Otago Property Investors Association Inc

03 477 6220

otago@nzpif.org.nz

News & Updates

Recent updates

24-05-2009

Rent arrears - Application and Beyond

Rent arrears - Application and Beyond

Read this article in conjunction with this flow chart.  The numbers on the paragraphs relate to the chart.

1 There are two sections in the RTA that apply to rent arrears- section 55 and 56. Section 55 is when the rent is more then 21 days in arrears at the time of application i.e. if the rent is paid up to the 7th of the month, the application cannot be made before the 29th of the month. If the tenant has part paid the rent or missed at week (or a day) here and there, the total owing must be greater then the equivalent of 3 weeks rent based on the daily rent. Under section 56 a 10 day notice can be issued as soon as the rent is in arrears (provided that the rental agreement has a clause in it saying the rent must be paid in advance) i.e. if the rent is paid up to the 7th of the month on the 8th you can issue a 10 day notice (when making a application, remember to allow for delivery time of the 10 day letter- 4 days for post, 2 days for personal delivery on top if the 10 working day period). Keep a copy and note method of delivery.
 
2-5 Once the 10 day notice has been served, you can make an application to the tenancy tribunal forthwith - you don’t have to wait until the 10 day notice period has expired. Tenancy Services will schedule mediation just after the expiry of the notice period. However the tenant will receive notification of the appointment before the 10 day notice period is up, reinforcing the 10 day notice.
 
3 If the rent is more than 21 days in arrears, no notice needs to be given to the tenant. The landlord makes the application directly to the Tenancy Services section of the Department of Building and Housing for an order for rental arrears (including the bond to be paid to the landlord to offset arrears) and termination. The difference under the act is that under section 55, if the rental arrears are proved to be in arrears by more than 21days at the time Tenancy Services receives the application, the act states the tribunal adjudicator will terminate the tenancy, while under section 56 the adjudicator may terminate the tenancy.
 
6 At mediation, if an agreement is reached to pay off the arrears by instalments, have it specified how the tenant is going to do this and ask the mediator for a “consequence” clause to be included.
 
Typical wording of a consequence clause can be
  1. All money paid will go first to current rent and then to arrears.
  2. If any payment of arrears is not made within two working days of the due date then :-
    1. the tenancy will terminate within seven days of the missed payment by written notice from the landlord,
    2. vacant possession will be granted to the landlord,
    3. the remaining arrears will be due and payable in full immediately,
    4. the parties confirm that it is fair and reasonable to terminate the tenancy in the circumstances.
  3. Clause two applies until the arrears are fully repaid.
 
The effect of this is that it gives the tenant one last chance to stay in the tenancy while limiting the debt to the landlord. The termination period should be as short as possible and no more than seven days, as the landlord is unlikely to receive any more rent monies after the termination notice has been issued.
 
7 If there is no agreement at mediation, then the matter is scheduled for a Tenancy Tribunal hearing. At this stage it moves from the jurisdiction of Tenancy Services to the courts section of the Ministry of Justice. If the application has been made under section 56 and if the debt is proven, the order is normally made for a specific dollar amount and termination may be granted or conditional upon specified conditions. No new matters can be raised at the tribunal unless allowed for by the adjudicator. So make sure your original application includes all matters you wish to raise.
 
8 If the application is made under section 55 and the debt is proven, don’t forget to have a pre-printed bank deposit slip (out of the back of your chequebook) so the bond payment can be processed. If the tenants are in occupation of the rental property even an order for immediate termination has a two day working day stand down (to give them a chance to appeal) unless there special circumstances.
 
9 If an agreement is reached at mediation ask for the agreement to be sealed. This is the mediated order is signed and stamped by the Tenancy Tribunal adjudicator. This gives it the same legal power as an order made by the Tenancy Tribunal.
 
10-11 Monitor payments closely and if the tenant defaults issue the written termination notice under the terms of the mediator’s order. Note that to enforce termination of the tenancy the landlord must apply for enforcement within three months of the first breach of the agreement. To avoid confusion, personally deliver the notice and keep a copy with a note of date and time of delivery. In the notice include a specific date and time of termination.
 
12 At the end of the notice period check to see if the tenant is still in occupation. If in doubt check letterbox for aged mail, and after knocking on the entrance door, look in windows to see if the tenant’s chattels are still there. If there is any doubt stick a bit of sellotape across the entrance door and door jamb (to see if there is anybody coming and going). Call back later to check. If it is after the termination expiry date and time you can enter and check.
 
13 For enforcement of the Tenancy Tribunal, order you need to go to the Collections Unit of the Ministry of Justice. You need to have the order with you and to pay any fees (which are added to the cost of the debt) and supply a current address to have the court papers served. A photograph of the debtor is very helpful for enforcement. If the tribunal order is for money only, go and see the tenant and make arrangements to pay pointing out that the collection costs are added to the debt and it could lead to the debtor’s belongings (including car) being taken to pay the debt.
 
The different orders you can apply for are:-
  1. ‘Possession of Land’- the bailiffs (including the police if necessary) will remove the tenant from the property and give the landlord possession. There is no fee for this and it has priority.
  2. ‘Default Summons’-fee $55 –this is where the bailiffs go to the debtor and demand payment. If no payment is forthcoming the bailiffs will impound and auction some of the tenant’s possessions to pay the debt. This happens after they call and demand payment. Often you have to prove ownership as the tenant’s possessions can be under hire-purchase, joint ownership, etc.
  3. ‘Order of Examination’-fee $90- this is where the tenant’s income and expenditure are examined with a view to arranging a court ordered periodic payment (weekly, fortnightly) which is deduced from the debtor’s income source before they receive it.
 
14 If the tenants have left, take possession. If all the keys have not been left behind, change locks. If there are tenant’s goods left behind, damage done or the property is not reasonably clean, keep note of costs to make a further application for costs order against previous tenants. With abandoned goods, throw out foodstuffs and remove everything else (after taking photographs and making an inventory) to secure storage and apply for a disposal order (with the costs order). It is surprising how a worn pair of jeans can become a $400 designer pair of jeans if thrown out without a disposal order.
 
15 Once all issues are settled, find previous tenants and enforce debt.
 
16 If the tenant is in occupation at the end of the notice period, immediately apply for a ‘possession of land’ order and at the same time also apply for either a distress warrant or an order of examination. This is because the consequence clause in the mediated order said if the tenant defaulted; the whole (remaining) debt became due and liable. The effect of this is that the debtor is served with the distress warrant or an order for examination before they leave the tenancy thus saving the problem of finding them once they leave and supply the new address to collections.

Tags:

comments powered by Disqus