Residential Tenancies – An Overview

by Andrew Stewart & Lisa Hermon - Morrison Kent

The Residential Tenancies Act 1986 (“the Act”) applies to landlords and residential tenants (but not between flatmates), and provides a baseline set of laws to protect both parties. In this article we discuss some factors worth considering when beginning or ending a tenancy.
 

The type of tenancy

There are two types of tenancies - a ‘periodic tenancy’ and a ‘fixed term tenancy’.

A periodic tenancy has no fixed end date and will last until either the landlord or tenant gives written notice to the other party that they want the arrangement to come to an end.

A fixed term tenancy lasts for a defined period of time, and neither the landlord nor the tenant can end this early unless the contract specifically allows it. Early termination of a fixed term tenancy would usually only occur if all parties agreed or this was ordered by the Tenancy Tribunal.

Which type of tenancy is best?

There are advantages and disadvantages to both, and which type of tenancy is more suitable depends on the parties’ circumstances.

Periodic tenancies tend to be suitable when the landlord’s or the tenant’s circumstances are uncertain, for example where the landlord was thinking of selling the property or the tenant was considering moving. This is because it allows the flexibility of ending the tenancy when needed, by giving written notice to the other party.

Where circumstances are more certain, a fixed term tenancy may be more suitable. This gives the parties the certainty of knowing that they will have a fixed income stream (as a landlord) or a guaranteed place to live (as a tenant), for a defined period of time.

Rent, bond and letting fees 

Under the Act, the maximum a landlord can request a tenant to pay in advance is two weeks’ rent and a bond equivalent to four weeks’ rent.

In addition, a letting agent or the landlord’s lawyer also has the right to charge a letting fee (which is often the equivalent of one week’s rent plus GST) to cover the cost of putting the tenancy in place. A private landlord does not have the right to charge a letting fee, and any money which the landlord asks the tenant to pay for simply granting a tenancy is termed ‘key money’. A demand for payment of key money is legally unenforceable. 

The Tenancy Agreement

Before the tenancy begins, the landlord and tenant must enter into a written tenancy agreement which sets out the terms and conditions of the arrangement. It is also generally advisable for the parties to complete a property inspection report together and include this as part of the tenancy agreement. This can help prevent disputes later down the track about the original state of the property.

For a tenancy commencing after 1 July 2016, the agreement must also include information about insulation installed in the ceilings, floors, or walls of the property (if any), together with details of the location, type, and condition of all insulation (if it is known). 

Once signed, both the landlord and the tenant should keep a copy of the agreement.

Expiry of a periodic tenancy 

If a tenant wishes to end a periodic tenancy, they must give a minimum of 21 days’ written notice, unless the landlord agrees to a shorter notice period.

If a landlord wishes to end a periodic tenancy, they must generally give a minimum of 90 days' written notice. However, there are circumstances where this notice period is reduced to 42 days', including:
  
  • If the property has been sold and the new owner wishes to have vacant possession on settlement;
  • If the landlord or a member of the landlord’s family is going to live in the property; or 
  • If the property is normally used as employee accommodation and is needed for that purpose.

If a landlord gives notice to end a periodic tenancy and the tenant wishes to move out sooner, they must still give the landlord a minimum of 21 days’ written notice. 

Expiry of a fixed term tenancy 

At the end of a fixed term tenancy, the landlord and tenant may decide to renew the tenancy for a further period of time. However, the landlord does not have to agree to this unless the agreement gives the tenant the exclusive right of renewal.

If the original tenancy was fixed for a period of more than 90 days and renewal of the tenancy has not been discussed, the tenancy will automatically become a periodic tenancy at the expiry of the fixed term period, unless either party gives notice to end the tenancy.

What if there is a dispute?

Most disputes between landlords and tenants can be resolved by negotiation and agreement. If this is not possible, the Tenancy Tribunal can be asked to make a decision. Getting early legal advice will help ensure that you understand your rights and obligations, and make your best case if you need to proceed to the Tribunal.

If you have any questions about these matters, please contact either of the article authors, Andrew Stewartor Lisa Hermon or the Morrison Kent Wellington office (04) 472-0020.  


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