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Landlords – how to effectively manage the impacts of the Coronavirus pandemic

April 24, 2020  |  #Government Policy #Investment #Property

For landlords who now find themselves in uncharted territory when dealing with financial impacts of the pandemic, it may be hard to decipher what the facts are and what measures will help you navigate through this time. So what should you do if you or your tenant is financially impacted?

Some speculate government benefits favour renters over landlords, however, others believe leaving negotiations to a case by case basis between tenants and landlords simply is not enough to ensure an adequate outcome.

 

In late March, the Australian government has announced a freeze on evictions and that landlords and tenants should negotiate a potential rent reduction in good faith. They are developing a ‘mandatory code of conduct’ to help guide these conversations. States and territories are also rolling out policies for a multi-day freeze on evictions, where impacts from COVID-19 can be evidenced. What does this mean for you as the landlord? What should you do if you are impacted and how should you handle negotiations?

 

“There is a perception that landlords hold the power and are being greedy by not reducing rent, but the fact is that many rely on that rent to make up mortgage payments or for their own income.”

 

What to do if you are impacted financially?

 

If you are unable to make mortgage repayments on your properties most banks are now offering a payment deferral for up to 6 months. There are some other options you may wish to consider before doing this such as utilising offsets and redraws. It is important to remember the deferring your loan may increase payments or time remaining on your loan. You can read our full article on this here.

State benefits

NSW

Landlords can apply for a waiver of up to three months and a deferral of three months of land tax. To be eligible landlords must have reduced rent to the tenant or pass on the discount amount to the tenant.

QLD

Landlords can apply for a waiver of up to three months and a deferral of three months of land tax. To be eligible landlords must have reduced rent to the tenant or pass on the discount amount to the tenant.

There is also a grant available to tenants of up to 4 weeks rent paid directly to the landlord (max $2000) for tenants who are unable to pay rent and don’t have access to financial assistance. You can find more information here.

VIC

Landlords can apply for a waiver of up to three months and a deferral of three months of land tax. To be eligible landlords must have reduced rent to the tenant or pass on the discount amount to the tenant.

 

State vs state

Eviction banRent increase ban
NSW6 monthsNo
Vic6 months*6 months*
Qld6 months*6 months*
SA6 months6 months
WA6 months*6 months*
Tas4 monthsFor commercial tenants
ACT6 months*6 months*
NTNANA

* Announced, still to be made into law. Source ABC

 

What does the eviction freeze mean?

 

Over the next 6 months, landlords will be unable to evict tenants who are unable to pay rent for 60 days. Rent will accumulate in arrears and tenants will not be blacklisted during this time. This only applies to those tenants who have been financially impacted by COVID-19 and are unable to reach an agreement in negotiating a rent reduction.

Both landlords and tenants can still apply to break a lease early if they are facing financial hardship. 

You can find the flow chart on terminating due to rental arrears here.

 

Understand how a financial adviser can support you with your need for financial security. Get in touch.

 

landlords article 1

 

How to manage financially impacted tenants

 

Be prepared to negotiate 

Landlords with tenants who are unable to pay are encouraged to negotiate or offer a reduced rental amount or offer a potential deferral to tenants who have made contact and explained they are facing financial hardship and are unable to pay the full rent. Before entering negotiations, you should consider all of the below points.

Review your situation first

Before entering negotiations, it is important to review your situation first and identify how much you could potentially afford to reduce the tenant’s rent by. Consider your budget and potentially deferring any loan repayments to accommodate a reduction during this period. This will also give you a bottom figure you can work upwards from when negotiating. You download our free budget planner here.

Consider the alternatives

No one knows how long this situation will last, or for how long a tenant may be unable to pay their rent. Not having that tenant stay on, however, means finding a new one. That may or may not be easy to do in the current environment depending on your property and location. If the tenant has been a good, long-standing renter; perhaps short to medium term pain is better than no income.

Be informed 

We recommend you read up on benefits currently available during COVID-19 to yourself and your tenants, so you are aware of the options available.

Also, ask for evidence of the following:

  • A tenant has either lost their job or income
  • A tenant has had reduced hours of reduced income
  • A tenant has lost over 25% income including government assistance

 

Be considerate

Going into a negotiation you should be considerate of the tenant and hear out what they have they have to say. It’s important to remember you are likely both feeling fearful or anxious facing financial uncertainty and we are all going through this together. Perhaps they have a figure in mind of what they can afford to pay during this period, and you can start the negotiations from there, keep your budget as a base figure in mind and try to find a figure that you are both comfortable with and seems reasonable.

 

What to do if you can’t agree

We understand this can be a challenging time for all parties and you may not be able to an agreement with your tenant. If you are unable to reach an agreement there are third parties you can ask to assist you in reaching an agreement such as Fair Trade. You can also go through the tribunal to move forward with evictions during this time if you have a tenant who simply isn’t paying and hasn’t tried negotiating and you haven’t come to an agreement.

 

You may also be interested in

what support is available to businesses during the coronavirus outbreak?

light at the end of the coronavirus tunnel – what does it mean for investors?

should I take money out of my super fund early?

 

If you would like to discuss your financial situation, we are happy to assist. Contact us today.

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.