must reimburse the cost of repairs within seven days.

Notice to vacate

The changes end ‘no fault’ evictions by removing the ‘no specified reason’ notice to vacate and restrict the use of ‘end of the fixed-term’ notices to vacate.

Landlords will still be able to issue a notice to vacate at the end of the first term of a fixed-term agreement; however, for any subsequent terms, they must provide a reason to vacate the property.

ViolenceFamily violence

Safeguards will be implemented to help protect tenants experiencing domestic violence.

VCAT can rule on the termination of residential agreements or create a new agreement that excludes the perpetrator of the violence.

Western Australia

Western Australia is in the process of reviewing its rental laws for the first time in 10 years. Matters under consideration include:

  • Long-term tenancies
  • Applications and disclosures
  • Register of landlords
  • Rent increases
  • Repairs and maintenance
  • Pets
  • Modifications
  • Terminating leases
  • Bond claims

Guest Author: EBM Rentcover Insurance: At EBM RentCover we empower landlords and property professionals with the tools and knowledge needed to make informed decisions about landlord insurance.

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