By Sarah Mills
We've all heard about the tenants from hell — the ones that never pay rent or are consistently in arrears, the ones that damage property, and those that know the system and play it ruthlessly. A bad tenant is a tenant that steals with intent from the landlord. They can cost a landlord thousands, even tens of thousands of dollars.
Problems between landlords and tenants are unfortunately common. In the 2005/2006 year, in NSW alone, the Consumer Trader and Tenancy Tribunal arbitrated 47,286 residential tenancy complaints.
Prevention is better than cure
Once a bad tenant (as opposed to an honest but challenged tenant) is ensconced in a house, it is almost impossible to emerge from the situation without taking a loss. When tenants breach a contract, the landlord is theoretically entitled to evict them but not before going through the proper process and channels. In the time that it takes to complete this process, the tenant with ill-intent can more than eat through four weeks rent and the bond and cause thousands of dollars in property damage. Forcefully evicting tenants understandably is not an option and can incur a fine of up to $20,000.
Theoretically, once the tribunal has ruled in the landlord's favour, the landlord is entitled to pursue tenants for damages. However, in practice, binding the tenant to the repayment order costs the landlord more time and money again. The landlord may never even recoup a fraction of the repayments ordered by the tribunal and the expense of chasing the money can spiral into the thousands. Many tenants realise that the landlord will have to make a commercial decision at some stage not to pursue them and will exploit the fact.
So screening tenants before signing contracts is the single most important tool at the landlord’s disposal to protect against rental theft. Here are a few tips for screening.
- Use industry databases that list bad tenants such as the National Tenancy Database. Private landlords can subscribe to these services for a fee. There are laws governing the use of these databases so visit the Office of Fair Trading website for guidelines. The Landlords Advisory Service lists its fees for certain searches for as little as $18.
- Do as many background checks as the privacy acts allow.
- Make sure you get the name of a prospective tenant's employer and a ballpark earnings capacity to make sure they can afford to pay the rent. Advise the tenant you will be making reference checks. Look up the employer in the phone book and ring the switch to ensure the prospective tenant works where they say they work and in the appropriate capacity.
- Always demand landline telephone numbers for references and always look reference telephone numbers up in the phone book. Try to go through the switch wherever possible. Often, scamsters will own several mobile phone numbers so when you call, you are actually talking to them.
- Speak to their former landlord, not just the real estate agent. Some agents are slack property managers and enablers of bad tenants.
- Make sure you conduct regular general property inspections.
- Each State has its own laws governing tenancy agreements, so make sure you read these, particularly the privacy acts/statements, to ensure you do not breach the law with screening activities.
Property Managers and sale of rental roles
Some landlords may prefer to hire a property manager but this is no guarantee of better handling of problem tenants. Some property managers are efficient and others slack. Check their credentials carefully.
Landlords should be particularly wary if their real estate agent has sold the rental role.
If you have signed up with an agent with an excellent reputation for property management, you may find that they have on-sold their "brand-name-built" rental role to shonky property managers.
There is no onus on the agent to ensure the role is sold to a competent property manager, nor any redress for the landlord. Many bad tenants take advantage of this change of affairs and the landlord is none the wiser until it's too late.
The Real Estate Institute of Australia recommends landlords check the credentials of new property managers carefully.
Make sure when signing a contract with a property manager that the notice for termination is short — about 14 days. That way, if you have any problems, you can start searching for a replacement immediately. A poor property manager when dealing with bad tenants can prove very costly. If they haven't been diligent collecting the rent, it is a fair guess that they will not be diligent in pursuing arrears through the tribunal and courts.
What to do after the horse has bolted
So, you've done your homework and signed up a tenant and still found yourself in an unfortunate situation. From here on out, it is a process of damage control. It is highly likely you will lose money. The key to limiting your losses is speed. Act immediately.
Dealing with arrears
- Tackle overdue rent immediately. A tenant should be two to four weeks in advance at all times.
- A bad tenant will make all types of excuses for not paying the rent. Do not accept any excuses except those that would genuinely affect their ability to pay. Compromises can be made for legitimate difficulties, particularly for tenants with a good track record.
- If rental arrears occur, take note of whether you had to call the tenant to chase the rent, or whether they notified you of their difficulties. The latter is usually a more positive sign.
- If a payment is missed, notify the tenant and request immediate payment.
- If rental arrears exceed a certain number of weeks, you are entitled to approach the rental tribunal for an eviction notice.
- If your tenant is persistently late in paying rent and is always behind, then the tribunal may also grant you possession of your house.
- If your property managers are late paying the rental payments, ring them up and pressure them to enforce payment. Do not accept their word for delays any more than you would from a bad tenant. They may be inexperienced, slack or underhand.
Dealing with disputes
In NSW, the Consumer Trader and Tenancy Tribunal is the area within the Office of Fair Trading that deals with tenancy disputes. It charges a fee of $31 for a hearing, which is usually held within one month of lodgement.
There are time limits on lodging applications for certain orders — usually you are required to submit a complaint within 30 days of the breach of a tenancy agreement, so be quick.
The landlord has the right to evict a tenant if the tenant:
- Fails to pay rent
- Is consistently late with rental payments
- Damages the property
- Is a nuisance to neighbours
- Uses the property for illegal purposes
- Is in breach of any other obligation in the tenancy agreement.
In any of these instances, the first step is to lodge a hearing with the rental tribunal. If the tribunal grants you possession, it will usually order the tenant to pay arrears.
Make sure you have before and after photos and a house inventory signed by both parties on signing of the tenancy agreement.
And finally, use your commonsense. Not all tenants who fall behind in rental payments are necessarily "bad tenants" as defined in the top few paragraphs. If a tenant has a good track record and suddenly starts experiencing problems, try and open a line of communication before approaching the tribunal.
A few tips
- Treat your tenants well. A good tenant is like gold. If you treat people badly, they are more likely to treat you badly, or simply move house.
- The rights and responsibilities of tenants and landlords under the Residential Tenancies Act 1987 NSW are set down in the Tenancy Handbook, posted on the Internet. Check your relevant State authorities for this information.
- While it is all very good and well to try and see the good in everybody, the fact is that some people just play by a different code. Unless you know the tenant very well, be tough.
