The NSW Office of Fair Trading has announced that rental reforms are set to take effect on 23 March 2020, giving tenants more control over their environment. Tenants’ advocates have welcomed these changes that favour the tenant and take some of the control from the Landlords. For Property Investors, these changes have the potential to impact Landlords insurance, which we have explained below.
The Real Estate institute of NSW (REINSW) published a media release detailing the impacts of the reforms.
Download the Media Release Here.
Some of the reforms include:
- Rent increases must be limited to once per year during a periodic agreement when the fixed term has passed.
- Landlords must obtain tenants’ prior written consent to publish photographs or video recordings of premises, including property interiors for advertising purposes which may show tenants’ possessions.
- Tenants may make minor alterations, fixtures, additions and renovations with the landlord’s consent, but the landlord cannot unreasonably withhold consent if the alteration, fixture or addition is one from a prescribed list in the 2019 Regulation.
- Victims of domestic violence will be able to terminate their tenancy without penalty.
- Repairs and replacements of hardwired smoke alarms must be carried out by an authorised electrician
- Non-payment of water usage or utility charges may now result in tenancy termination (in addition to non-payment of rent)
- Tenants have the right to break their lease if it is signed after 23 March 2020.
Tenants will pay a break fee of:
➢ 4 weeks rent if less than 25% of the fixed term has expired
➢ 3 weeks rent if 25% or more but less than 50% of the fixed term has expired
➢ 2 weeks rent if 50% or more but less than 75% of the fixed term has expired
➢ 1 week’s rent if 75% or more of the fixed term has expired
Implications for Landlords Insurance
These changes to the rental reforms may impact your ability to claim under your Landlord Insurance, so we advise all owners of investment properties to review their existing insurance policies to ensure their cover is adequate. Please speak directly with your insurance company about your cover and any impact as a result of these reform changes.
It is important to understand what the key changes are that may impact your Landlords insurance, some of the key changes are:
In many jurisdictions, Landlords will not be able to refuse tenants from keeping their furry friends at the rental property. Although the tenant is responsible to pay for repairs of any damage to the property caused by their pets, their rental bond may not cover the damage and if they refuse to make good the property, the landlord will need to recover the repairs through landlords’ insurance. Many insurance providers do not cover for pet damage at all, and may impose low claim limits or place restrictions on the cover (such as naming the pet on the lease agreement). It is advisable that landlords understand their policy and the limits of their cover, some policies do include cover for pet damage without onerous conditions over the cover.
The new reforms allow tenants to make minor modifications to their rental property, even without the permission of the Landlord. Such as picture hooks, minor fixtures, etc. This type of work will increase the risk of accidental damage, as it does not require to be completed by a professional. Landlords should check their insurance to ensure it covers accidental damage as some policies this is offered as an additional extra.
It is also important to keep in mind that certain modifications must be taken out by licensed trades in order for you to be covered by your insurance. This includes works such as plumbing and electrical which, failure to do so, could void your claim under insurance. We advise that your property manager should be aware of any modifications to the property made by the tenants and communicate to your tenants the type of minor repairs/modifications that will require a licensed tradesperson.
Breaking lease agreement
There are new rules around when tenants are able to break their lease agreements without penalties (primarily relating to domestic violence situations). This ability to break leases without penalty, will result in landlords being out of pocket for the time it takes to find new tenants and therefore, you may need to make a claim to your insurance under “loss of rent” provisions. Your Landlords insurance policy should include a loss of rent provision and we advise that landlords are familiar with the terms and conditions under their insurance cover.
If you are unsure of your level of cover, please review the terms and conditions of your policy and get in contact with your insurance provider who can discuss the appropriate level of cover for your needs.
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