The impact of Residential Tenancy Act amendments on fixed-term tenancies

Recently, the Residential Tenancies Amendment Act 2020 was passed to amend the Residential Tenancy Act 1986. The changes are scheduled to be implemented in three phases, kicking off with phase 1 which came into force on 21 August last year.

Phase 2 is set to take effect on 11 February, and this phase includes crucial changes to the process of terminating tenancies, including fixed-term tenancies. However, K3 Legal solicitor Harriet Krebs says these changes may go further than landlords currently realise. She and director Jeff Walters have a warning for landlords who think that they can rely on fixed-term tenancies (or even insist on them) to avoid the limited termination rights under the new residential tenancy legislation.

The current process

Krebs says that in order to fully grasp the amended process, it is important to be clear on how the existing one works.

“Currently, a fixed-term tenancy continues after the date of expiry to become a periodic tenancy if neither party gives notice that they have no intention to continue the tenancy (for whatever reason). However, the landlord is able to give notice to the tenant that their fixed-term lease will terminate on the expiry date by giving notice no later than 21 days before that date. This prevents the fixed-term tenancy from becoming periodic,” she says.

Under a periodic tenancy, landlords are required to provide 90 days’ notice to terminate the tenancy, although they need not present a reason for termination.

New law

Once the new laws come into effect, a fixed-term tenancy will automatically continue as a periodic tenancy unless one of the following four things happen:

• the parties renew or extend the existing tenancy agreement
• the parties agree not to continue with the tenancy
• the tenant gives the landlord written notice of their intention not to continue with the tenancy at least 28 days before the expiry of the term; or
• prior to the expiration of the tenancy agreement, one of the parties gives a notice of termination on or before the expiry date. Alternatively, parties can provide a notice that would be acceptable under certain periodic tenancy provisions (but not sale, personal use or development)

Moreover, landlords must now give either 63 days’ or 90 days’ notice, and they must present a reason for termination that is based on “specific statutory reasons as outlined in the provision,” Krebs says.

Effect on landlords

The new process therefore complicates a landlord’s position, as they can no longer simply terminate a fixed-term tenancy without reason by giving either a 90-day or the 21-day notice.  Further they cannot insist that a fixed term tenancy be followed by another fixed term.

“So while fixed terms are beneficial in providing both parties with certainty, it makes life very difficult for landlords who wish to terminate fixed-term tenancies, for commercial reasons,” Krebs says.

She outlines two scenarios highlighting the impact of the amended process.

“A landlord wants to ensure that they are able to terminate a tenancy if they don’t think the tenants are suitable, so they enter into a one year fixed-term tenancy. At the expiry of which, the tenancy can be terminated and the tenant removed. That is no longer possible,” Krebs says.

In this case, the tenancy will continue as a periodic tenancy after the fixed term expires. In order to terminate the agreement, the landlord must provide 90 days’ notice along with reasons for the termination.

The second scenario involves a property that is being sold but with settlement not occurring until a later date. The landlord might want the property to remain tenanted until the settlement period, but have the tenancy terminated at that time because the settlement requires vacant possession.

“Until now, landlords would have been able to agree to a fixed-term tenancy due to expire close to the settlement date and therefore be in a position to give vacant possession by giving the tenant 21 days” Krebs says. “This is no longer the most risk-free route due to the uncertainty created by the amendments.”

To ensure that the property is vacated in time, Krebs says that the best option now for a landlord in such a situation may be to proceed with a periodic tenancy agreement, and then give the tenant 90 days’ notice before the settlement date.

Phase 3 in the implementation of the Residential Tenancy Act amendments (dealing with family violence and assault of a landlord) will come into force on 21 August this year.