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Speeches | September 07, 2017

Residential tenancies amendment (long term tenancy agreements) bill 2017 - Second reading

Victorian Parliament - 7 September 2017 - Ms KEALY (Lowan) — It is a pleasure to rise today to add my contribution to the debate on the Residential Tenancies Amendment (Long‑term Tenancy Agreements) Bill 2017. I will note at the outset that there was some discussion earlier in the sitting week about taking this bill into consideration in detail, and we will be seeking to do that later today. We have a number of concerns and questions, and we are looking forward to working through some of those details with the Minister for Consumer Affairs, Gaming and Liquor Regulation if we possibly can do that.

The purpose of this bill is to amend the Residential Tenancies Act 1997 to provide for tenancy agreements for a fixed term of more than five years and to make consequential amendments. It is clear that that is the overall intention of the bill. It is what has been focused on in the media surrounding this bill, but it has also been the main crux of the discussions that have occurred involving government MPs. By repealing section 6 of the act, the bill focuses on removing the limitation that is in the current act, which excludes the application to tenancy agreements for a fixed term of more than five years.

There are a number of other amendments within this bill that have raised deep concern among organisations and key stakeholders that I have contacted — that is, that this may open the door to a significant number of other changes in regulations, which may actually work to the detriment of the long‑term lease sector of demand for those sorts of long‑term leases but also that it may have a significant detrimental effect on the supply of rental properties and create increasing pressure on the rental charges applied by landlords due to people pulling out of the market.

I will just go through the other main provisions of the bill. There is a definition of a standard form tenancy agreement in the bill. That is in clause 4, which amends section 3(1) of the act. Clause 6 amends section 26 of the act, which relates to the requirement that written tenancy agreements be in standard form.

New section 26(2A) provides that it is an offence to prepare or authorise the preparation of a tenancy agreement for a fixed term of more than five years if the agreement is not in either of the standard forms, and we will seek some clarification around that. Not completing an agreement for greater than five years in one of the standard forms does attract a penalty under the bill that is before us.

Clause 7 inserts new section 26A into the act, which relates to prescribed prohibited terms in tenancy agreements for a fixed term of more than five years. However, it is noted that these prohibited terms have not been supplied as part of this bill, and this is a key area of concern for many people within the industry who will be impacted by long‑term leases.

Clause 10 includes new section 34A, which provides that an additional amount of bond may be required by a landlord under a tenancy agreement for a fixed term of more than five years.

Clause 13 refers to new section 209AA, which provides that if a party to a fixed term tenancy agreement of more than five years has breached a term of the tenancy agreement, the other party may apply to the tribunal for a compensation order or compliance order.

Clause 16 inserts new section 237A, which provides that if a tenancy agreement for a fixed term of more than five years does not comply with the requirements of section 26(1A), it should be in writing and in a prescribed standard form. The tenant may give the landlord notice of intention to vacate, specifying a termination date not less than 28 days after the date on which notice is given.

As I stated earlier, these main provisions of the bill have led to overwhelming concern being expressed to me that this bill will actually open the door for Labor to make significant regulatory changes down the track on the back of the Residential Tenancies Act review. In particular there are concerns around the prescribed prohibited terms and the fact that no indication has been given as to what these prescribed prohibited terms may be. Of course we all know that demand for leases of longer than five years and in relation to security of tenure is one thing, but in all honesty, not being able to enter into a lease of greater than five years is absolutely nothing when you compare it to the inability to pay rent.

Under this government we have seen the closure of Hazelwood power station, which was a result of Labor policy to impose a number of significant taxes, which basically made that business unviable. We are now seeing electricity prices go through the roof. The cost of living is also increasing. We know that salaries and wages are not increasing to the same level, and people are finding it harder and harder to meet day‑to‑day living costs. Along with being able to put a meal on the table, making sure that your children are taking lunch to school and can afford schoolbooks and uniforms and being able to keep the lights on and put a meal on the table at night‑time, of course being able to pay the rent is a huge pressure for many families. It does not matter how long the lease is, if you cannot pay the rent, then you are putting your ability to put a roof over the heads of your children at risk.

We have other concerns. I do not understand what the demand is for putting in place leases in excess of five years. I have asked for information about that. I was looking for a breakdown of evidence on the different periods of leases that are currently entered into by Victorians. Unfortunately the minister’s office was unable to provide that. It is interesting that the government is seeking to bring in a bill to address a problem that perhaps does not even exist.

Further, I have since been supplied with some research undertaken by Consumer Affairs Victoria, which looks at preferred lease terms of tenants. According to this data, 13 per cent of people are looking for a tenancy of six months; the bulk of people, 18 per cent of those surveyed, are looking for a 12‑month lease; 14 per cent of people are looking for a two‑year lease; 8 per cent of people are looking for a three to four‑year lease; and then it significantly drops off. It is only 2 per cent of people looking for a lease from five to seven years. Only 1 per cent of people wanted more than 10 years, and nobody wanted eight to 10 years. This data therefore shows that most people are looking for a lease of less than two years duration. Very, very few people are actually seeking a long‑term lease.

We also have to look at the other side of the issue. It is not just about a tenant wanting to enter into a long‑term lease; it is about the limitations that are put onto a landlord and whether they are willing to enter into a long‑term lease if they deem that all the requirements that they will be burdened with if they enter into a long‑term lease will mean that it is simply unattractive for them to do that. I think that is the case with this bill — it is unbalanced.

The media release says a long‑term lease will be great for tenants because they will have the security of knowing where they are going to live. But the fact of the matter is that tenants do not want to enter into a long‑term lease. They would like a level of flexibility as well in case things go pear‑shaped within their rental property. If things change and people want to move or if somebody has a change of job, they need and want that flexibility, and that is seen in the data I referred to earlier.

Furthermore, landlords are not going to enter into these kinds of agreements if it means that they are going to be burdened with unnecessary and unfair extra conditions that mean they have less control of their property. They will think that they might as well just enter into a short‑term lease, or they will withdraw their property from the rental market.

I think we also need to clarify the sorts of people that we are talking about. We do not have institutional‑type landlords in Victoria. Seventy‑two per cent of all landlords are actually mum‑and‑dad investors. These are people who have got a second property and who have it as an investment. They rely on their rental income so that they can continue to pay down the investment. It may even help them to pay for their own home. Often people do have their own home secured against their investment property. There is a risk that if we introduce any sort of legislation around better protection of tenants or around shifting that power to the tenants, then we run the risk that if a tenant does not pay their rent and there is no way for a landlord to seek compensation for that, or to make sure that they can evict somebody if they cannot pay their rent, potentially mum‑and‑dad investors are going to lose their homes because they are not having that rental flow.

This is a significant issue, and it is much deeper and more complex than I think the minister has given it credit for. I think it has been looked on as a superficially great idea for a long‑term lease, but with the way it is being implemented we are actually going to create an enormous challenge for many, many people in Victoria, particularly for the mum‑and‑dad investors who, under the reading of this legislation, will not have the ability to evict a tenant if they do not pay their rent. It is astonishing to think that element would be removed.

There is no balance between tenant and landlord rights in the bill. We know that as part of the residential tenancy review only 200 telephone interviews occurred with landlords, whereas over 1800 tenants had input to this review. Eighty per cent of the recommendations in the Residential Tenancies Act review, which was released in January and which was considered over January, suggested a shift in power from the landlord to the tenant. It might sound good, but I think potentially it could be disastrous for the supply of rental properties in Victoria, and a decreasing supply means a huge increase in rental charges, which will jeopardise the most vulnerable, the people who can least afford a huge increase in their rents.

Another area of concern is that landlords are unlikely to enter into long‑term leases if they lose rights over their properties, and this is with particular reference to the prohibited prescribed terms clause in the bill. Not knowing what may be in those prohibited prescribed terms means that it is difficult to support the bill. If you look at what prescribed terms might be prohibited, it could be around the inability of a landlord to ban pets on a property. There might be a very good reason why they want to ban pets. It might be about the tenant having to clean the carpets prior to leaving the premises. That is something that would be an additional cost to a landlord. They are not going to cop it; they will build that into the rent, which will then push up rental charges to prospective tenants.

It may be a prohibited prescribed term that is around non‑structural changes to premises. So if you choose to paint all your internal walls hot pink, there may not be a requirement for the tenant to correct that and bring it back to the original state when they leave the property. This of course will impose a huge cost on the landlord, and again they are not necessarily going to cop that. They are going to have an understanding that they will have to put some money aside to make sure that they can correct any of the changes that may take place, and the only way that they will be able to put that money aside is by charging more rent over the period, again pushing up rental costs for those who can least afford it.

There may even be a prohibited term around structural changes to a property. Perhaps you could knock down a wall, put in a new door somewhere or do a complete bathroom or kitchen renovation; we do not know what it might be. But this unknown of what may be a prohibitive prescribed term is a huge risk for landlords, and for tenants as well because they are the ones who will be hit with any additional charges to cover those potential costs, whether or not they are put in place. It is disappointing that we have not even had a list of suggested prohibited prescribed terms, although we can glean a hint of some of those from the options paper that was put out earlier in the year.

The standard form for tenancy agreements greater than five years has not yet been drafted, and again this is a concern that has been raised by stakeholders with me over the consultation period. There is also some confusion in that the bill refers to two different standard forms. For a lease of greater than five years it has to be in one of two standard forms. It actually refers to this in clause 6 that I spoke to earlier. It says that the landlord or tenant must not prepare a tenancy agreement for a fixed term of more than five years if the agreement is not in either of the standard forms. It makes sense to me that we have some clarification around that. There should just be one form. If we are going to have a standard form, have one for everyone, because there is a lot of variability in the elements of a lease that you enter into for longer than five years. For example, who is responsible for the maintenance? If people are going to take this on as their own home, do they have a greater responsibility to maintain that home to a significant level or a higher level and therefore the landlord has less opportunity?

Of course if it is a long‑term lease, there is less changeover. Usually during a changeover of a lease it is an opportunity for a landlord to go in and do minor repairs. They might freshen up the paint. They might fix up a few things in the bathroom or replace a section of carpet that has started to fray. That is the time when those sorts of repairs and maintenance occur.

However, with a long‑term lease we need to get some clarification about who will be responsible for the sorts of minor fixes that occur following the normal wear and tear on a property. This is something that should be considered in a standard form, or perhaps it would be more applicable if there were greater flexibility in these long‑term lease agreements and an ability to draw up your own agreement depending on the needs of the property and with an agreement between the landlord and the tenant.

There is also the concern about the removal of the right to evict a tenant under new section 209AA, inserted by clause 13. This is an interesting section. It refers to an opportunity to provide a compliance order or to seek compensation. However, there is no ability, in my reading, for a landlord to evict a tenant. As I said earlier, seeking a compensation order is all well and good, but somebody might refuse to pay the rent. It happens. I understand people are being told that if they want to get out of a lease agreement, they should stop paying their rent at this point in time.

If we look at the situation where you have a mum‑and‑dad investor who has their home mortgaged in order to afford their second property, they might be looking at it being an investment property for their retirement. When somebody stops paying the rent it simply means that the mum‑and‑dad investor is going to lose that second home. They may lose their own home, and we are just putting more and more pressure on families who are not wealthy landlords with thousands of properties. It might be their sole investment property. This is what we are talking about; 72 per cent of all rental properties are owned by mum‑and‑dad investors. It is not the big end of town but everyday people who live in our electorates. This is a huge risk for them, and it may shift their ability to have an investment property. It may undermine the returns they can get on their investment properties. It may be putting their homes at risk.

Another concern is that any significant restriction on landlord property rights is likely to discourage landlords from offering properties for rent. There are a number of details in the bill which simply shift the power too much towards tenants and will force landlords out of the market. I suspect there may be some underlying intent behind that — that pushing landlords out of the market will increase supply of properties for sale for individuals in trying to address the housing shortage we have, particularly in metropolitan areas. However, Victoria is growing at such a significant rate that any properties that are given up by landlords as being less viable investments and put onto the market are going to be soaked up by the 120 000 people who move to this state each and every year, with 92 per cent of them moving to Melbourne. It simply will not bring down house prices if this is the intention of the amendments made to the Residential Tenancies Act.

I am concerned that this is more of a stunt. This is talking about security of tenure, but actually it is going to work against that. It also will not fix a problem that does not exist. I have gone through the elements of what the preferred lease terms are for tenants. They simply are not looking for leases in excess of five years; most people are looking for a lease of less than two years. So why are long‑term leases being sold by Labor as providing greater security for renters? Labor are actually increasing the cost of living through their policy to close Hazelwood, resulting in enormous increases in electricity costs. As a result, being unable to pay the rent is a far greater risk to tenants’ security.

I would like to go through some of the commentary or feedback that has been received by me because I have received extensive feedback and not one person has been supportive of the amendments put forward by the Labor government. Of greatest concern was the Real Estate Institute of Victoria’s submission. They have gone into this in great detail and, I understand, provided a number of submissions to the government throughout the drafting of the bill. However, they are extremely disappointed that it appears none of their feedback has been taken into consideration. I refer to their closing paragraph:

In short, there is nothing we can commend in support of this legislation — we will advise our property managers against entering into these longer leases on the basis of reduced protection and increased risk.

If such a strong and influential body which is very fair and reasonable thinks that the amendments included in this bill are so extreme and going to harm landlords to such an extent that they are going to actively advise landlords not to enter into long‑term leases, that just shows that this is an absolutely failed attempt to fix a problem that does not exist. The sting is certainly in the tail in relation to the impact this may have on shorter term leases or leases of less than five years.

I have received similar commentary from the Registered Accommodation Association of Victoria, from the Housing for Aged Action Group, from Clubs Australia and from the We Live Here movement. Their concerns are consistent with those issues that I have raised in that this bill includes many elements which would discourage landlords from entering into long‑term lease arrangements. Further, there is no incentive for a landlord to enter into a long‑term lease arrangement.

This bill, in my view, is nothing more than a stunt. You can see from the stakeholder feedback that it is actually more likely to discourage landlords from entering into long‑term leases. It is likely to discourage landlords from keeping their property in the tenancy market. If we have a withdrawal of rental properties, all that will happen is that we will see an increase in demand for rental properties and that will simply push up the cost for the people who can least afford to pay the rent, to keep the lights on at home, to put a meal on the table and to put uniforms on the backs of their children. They will be the ones who have their ability to pay the rent and put a roof over their children’s heads put at risk. I think this bill has completely missed the mark in terms of providing greater security for tenants in Victoria.