Dream clients

I have a group of clients I consider my ideal clients.  They live out of town and don't fancy the idea of sorting out anything to do with the property themselves.  They leave all that stuff to us.  They don't ignore it, they do know what is going on with their property, they just know they have the right people looking after it.  For them, it is about the numbers.

One of these clients wanted to sell their property.  They needed to improve their cash situation.  We'd done all we could by renting the property out at a good rental, increasing it every year for the last three years, but it wasn't enough.  So, near the end of the tenants lease, they put it on the market.  Some bites, but nothing of the sort to solve their financial issue.

We checked in with them as to whether they wanted us to lease out the property for the following year.  They decided they were likely to sell to an investor, so they agreed to re-rent the property for another fixed term. 

From our point of view, it was business as usual, with the real estate agent occasionally popping in to grab the key to show a prospective buyer through.  The property has security keys, you know, the 'do not copy' kind, and getting copies needs permission.  We ask the owner, our client, if they were happy for us to give the agent a key so it is more convenient to get buyers through. 

They respond with:
'That's a good thought, but we've withdrawn it from the market today'. 

This was the last thing we expected.  When we asked why, they responded with:

 "why would we sell when you guys are doing such a neat job and have increased the rental again!!!"

  Aww, shucks.  That's why we love them, and they love us!  Financial problem solved.  Happy client.  Happy property management company.

I have another story to tell about the apartment block this property is in, so read the next blog!

When to apply to Tribunal for Rent Arrears

Here's a useful process to follow for chasing up rent arrears.  It solves the majority of rent arrears issues in the first few steps, but still gives you the security of going to Tenancy Tribunal as quickly as practical so rent arrears don't get too out of hand.

Firstly, I'm going to assume you check rents the day they are due.  If you don't, start doing that now.  Keep forgetting?  Set a reminder up on your calendar to check them.  Never assume the tenant will pay, Sods law will have it that the minute you stop checking will be the minute they stop regular payments.  Some tenants are frustrating in that they don't have an automatic payment (AP) set up, but just pay when they remember to.  Don't put up with this.  Follow the plan below to motivate them to pay the rent in full and on time.

So, you've checked the rent on the day it's due, and it isn't there.  Step one is contact the tenant.  We use email or text on the first day, because the first reminder is usually all that is needed.  Something as simple as 'I notice your rent didn't come in today.  Please make payment immediately' does the trick most of the time.  Don't add 'or tell me if there is a reason why not' - there is no reason good enough.  Maslow says shelter is right up there on the hierarchy of needs, without it, nothing much else matters.  No rent, means no shelter.  Simple. 

Step 2: check the next day if rent came in, or the tenant has told you when they will make payment. If it isn't the next day, have your B-S-ometer on.  No one who doesn't have the rent today has twice as much next week, so don't agree to that.  Instead, ask how much they are short by today, and they should pay the rest of the rent to you immediately.  Sometimes just being $10 short in the bank account stops the rent leaving the account.  So get all but $10 rent now, and they can pay you the extra $10 on top of next weeks rent.  Much more affordable, and the rest of the rent is less likely to disappear too.

If the rent hasn't come on day 2, ring them up if you haven't already spoken to them.  I suggest something like this:  "Hi, your rent didn't come in yesterday and I sent you a text about it, but I see it hasn't come in today either.  Can you get to the bank today and sort this out?  I'm going to send you a 14-day-notice-to-remedy because rent arrears are a serious issue.  If you get it paid today, I'll cancel the 14-day-notice.  Thanks".  Note at no point have we asked why the rent wasn't paid.  Asking 'why' just puts people on the spot and compels them to tell us something that might be intensely private, embarrassing, or paints them in a bad light.  Who wants to do that?  No wonder people lie about rent arrears.  Don't ask, don't make them feel bad.  Guilty people tend to bury their head in the sand, not solve the problem, and you want the problem solved.

So, immediately issue them with a 14-day-notice-to-remedy-rent-arrears, that's step 3.  The funny thing about 14-day-notices is that they are actually for a lot longer than that as you must allow service time.  If you post them, it is another 4 days you need to add on, after the day you send it.  This means the date to remedy the issue may be 19 days away, and you already have a day or two of rent arrears, and worse if day one was Friday, as the weekend will be in there too before day 2 has started.  You can get a sample of a 14-day-notice from Building and Housing Group.

So, the 14-day-notice is out there in the world, now what should you do?  Don't wait around.  We run on the principal that if the tenants have been un-contactable, and they haven't sorted out the rent arrears, we are preparing to apply for Tenancy Tribunal.  If they miss their next rent payment, apply, even though the 14 day notice has not yet expired.

"What?  But I thought I had until the letter expired before I need to pay rent?" says your tenant.  Yes, the missed rent.  The current rent is still due on time.  If they have skipped their next rent payment too, you are pushing your luck to get now two weeks rent arrears paid, especially if they are not trying to keep to their obligations. 

By applying for Tenancy Tribunal early, you shorten your exposure to rent arrears.  Lets say you apply as soon as rent arrears exceed one week.  You potentially have another 14 days to go on the notice to remedy because you issued it on day two.  Tribunal staff receive the application and process it.  This takes around 3 days.  They may schedule mediation, this takes around 2 weeks.  If you don't resolve it in mediation, it will be scheduled for a Tribunal hearing, which takes another 2 weeks or so, if you are lucky and the load is light.  If your tenant hasn't paid any rent in this time, you are now facing rent arrears of 5-6 weeks by the time you reach a hearing.

Now imagine if you hadn't applied for Tribunal at the beginning of the second week of rent arrears, but instead waited until the notice expired.  You issue the 14 day notice on day 3 of the rent arrears, and the end date is 19 days away, bringing you to 22 days arrears.  You apply to Tribunal at this point, which takes 3 days to process, making 25 days, and then you are offered mediation which happens within one week because the arrears are so great, bringing the arrears to 32 days (but could be a week more), but you don't come to an arrangement, so it is put to Tribunal two weeks later, bringing the rent arrears to a whopping 46 days.  At the New Zealand national rent average of $350pw, that is $2300 rent arrears at the time of hearing.  I'm not exaggerating, the average claim at Tribunal is for around this amount.  The adjudicator will give the tenant several days to move out, increasing this amount by the daily rent rate of $50 for every extra day they are in possession.  If they don't leave, you need to get a bailiff to get rid of them, and they require the order to have been sealed for a couple of days before acting.

No tenant I know of who has been evicted for rent arrears feels any need to leave the property clean and tidy with all their possessions and rubbish removed.  They rarely return all keys too.  So, you'll be back to Tribunal to claim for all those things, or you just sigh, and give up.

If you haven't collected the maximum allowable rent of 4 weeks, you are really considerably out of pocket.  Even with 4 weeks rent, you will have some collection to do, and that costs too.  But that is the topic for another blog.

The point of this one, act swiftly on rent arrears.  Don't let them get out of control.  Use all the tools at your disposal.

What are your options when a lease is going to end, and you want to sell?

When you are going to sell your property, and you are coming up to the end of a fixed term tenancy, you need to think about how you are going to deal with the lease renewal.  You have what is called 'the effective period' which is 90 - 21 days prior to the fixed term lease ending in which you can renew or end the tenancy with your tenant.  If you miss this window of time to sort it out, the tenancy will become periodic.

Each choice has different benefits and disadvantages.  The options as I see them are:

1. Renew the current tenants for a one year lease.
Advantage: Certainty about cashflow.  A good option if you are not serious about selling, or confident of your chances of getting the price you want.
Disadvantage: Buyers may want to move in, and tenants are protected for duration of their lease, unless you successfully negotiate an earlier end with them.

2. Renew for a shorter fixed term, e.g. 3 months.
Advantage: Cashflow during sales process, buyers don't have to wait long to move in.  Good if you want to hedge your bets during the sales process, and possibly renew your tenants again at the end of the extended fixed term when you take the property off the market.
Disadvantage: Tenants may leave at end, and if you still own the house, and it can be harder to find great tenants at that time of year and rent may drop outside peak letting season.

3. Allow the tenancy to go periodic.
Advantage: If sold, just need to give tenants 6 weeks notice.  Good if you have a sympathetic real estate agent who works well with the tenants, and if your house is likely to sell quickly.
Disadvantage: Tenants can leave at any time with only 3 weeks notice, which means it may be empty while selling, and hard to re-rent while on the market to sell.  Which means your cashflow is detrimentally affected, possibly making you a motivated buyer.

4. Ask the tenants to leave at the end of the fixed term.
Advantage: Will be able to show buyers through without notice, can have short settlement if it suits the buyer.  Again good if you are confident of selling quickly, or have the funds available to wait for the right buyer.
Disadvantage: No cashflow, empty property could be vandalised or broken into (and there are a lot of things in an empty property to steal, smash or stain, don't be fooled into thinking there is not). If it is empty a long time, your insurance can be compromised.

It is best to talk through these options with your property manager, partner, and real estate salesperson so you can fully understand the pro's and con's of each option. I can't say which one will be better for you - it will all depend how keen you are to sell, and how many buyers are out there in the market with the money to spend on your property, and whether you want to have the back-up plan of re-renting it should it not sell (e.g. you don't get offers you are happy with, or you don't get any offers at all). In all, you would need to have a crystal ball to know which option is best. All of them involve some level of risk. I'm sure your real estate agent is good at what she or he does, but no one can promise a sale within a certain amount of time (unless you give it away for free, of course! In which case, we could take it off your hands...).

Selling with a Fixed Term Tenancy

We have experience in working with real estate agents when clients want to adjust their portfolio.  A common question we are asked when clients are looking to sell is 'what do I need to know about selling my property with a fixed term tenancy'.

Once you are certain you are going to list it for sale, make sure you inform your property manager as you have a legal obligation to inform the tenants, and your property manager should do that on your behalf.

The real estate agent will need to touch base with your property manager to get tenant details for access.  The property manager can also provide them with any details they need.

Your tenant has a fixed term lease which is likely to continue past the hoped-for sales date.  This means you will need to sell the property with a tenancy in place, or end the tenancy early by mutual agreement (otherwise known as ‘make them an offer they can’t refuse’ – could be expensive, or very cheap).

If you sell it while you have a fixed term tenant, and you can’t reach agreement with the tenant about ending the lease early, the options for dealing with it are either that the settlement date is pushed back until the lease end date (and you need to wait for your money until then), or the new owner becomes the landlord for the duration of the lease.  Obviously this will require some negotiation with the prospective purchaser as to their preference.

Of course, there is another option, offer the property to the tenant to buy.  You may want to get an independent valuation to set the price, and have your lawyer do the negotiating if necessary, or use an agent to facilitate the sale.  Let your property manager know if you want them to sound out the tenant as to this option, and potentially save you sales fees.

If you are a landlord with a fixed term tenancy and you are wanting to sell, get in touch.  Great property managers, like us, have good solutions.