Home Info Centre 'COVID Crunch' – how to respond to tenant hardship
'COVID Crunch' – how to respond to tenant hardship

'COVID Crunch' – how to respond to tenant hardship

23 Jun 2020 5 mins read

There are 2.5 million renters in Australia and many are likely facing tighter finances due to the economic impacts of COVID-19. But just as many landlords will be feeling the financial pinch. So how do you strike the balance between helping out your tenant and ensuring you can still pay the bills on your investment property?

COVID-19 might have started out as a health pandemic, but it quickly evolved into an economic crisis. Few households in Australia have been left unscathed by the economic downturn – job losses, reduced hours, new working arrangements and conditions. Both tenants and landlords have not been immune from the financial fallout. While some tenants are struggling to pay their rent, some landlords are struggling to pay the mortgage and bills on their investment property.

The COVID crunch has left landlords and their agents with a conundrum: how do I support my tenants facing financial hardship without jeopardising the viability of the investment property?

The reality is, many Aussie landlords are ‘Mum & Dad’ property investors with one rental, not professional property moguls with major portfolios, so they aren’t in a position to simply waive rent payments. But they don’t want to lose a good tenant either simply because of financial duress beyond their control.

If your tenant is facing financial hardship and paying their rent is a problem, here’s what you can do:

Act with understanding and compassion

Your tenant doesn’t want to be in arrears. For many, not being able to pay their debts is devastating and embarrassing. But if it comes to a choice between putting food on the table or paying rent, most will forgo the rent.

Talk with your tenant – they need to let you know they are having difficulty and it will be easier for them to be honest if they know you’ll show some sympathy – or empathy if you are also struggling.

A bit of open communication will go a long way to helping find a mutually workable solution.

Appreciate each other’s financial situation

You want to do the right thing (ethically and morally) for your tenant, but you also don’t want to sacrifice your own financial health.

Before you look at negotiating with your tenant, you should check that they are actually experiencing financial hardship. Follow the guidelines that your state or territory uses to assess financial hardship and eligibility for assistance. For example, ask for a letter from their employer stating they have reduced hours or from their ex-employer saying they have lost their job, or evidence of Centrelink applications.

Understand the legalities

Each state and territory has implemented temporary changes to residential tenancy legislation in response to COVID-19. You need to understand what measures apply to you. The temporary measures may dictate what you are obligated to do in terms of negotiation, rent relief/deferral and evictions. In most jurisdictions there is a moratorium on evictions due to rent arrears specifically related to COVID-19 financial hardship. However, the moratorium is only for eviction for rent arrears due to COVID-19, not a blanket moratorium on evictions if the tenant would normally be evicted for any other allowed reason. Importantly, the moratorium does not allow tenants to walk away from paying their rent – if they can’t pay now, they must pay later.

Investigate relief

Explore your options before offering rent reductions or waivers. What relief packages are available to tenants e.g. rent assistance packages, JobKeeper or JobSeeker payments? What relief is on offer for landlords, such as mortgage payment deferrals, IO payments or  government incentives. Landlords should speak with their tax agents/accountants about their options.

TIP: Some government incentives require landlords to work with tenants in order to access the benefits, so bear this in mind.

Don’t offer financial advice

Unless you happen to be a qualified financial advisor, you must not provide any kind of financial advice to your tenants (and even if you are qualified, it would be a conflict of interest to give advice to your own tenants!). You can’t tell your tenant to dip into their super, sell assets or take out loans, but you can suggest they check into what government assistance they may be eligible for.

Negotiate in good faith

Don’t play hardball, but don’t be walked over either. Most tenants will be eligible for some sort of support if their income has fallen and a modest temporary rent reduction may be all that is needed. The aim is to find a balance between your needs and those of your tenants at this time – your tenants need to keep a roof over their heads and you need to be able to pay your mortgage/bills on the property.

Work with your tenant to come to an amicable agreement. You may decide to temporarily reduce the rent, offer a deferral or waive the rent entirely for a specified period. Your state or territory measures may provide detail on these matters, such as whether you can recoup reduced rent later or charge interest on arrears.

Whatever agreement you reach, make sure it does not contravene legal requirements. If you can’t agree, a tribunal/rental authority may be your best recourse.

If you negotiate a reduced rent, deferral or waiver, make sure to document the agreement in writing, clearly setting out the details of the arrangement, timeframes and consequences for not meeting the obligations.

Check landlord insurance implications

It is important to understand that your actions in terms of offering rent reductions, deferrals or waivers may impact your ability to claim for rental losses on your landlord insurance. In general, re-negotiating the rental agreement is a matter outside of insurance and you cannot claim the difference between the former and new negotiated rent on your insurance, or claim for loss of rent if you agreed to a deferral or waiver. However, if the tenant defaults on the new rental agreement, you may be able to claim some losses. Because of the various changes to legislation on the back of COVID-19,, EBM RentCover is dealing with claims on a case by case basis.

No-one wants to find themselves in financial strife – and nobody wins by making things difficult for other parties. Take a human approach to communicating with your tenants and come to an acceptable and legal agreement. You may not ‘win’ but you might minimise your losses.

Main photo by Priscilla Du Preez on Unsplash

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions. 

You may also like

View all
10 property resources you need to know about
Insurance insights 10 property resources you need to know about

There’s no shortage of property info out there – much of it contradictory or with an underlying agenda – so what resources should you look to?...

21 Nov 2019 4 mins read
Drug labs in rentals: The signs to watch out for
Prevention Drug labs in rentals: The signs to watch out for

The harsh reality is… people looking to set up drug labs often target rentals. This is what you need to know...

31 May 2019 4 mins read
COVID-19 – a year on
Insurance insights COVID-19 – a year on

What landlords need to know 12 months on from the introduction of a nationwide moratorium on evictions…

21 Apr 2020 15 mins read
Get a quote Back to the top