The demand for residential accommodation has increased dramatically over the years and the ‘housing crisis’ features regularly in the press.
For investors, residential property is a popular choice for wealth creation with potential to provide good returns and capital growth.
This article provides general guidance and flags important considerations when renting out a residential investment property.
Understanding key rights and obligations
All Australian jurisdictions have specific laws in place to regulate the relationship between landlords and tenants. These laws are administered by the relevant government body in each state or territory and are aimed at balancing the rights between both parties.
Important provisions include:
- Payment of a bond by the tenant, usually up to the sum of four weeks’ rent, to cover damage, repairs or unpaid rent. Providing the landlord does not need to call on the bond, the amount is fully reimbursed to the tenant at the end of the lease.
- Tenants have a right to quiet enjoyment of the property – provided the obligations under the lease are maintained, the landlord must respect the tenant’s privacy and occupation of the property.
- Unless extenuating circumstances arise, the landlord cannot enter the premises unannounced and is limited to a prescribed number of inspections during the term of the lease for which notice must be given.
- Tenants must look after the property however the landlord is responsible for repairs and must ensure the property is safe and habitable (see below).
- Generally, landlords cannot increase rent during the rental period and must provide adequate notice of subsequent rental increases. Specific notice requirements must be followed when terminating the lease.
- Landlords must not charge tenants for outgoings such as council and water rates, strata levies, insurances and land tax.
Most government departments have plain language guides setting out the rights and responsibilities of the landlord and tenant. Property investors should ensure they are familiar with the terms relevant in their jurisdiction.
Using a reputable managing agent
Investors may want to save money by managing their own investment property. Whilst this might seem like a good idea, property owners should consider the benefits of having an arms-length arrangement with their tenant and the time involved in advertising, screening and checking references, conducting inspections, preparing property reports and lease agreements, arranging repairs, collecting rent, accounting and reporting.
A reputable managing agent will have local market knowledge and ideally a list of tenants with good references. They should have a sound understanding of residential tenancy legislation and be able to represent your best interests if things go wrong.
In most circumstances, management fees are tax deductible (ensure you check with your taxation advisor). Even if you are renting to friends, it might be wise to engage a property manager who can professionally carry out his or her duties if things turn sour.
Liability for injury and duty of care
Landlords owe a duty of care to their tenants and visitors to the investment property and must ensure the property is maintained in a safe condition.
In some circumstances, a landlord or managing agent may be liable for personal injury suffered by a tenant, if negligence can be shown.
For example, in one case a tenant sustained significant injuries to his hand when he struck and shattered a glass panel of the front door. The landlord and managing agent were found negligent for failing to install safety glass when previously arranging repairs to the door panel.
The Court found that the installation did not comply with the relevant Building Code despite the fact that the Code did not apply at the time that the property was built.
Whether negligence can be proven for injuries to tenants will depend on the circumstances. Generally, a decision will weigh in a tenant’s favour where the landlord has, or ought to have knowledge of an apparent defect but fails to rectify it.
If the landlord has no knowledge of the alleged defect then the duty is no more than taking reasonable steps to identify and deal with a risk of injury.
What should landlords do to mitigate liability?
Landlords should undertake regular property inspections to identify hazards and ensure the property is safe and fit for use. Inspections should be conducted with relevant Building Codes in mind and written records maintained. In some circumstances, landlords may wish to engage a professional building inspector to identify risk and recommend maintenance or modifications.
Tenants should ensure inspections include pool safety and smoke detector checks, as well as installations such as gas and electricity.
Urgent repairs that pose a risk should be attended to immediately.
Whether you’re a current or would-be residential property investor, it is important to understand your obligations as a landlord.
Occasionally problems arise and you may need assistance from an experienced property or leasing lawyer.