On 11 February 2021, several changes to the residential tenancy rules came into force. Those changes will have consequences for many landlords, particularly when it comes to the sale of a tenanted property. We have summarised some of the key changes below.
Selling a tenanted property – ending the tenancy
Many residential landlords will want to sell their property with vacant possession to maximise their pool of potential buyers. Purchasers looking for a new home may be put off by a sitting tenant.
The rules for removing a residential tenant are strict and must be complied with in order for the landlord to give vacant possession to their purchaser on settlement day.
Fixed Term Tenancies
In a Fixed Term Tenancy the landlord and tenant agree to the tenant’s occupation of the premises for a specified length of time. Many residential tenancies are Fixed Term Tenancies for a 12 month period.
A residential landlord cannot end a Fixed Term Tenancy early unless the tenant agrees. There are no applicable notice periods for a landlord to do so unilaterally. That position has not changed.
Under the new rules, landlords can no longer rely on the expiry of a Fixed Term Tenancy alone as a basis for ending the tenancy. A qualifying reason for the termination must be given and the notice periods complied with.
A Fixed Term Tenancy entered into on or after the 11 February 2021 automatically becomes a Periodic Tenancy on expiry of the Fixed Term, unless:
- The parties agree otherwise.
- The parties agree to extend or renew.
- The tenant gives notice terminating the tenancy 28 days prior to the term expiry.
- The landlord gives a termination notice for a qualifying reason at least 63 or 90 days prior to expiry of the term (depending on the reason for termination).
Previously, a landlord could give their Fixed Term Tenant a termination notice for any reason between 90 and 21 days before the expiry of the Fixed Term, and that notice would effectively end the tenancy on expiry of the Fixed Term. However, that is no longer possible under the new rules.
Fixed Term Tenancies entered into before 11 February 2021 are not affected by this new rule.
If the tenant agrees to end the tenancy on expiry of the Fixed Term then the tenancy can be terminated.
Periodic Tenancies have strict timeframes within which landlords must give tenants notice of termination of the Periodic Tenancy. Previously, Periodic Tenancies could be terminated in specified circumstances by a landlord by giving 42 days’ notice, or for any reason by giving 90 days’ notice.
That is no longer the case under the new rules.
Landlords are not allowed to give ‘no cause’ termination notices at all. Landlords must have a qualifying reason to end a tenancy unless the tenant agrees otherwise.
Termination by 90 day notice
The grounds for a landlord to terminate a Periodic Tenancy by 90 day notice to the tenant are:
- Where the landlord is listing the property on the market for sale within 90 days from the termination of the tenancy.
- Where the property has already been unconditionally sold with vacant possession.
- If the landlord does not own the premises and their interest is due to end.
- The landlord has acquired the property to conduct a business activity on nearby land (e.g. a shop and residential flat) provided the landlord has specified this in the Tenancy Agreement and the premises are required to be vacant to facilitate that business use.
- The premises are to be converted to commercial use for at least 90 days.
- Extensive alterations or repairs are to be undertaken by the landlord and is not practicable for the tenant to remain in occupation during the work. The work must commence within 90 days of termination of the tenancy (or material steps must be taken towards it, e.g. applying for building consent).
Termination by 63 day notice
The grounds for a landlord to terminate a Periodic Tenancy by 63 day notice are:
- Where the owner or a member of the owner’s family wants to move into the property within 90 days after the termination of the tenancy. The owner or family member must then live in the property for at least 90 days.
- Where the property is normally used as employee accommodation and is required for that purpose again. The Tenancy Agreement must state this in order for the notice to be effective.
It is very important for landlords to comply with these notice periods. If the proper notice is not given to the tenant, that tenant could lawfully refuse to vacate the premises on settlement day.
If the property had been sold, the landlord would then be in breach of their obligation to give their purchaser vacant possession of the property on settlement. The purchaser would have the right to demand compensation for their reasonable storage and temporary accommodation costs until vacant possession is given, or the purchaser could charge penalty interest on the entire purchase price (less the equivalent amount of interest the purchaser would have received if those funds were on deposit at the bank), which interest rate is normally around 12% – 15%. Ultimately the purchaser could cancel the Agreement and require the refund of their deposit (and compensation), or could sue in court to insist on vacant possession in accordance with the terms of the Agreement for Sale and Purchase.
Additionally, if a landlord terminated a Periodic Tenancy on one of the above grounds knowing that the reason for the termination would not transpire within the required period, the tenant could ask the Tenancy Tribunal for compensation from the landlord of up to $6,500.00.
Other options for termination
In the absence of a tenant’s agreement to end the tenancy, a landlord can take other steps to terminate a Fixed Term Tenancy or a Periodic Tenancy, including:
- By application to the Tenancy Tribunal on the basis that three notices have been given to the tenant for anti-social behaviour by the tenant within a 90 day period.
- By application to the Tenancy Tribunal if the tenant is at least five working days in arrears with rent on at least 3 separate occasions during any 90 day period.
- By application to the Tenancy Tribunal for early termination of a Fixed Term Tenancy on the basis that the due to an unforeseen change in the landlord’s circumstances, the landlord would suffer severe hardship if the tenancy continues, and that hardship would be far greater than the hardship the tenant would suffer as a result of the tenancy being terminated early.
Applying to the Tenancy Tribunal should be a last resort for landlords, who should be talking to their tenants directly to try to reach a suitable solution for both parties to the Tenancy Agreement.
Assignment of tenancies
From 11 February 2021 all requests from tenants to assign the tenancy must be considered by landlords.
If your Tenancy Agreement contains a prohibition on that assignment, it is deemed to have no effect.
This change does not mean all assignment requests from tenants must be granted. If a tenant requested an assignment and proposed no replacement tenant, or proposed a clearly unsuitable replacement tenant, the landlord could reasonably decline that particular assignment request.
However, landlords should be careful not to decline an assignment request without giving careful consideration to the proposed assignee, and if that assignee does not appear to be suitable, discussing with the existing tenant what the landlord’s requirements are for a suitable replacement tenant.
Landlords can impose conditions on any assignment of the tenancy (provided those conditions are reasonable) and can recover their reasonable expenses incurred in the assignment process.
Ongoing refusals to consent to an assignment of tenancy may be interpreted by the Tenancy Tribunal as an attempt to avoid the requirement to consider assignments where requested.
Alterations to tenancy premises
From 11 February 2021 tenants may ask their landlord for permission to make minor changes to the tenancy premises (e.g. adding a baby fence, securing a bookshelf to the wall) and the landlord cannot unreasonably withhold that permission.
Tenants can also request to install fibre internet at the tenancy premises, and landlords cannot withhold consent provided the installation comes at no cost to them.
Before entering into a Tenancy Agreement landlords and tenants should think carefully about what the future may hold for them, their family, and the property concerned, and try to plan ahead as much as possible. That includes maintaining a reasonable degree of good communication between landlord and tenant in accordance with the landlord’s obligations under the Residential Tenancies Act 1986 and ancillary laws, to enable the tenancy to progress smoothly.
If you are thinking about selling your residential property or you want to take steps to terminate a tenancy at your property, we recommend you contact us in the first instance to discuss the best way forward.