Times they are a-changin’

Rental AgreementThe Victorian State Government has put forth “an unprecedented package of tenancy reforms” in a bid to making renting “fair”. How are these changes likely to impact insurance?

A quarter of all Victorians live in rental accommodation, with around one-third of private tenants considered to be ‘long-term’, having rented continuously for over 10 years. With this number set to increase as it becomes harder for people to break into the housing market, and in recognition of how the market has changed in the past two decades, the State Government began a review of the Residential Tenancies Act 1997 in 2015.
Consumer Affairs Victoria received more than 4,800 public comments from individuals and organisations as part of the review’s consultation process. In October this year, the State Government released details of the reform package (www.RentFair.vic.gov.au).
The rental fairness package, which gives tenants more rights, introduces longer leases, and reduces bonds among many other initiatives, has been both applauded and condemned by interest groups and industry.
Six areas will undergo reform and while many of the changes may have little impact on insurance, others will – and we detail the possible implications of some of the measures:
  1. Pets
    Tenants will have the right to keep pets. The landlord will only be able to refuse consent if it is reasonable to do so.Insurance impact: landlords will need to ensure they have cover that includes pet damage or risk footing the bill for any damage that cannot be recouped from the tenant. Many landlord policies exclude claims relating to pet damage or have onerous claims conditions (all RentCover policies provide up to $65,000 in pet damage and inspections to be carried out).
  1. Modifications
    Tenants will be able to make “non-structural modifications” to the property. A landlord will not be able to unreasonably refuse consent if a tenant asks to make minor modifications. Examples of minor modifications include installing picture hooks, air conditioning or reasonable security measures.Insurance impact: may increase the risk of accidental damage at the property, in some instances insurers may consider the modification to be deliberate damage and reject a claim (RentCover considers most deliberate damage to be accidental). If certain works (for example plumbing or electrical) are not carried out by licensed professionals, the landlord’s insurance may be voided.
  1. Bonds
  • An updated bond cap and up-front rent cap for most properties of one month’s rent; the only properties to be excluded are high-value properties that are rented out at more than twice the median weekly rent ($760), or where the landlord has obtained permission to charge a higher bond.
  • Automatic bond repayments within 14 days: either party to a tenancy will be able to apply for all or part of the bond without the other party’s agreement. Disputes must be lodged within 14 days; if no dispute is raised, the bond will automatically be released to the applicant.
  • Earlier release of bond money by agreement before the end of a tenancy, where the parties have agreed to a division of the bond.
Insurance impact: with bond amounts lowered, landlords may risk being further out-of-pocket if a tenant defaults on the rent or damages the property, as frequently the bond is insufficient to cover the costs incurred (RentCoverUltra and RentCoverPlatinum policies require a bond equivalent to at least 4 weeks rent regardless of what is allowed under legislation). Landlords may need to check their policy provides for loss of rent and understand any limitations, conditions or restrictions on claims etc. as well as minimum bond requirements.
  1. Rent security
  • Removing the 120-day “no specified reason”’ notice to vacate: landlords will have to give a reason to end a tenancy.
  • Limiting the use of “end of fixed term” notices to vacate; this will require landlords to provide reasons for terminating a tenancy; tenants with “end of fixed term” notices will be able to give 14 days’ notice to leave and cease paying rent.
  • More than 30 changes to how and why tenants can be evicted or given notice to vacate are being considered. Currently tenants are given 60-90 days to vacate a property once the landlord decides to end a lease; the Government is considering extending this period to 182 days.
Insurance impact: any extension to the period of notice to vacate a property has the potential to increase the risk of rent default or malicious damage if the tenant retaliates against the notice (RentCover provides up to 52 weeks’ cover for loss of rent depending on the circumstances and up to $65,000 in accidental/malicious damage cover).
  1. Rent pricing
  • Capping rent increases to once every 12 months instead of every six months.
  • A crackdown on rental bidding: agents will have to advertise properties using a single price and, along with landlords, will not be able to solicit rental bids from prospective tenants.
Insurance impact: Nil
  1. Tenant rights
    A landlord and estate agent blacklist.Insurance impact: may influence whether an insurer will agree to issue a policy if the applicant is on the blacklist (may also affect premiums).
In order for these reforms to come into effect, the Residential Tenancies Act 1997 needs to be amended. The amendment process is underway and it is anticipated the legislation will be introduced to Parliament in 2018.
When it comes to insurance, the provision of cover and the costs of premiums are determined by risk. Any measures that may increase the risk of providing coverage could ultimately result in higher pricing or limitations on cover being imposed. Insurers catering to the landlord and residential housing market, like others in the property industry, will closely monitor the impacts any changes to the legislation have.