Dog with gavelTimes they are changin’ in Vic – and maybe in NSW too

The Victorian State Government has passed a slew of reforms that give more rights to tenants. The new legislation will come into effect in July 2020 and landlords and agents need to be prepared for the changes which may have an impact on insurance cover.

On 6 September 2018, “the biggest reforms to renting in Victoria’s history” passed through the upper house of Parliament, heralding changes that would give tenants more rights – much to the chagrin of many including some landlords, peak bodies including REIV and property pundits who claim the changes erode the rights of investment property owners to have a say about what happens at their rental.

It is expected the changes – which “strengthen renters’ rights, better protect vulnerable tenants and enable people to turn the house they rent into a home” – will come into effect on 1 July 2020.

Set out under six themes, a number of the 134 reforms could impact landlord insurance cover:

  1. Pets
    Landlords will no longer be able to include a no-pets clause in any rental agreement and can only stop tenants from keeping a pet by obtaining an order through the Victorian Civil and Administrative Tribunal (VCAT). The changes give tenants the right to keep pets, provided they get the landlord’s written consent first. Landlords will not be allowed to unreasonably refuse a request for consent and in the case of assistance dogs cannot refuse at all. The onus will be on the landlord to get approval from VCAT to refuse consent to a pet, once they have received the request from the renter.

    Insurance implication: While the reform notes that “an outgoing tenant may be required to undertake cleaning and fumigation if there is pet-related damage to the property that goes beyond fair wear and tear”, landlords may expect to rely on their insurance cover for any costs associated with pet damage that cannot be recouped from the tenant. Landlords will need to ensure that they have cover that includes pet damage as many insurers do not offer this cover. Unlike many landlord policies, RentCover policyholders have automatic cover for domestic pet damage, up to $65,000 (some insurers only provide up to $6,000 or no cover at all). RentCover also only requires the pet to be owned by the tenant and not necessarily listed on the lease, as is the case for some insurers that offer pet damage cover.

  1. Modifications
    Renters will be able to make “prescribed minor modifications” to the property without first obtaining the landlord’s consent. A definitive list of what is considered minor modification is yet to be released (the State Government intends to consult with stakeholders about all of the reforms); however, it is likely to include such things such as allowing hooks to be placed in walls to hang pictures and interiors to be painted. Other types of modifications (including disability-related modifications) will require the landlord’s consent, which cannot be unreasonably refused.

    Insurance implication: The legislation notes that the tenant is responsible for restoring any changes made to the property, and will be able to lodge a restoration bond to cover the future removal of fixtures. However, if the bonds (standard and restoration) are insufficient, the landlord may expect to rely on their landlord insurance cover. Modifications (minor or otherwise) made without the landlord’s consent were previously considered by many insurers to be ‘deliberate’ or tenant-related damage. Many insurers do not offer cover for this type of damage. RentCover considers tenant damage claims on a case-by-case basis. Any type of work at the property increases the risk of accidental damage too, and landlords will need to check they have cover for this as some insurers only offer this as an add-on. Certain works also need to be undertaken by licenced trades, such as plumbing and electrical, and failure to do so could void the insurance.

  1. Bonds
    Bonds will be repaid if both tenant and landlord agree within 14 days. The bond can be released up to 14 days early before the tenancy is over (up from seven days).In addition, bonds for rents less than double the median weekly rent (totalling $760) can only be four weeks’ rent. And reimbursements for urgent repairs need to be made within seven days (down from 14 days).

    Insurance implication: 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. Landlords may need to check their policy provides for loss of rent and understand any limitations, conditions or restrictions on claims etc.

  1. Rent pricing
    Rent increases will only be allowed once every 12 months (as opposed to every six months) and rental bidding will be prohibited.
  2. Insurance implication: Nil

  1. Rent security
    The 120-day “no specified reason” notice to vacate has been removed and landlords will only be able to end tenancies via an “end of fixed term” notice to vacate at end of the fixed term. Misleading or deceptive conduct inducing a person into renting a property will be prohibited. Mandatory pre-contractual disclosure of material facts, such as an intention to sell the rental property or the known presence of asbestos, will also be required.

    Insurance implication: 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. Tenant rights
    A commissioner for residential tenancies will be appointed. A non-compliance register will also be established, blacklisting landlords and agents who fail to meet their obligations.

    Insurance implication: May influence whether an insurer will agree to issue a policy (landlord or Professional Indemnity for an agent) if the applicant is on the blacklist and may also affect premiums.

Impact on premiums

There has also been the suggestion that these new reforms will mean all insurers will increase premiums, given the potential extra costs relating to damage in particular. A number of landlord insurers do not currently provide cover for damage caused by pets, and for those insurers that look to introduce cover, there may be revised premiums to suit. When it comes to modifications, the changes to the law may affect the way insurers charge landlords but this would depend on the changes made and whether amendments to bonds were made to take these into account.

The new rules may result in more disputes heading to VCAT (such as not wanting to allow pets, disputes over entry-condition reports and if a landlord is slow to fix urgent repairs etc.). This in turn, may require more landlords and agents to access the legal costs covers in their policies.

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.

At this time, no insurers have announced immediate plans to increase premiums or revise policies. However, all insurers will follow the progress of the reforms as more detail becomes available.

New South Wales

Within a fortnight of the Victorian reforms passing into legislation, the NSW State Government introduced a number of changes into Parliament proposing “sweeping reforms for tenants’ rights”.

Key proposed changes under the Residential Tenancies Amendment (Review) Bill 2018 include:

  • The ability for tenants to make minor alterations to properties.
  • The introduction of a new minimum standard for properties.
  • The ability for tenants to get rectification orders from Fair Trading for repairs.
  • Restricting rent increases for periodic leases to once a year.
  • The ability for victims of domestic violence to break a lease without incurring a penalty.

As with the Victorian reforms, there may be implications for insurance if the Bill passes into law. RentCover will continue to monitor these and any other proposed changes to residential tenancy legislation across the country.