Andrew Bruce: Long term landlords want long term tenants

Property investors are disadvantaged by the NZ tax system, says Andrew Bruce. Photo / Michael Craig

Opinion

There has been recent commentary in the media about providing greater security of rental tenure for tenants. With the rising number of people renting longer term, tenant groups and advocates have come out saying "landlords' have the ability to evict tenants in 90 days for no reason and no tenant in New Zealand can ever make the house their home because there's always this hanging over them".

Without going into details, it is helpful to understand there are two types of tenancies provided for under the Residential Tenancies Act: a fixed term tenancy (for an agreed term) and a periodic tenancy.

Under a periodic tenancy; a landlord generally must provide a tenant 90 days' notice (three months) to move out; this can be reduced to 42 days (six weeks) but only in specific circumstances.

Tenants have to provide their landlord with 21 days (three weeks) notice if they choose to move out. Clearly, the tenant has the greater flexibility with regards to giving notice to terminate a tenancy under a periodic tenancy agreement.

Under a fixed term tenancy, the term of this agreement is agreed upon between landlord and tenant, with an agreed commencement and termination date stipulated within the agreement. Rents cannot be increased during a fixed term tenancy unless negotiated between parties.

From my experience in renting properties, and having canvassed this matter with many other landlord's within the Auckland Property Investors Association, the common response I receive is the vast majority of our members prefer longer term (fixed) tenancies, however tenants prefer the flexibility of a shorter term (periodic) tenancy. I hasten to add this is not always the case, and certainly I've found with renting to either families or more executive style properties (i.e. $700p.w. and above) fixed term tenancies are regularly sought.

As a long term landlord I always seek long term tenancies. This is because I take a long term view of our investment properties, it makes sense to have a secure long term tenant and rental as this is our sole source of income from the property to pay ongoing costs associated with owning and managing our investment.

The experience I have had with longer term tenancies is you generally tend to have less damage to the property as furniture isn't being moved in and out continually and tenants start treating the property like their 'home'. Also longer term tenancies minimises vacancies which should be the aim of all property investors. Long term tenancies also provide certainty for tenants.

Currently, within our portfolio we have two tenants who have rented from us for nearly nine years and another who has been in a property we own for over 10 years. While these tenancies have been regularly reviewed to market rentals over the years, the tenants pay their rent weekly without fail and look after the property like it is their own. In return, while I do property inspections to ensure we meet the criteria set out in our insurance policies the tenants receive quite enjoyment and a secure environment which I'm sure they consider their home.

This poses an interesting conundrum, if landlords want security of tenure and tenants also want the same why aren't there more longer term tenancies?

To me there are probably two reasons this is the case:

Firstly I believe there is clearly a differentiation between long term landlords who treat their investment portfolio as a business as opposed to the shorter term speculator. I believe a speculator is more likely to want flexibility in a tenancy as they will be looking at the investment from a shorter term perspective and at some stage in the future likely to be seeking to obtain a capital gain through selling.

The second reason I believe long term tenancies are not so prevalent in New Zealand is from my and many other landlords experience, tenants regularly prefer the flexibility of being able to give 21 days notice and move. Feedback from property managers also confirms tenants generally will choose a shorter term more flexible (periodic) tenancy over a fixed term.

As mentioned earlier, the exception is families or tenants seeking executive style properties where security of a longer term tenancy is sought.

So where does this leave us?

If tenants are seeking a longer term tenancy from a prospective landlord, I would recommend they ask if the landlord is a long term investor and if so they are willing to commit to a long term tenancy.

Andrew Bruce is the President of Auckland Property Investors Association.