My tenant has been impacted by COVID-19 and has requested a rent reduction – how do I handle this situation?

Has your tenant requested to pay less rent or pause their rent entirely due to the economic impacts of COVID-19? 

The harsh reality is that the pandemic is having a visible effect on the rental market as incomes become stretched and job losses mount. If you are a landlord with a residential investment property, you – or your property manager – are going to require some measure of flexibility to deal with this unprecedented challenge. You should also be aware that we are currently in a renters market, so you should be looking to renew any existing tenant, primarily to avoid having your property sitting vacant. 

Let’s start by looking at how to deal with a tenant who has requested a rent reduction due to COVID-19. 

COVID-19 rent reduction considerations

Here are the steps to determine if your tenant is impacted by COVID-19, and the approach to take with them. 

• If your tenants approach you indicating they are experiencing rental stress due to COVID-19 then you should engage with them and try to find a mutually beneficial solution, rather than enter into a dispute. Negotiations are actually mandated by many jurisdictions under Covid-10 specific legislation, and it’s always best to avoid formal dispute resolution methods, as the systems tend to be clogged up. 

• The first step is to determine if the tenant has been affected by COVID-19, and if their request is reasonable? Here you should look to obtain proof, including documents like pay slips, bank statements and more to asset their capacity to pay rent. If they have been made redundant or stood down they could have formal notice from their employer and/ or be on JobSeeker or JobKeeper payments. You also need to make yourself aware of termination moratoriums, which have been extended in most state’s and territories. 

• Take the time to understand the options available to you, as a landlord, to help ease your own financial burden. This could include a pause on loan repayments, or taking advantage of any government incentives that apply where you live. If you have landlords insurance what/if any of your determined rental income loss can be claimed through your insurance? 

Ultimately you need to carefully consider what position you would be in if the tenant vacated because you denied them a rent reduction. Consider that the current market value of your property is probably less than what they’re paying – due to the effect of COVID-19 on the rental market. These costs should be compared with what the tenant is asking for in terms of a rent reduction. Also appreciate the short-term goodwill helping your tenant out, and how this may advantage you in the future. 

Negotiating a rent reduction with your tenant

Not sure how you should go about negotiating a reduction on your tenants rent, what’s “normal” and how should you go about structuring it? Ideally any rent reduction should be for:

• A written agreement between you and your tenant.
• A clearly defined timeframe, like 3 – 6 months. Anything less, and you’ll find yourself constantly in negotiations, and it’s hard to forecast longer than that. 
• A reduction rather than a deferral, as deferring rent could mean your tenants racks up a debt that they may not be able to pay.

COVID-19 assistance for landlords

You should be aware that there is COVID-19 assistance available for landlords. 
The first step is to talk to your home loan provider who may allow you to make changes to the loan or even pause loan repayments temporarily. There are also concessions available for landlords in some states, with Victoria offering a $500 million Land tax relief package for landlords who offer rent reductions to their tenants. This is also the time to contact your landlord insurance provider for clarification around their policy criteria, and what exactly you are covered for.

COVID-19 government assistance for tenants

Federal government financial assistance for tenants includes the:

• JobSeeker Payment (formerly NewStart), for people who have lost their jobs.
• JobKeeper Payment, for people retained by their employer.

Individual states and territories have also produced short term assistance packages specifically aimed at tenants, but some of these have closed and were only designed to cover the first wave of the pandemic. Most states initially banned evictions for six months commencing in March, but only if tenants have been impacted by COVID-19. That period will run out in most jurisdictions at the end of September. Currently the following COVID-19 specific programs are still active in the various states/territories:

Individual states and territories have also produced short term assistance packages specifically aimed at tenants, but some of these have closed and were only designed to cover the first wave of the pandemic. Most states initially banned evictions for six months commencing in March, but only if tenants have been impacted by COVID-19. That period will run out in most jurisdictions at the end of September. Currently the following COVID-19 specific programs are still active in the various states/territories:

• In NSW the assistance package and COVID-19 legislation ended on 13 June 2020. Fair Trading is now advising for negotiated rent reductions if a tenant can’t pay their rent due to COVID-19 after that date. Landlords must also try to negotiate a reduced rent with the tenant.
• Renting laws in Victoria have changed – and apply until 26 September 2020, to enable tenants to ask for a rent reduction. They can also go to dispute resolution or apply for an order to change their rent. 
• Similar laws apply to tenancies in Queensland, and apply until 29 September 2020.
• Tasmania has extended its emergency legislation to 30 September 2020, which covers evictions, rent increases and encouraging mediation. 
• In SA there is a short-term moratorium on eviction for non-payment of rent due to severe rental distress as a result of COVID-19, which also prevents landlords from increasing rent. This applies for, ‘the duration of the declared emergency period as a result of COVID-19’.
• The ACT government has extended the moratorium on eviction to 22 October 2020, and tenants can also now terminate a fixed-term tenancy without penalty. 
• WA has a Residential Tenancies Mandatory Conciliation Service, as well as a Residential Rent Relief Grant Scheme, which both currently run through to 29 September 2020. 

Unsure how to negotiate with tenants at this point in time? Partner with an experienced property manager like us and we can help you interact with them in a fair and professional manner – ensuring your investment is protected throughout.