What To Do If Your Tenant Can’t Pay Rent Due To Coronavirus

As the situation continues to evolve on a national and state level, with initiatives to slow the spread of COVID-19 and simultaneously protect the economy, there is a major (and legitimate) concern from landlords about their tenants’ ability to pay their rent and what that means for them.

While the Prime Minister, Scott Morrison, and state and territory leaders have implemented a moratorium on all residential evictions under the Residential Tenancies (COVID-19 Response Act) 2020, they have yet to devise a solid plan to protect residential landlords from the fallout of rental income potentially drying up.

So as landlords, what can and should you do?

What does the moratorium on evictions mean for landlords?

The Prime Minister Scott Morrison has announced a nationwide six-month ban on evictions of commercial and residential tenants who are struggling financially because of COVID-19. The WA State Government has followed through with this measure, with exceptions in limited circumstances, by introducing the Residential Tenancies (Covid-19 Response) Act 2020. This will allow renters to keep a roof over their heads, but what does that mean for landlords who need their rental incomes?

Basically, it means that landlords are not allowed to evict tenants in cases of severe financial hardship related to COVID-19 during the state of emergency period stipulated as 30th March to 29th September 2020. The exception to this will be in limited circumstances including, for example if a tenant is causing damage to the property. Terminations are only allowed by court order or by agreement of both the landlord and renter. It is important to distinguish however that this is a moratorium on eviction, not a moratorium on rent payments. Tenants must continue to pay rent.  If they are in financial hardship, they should discuss their situation with their property manager or landlord and come to an agreement on a deferral or waiver plan.

Highlights of the Act are:

 

Can a tenant stop paying rent?

A tenant should communicate with their landlord at the earliest opportunity if they are unable to pay the rent. In cases of severe financial distress, their discussion should involve how the tenant can stay in the home rather than considering eviction.

If a tenant is in financial hardship due COVID-19, you may wish to consider negotiating:

  1. Allowing a tenant to terminate the lease prior to the end of the lease-term, without penalty.
  2. Short-term rent relief period for those about to enter new lease agreements;
  3. Short-term rent deferral or discount, with the deferred/discounted rent to be paid at a later date, or over the balance of the term of the lease following the deferral period;
  4. Short-term rent abatement;
  5. Variation of lease to extend the term, in consideration for granting of a short-term rent abatement.

 

Should I reduce my tenant’s rent?

Some tenants may experience difficulties making their rent payments due to loss of employment or reduced working hours. In this case, tenants should inform their lessor/property manager as soon as possible to reach an agreement and formalise any agreement in writing. REIWA have released Rent Repayment Agreement forms to its members for rent waiver and rent deferral agreements.

Keep in mind that if you give your tenant a rent reduction or a rent holiday, this may impact your insurance claim for rent default or loss of rent

Can I increase the rent during this State of Emergency Period?

The Residential Tenancies (Covid-19 Response) Act 2020 allows for the rent to return to its existing rate after an agreed deferral or waived period but cannot be increased more than prescribed rate in the lease agreement.

Any rent increases that had been issued cannot take effect until after the emergency period.

 

What happens when a tenant simply wants to pay less rent?

If a tenant can afford it then they should continue to pay rent. It is important for both tenants and landlords to be fair and reasonable, especially because these are relationships that will continue beyond the COVID-19 crisis.

A landlord can ask for evidence that a tenant cannot pay the rent, such as communication from an employer that they have lost their job, however there is currently no legal requirement for tenants to provide this information. If an agreement cannot be reached, the landlord and tenant will be required to participate in a mandatory conciliation requirement facilitated by the Commissioner for Consumer Protection. This conciliation process aims to relieve pressure on the Magistrates Court and State Administrative Tribunal (SAT) and both parties will likely be required to present supporting evidence at this time.

 

Landlord insurance considerations

Landlord insurance may cover loss of rent or rental defaults, but this will depend on your insurer, but likely not until after the emergency period ends, if at all. You should review your policy to determine if losses are covered in the case of a pandemic.

Many policies state that a claim is only paid where a tenant is evicted or terminated by the tribunal, or if they default on payments after vacating without notice.

Again, check your policy and talk to your insurer or insurance broker to be clear on your coverage and options.

 

Getting Benchmark to help

If you’re questioning the ability of your current property manager to successfully negotiate rent payments, reductions, and more, then have a quick chat with our friendly team about what Benchmark can offer as part of our COVID-19 Strategy Response for landlords like you.

 

Learn more

 

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