Rent payment issues during COVID-19
All Cubbi COVID-19 articles are in progress and will continue to update. We are actively improving Cubbi as you read this article. In the meantime if you have any questions please do not hesitate to contact us.
Last Updated: 15 June 2020
This is stressful time for everyone so please be patient with one another.
This article is for Owners and Tenants where there is problem with the tenants ability to pay rent.
The reason this article is written for both Owners and Tenants is because both need be educated to ensure you're on the same page. This will help you come to the best agreement possible given these difficult circumstances for everyone.
Thank you for reading this page and finding Common Ground - it's never been more important than right now.
Short story for the tenant: If you are having issues paying rent, although in some circumstances you may not be evicted for non-payment of rent during COVID-19, it's really important to remember the lease agreement still stands, you have an obligation to pay the rent and keep a good tenancy record. This is why you need to work with the landlord during this time so you don't face a large debt and a bad tenancy record at the end. The more proactive you are now the better everyone will be (and the better you will feel). We are here for you as well so please reach out if you need more clarity. Sorry if this comes across as blunt but we need to be upfront.
Short story for the landlord: Each state and territory are providing new support frameworks and guidelines for evictions which you should check out first if the rent is currently behind. Note: Not all states have released information yet however NSW, QLD and TAS did over the Easter break with other states likely this week. If you decide to reduce or suspend the rent it is highly unlikely you will be able to recover this loss through Landlord Insurance however the support frameworks being rolled out by state governments aim to provide support to those landlords who reduce the rent for their tenants effected by COVID-19 so it's worth check this information out first.
Prior to you both (owner and tenant) discussing these options below we highly recommend the tenant to clearly answer these 3 questions.
Here are your options, pick and choose what works for you. You might start from the top or combine them (eg Reduce the rent and go on a Payment Plan).
- Reduce the rent
- Suspend the rent
- Payment plan
- Break Lease
- Final Option (no agreement possible)
Please take this as general advice only as it does not take in your specific situation and your specific Landlord Insurance Policy.
Reduce the rent
What: The landlord agrees to reduce the rent owing by the tenant. This might be equivalent to a 3%, 5%, 10% or even a 50% reduction for a set time period (eg 3 months) or without a set end date.
Why: Perhaps the owner is in a position to help the tenant in a small way. Maybe the owner has saved on mortgage repayments due to the recent the RBA reducing the cash rate and is in a position to pass this onto the tenant. States and Territories are also releasing information on Land Tax relief for tenancies effected by COVID-19 - View media release for QLD.
How: The owner will need to contact us, tell us what you want to reduce the rent down to and for how long (or at the landlord's discretion) and we'll send out an agreement for everyone to sign so it's all crystal clear. Once signed we will make the rent adjustment in Cubbi. Rent will then be calculated based on the new rent amount and if the tenant is on Direct Debit, the payments will automatically adjust based on the new rent amount and Late Rent notifications would automatically adjust too.
Recommendation: This option may not be in the owners best interest because they are unable to recoup this loss in anyway as you have agreed to reduce the rent owing by the tenant, meaning you have no intension of ever getting that back from the tenant or from your Landlord Insurance. If you take this option, you may only like to reduce it by a small amount and combine it with a Payment Plan.
As a landlord, it's highly unlikely you will be able to recoup this loss of rent through Landlord Insurance as you have mutually agreed to reduce the rent.
Suspend the rent
What: Similar to reducing the rent, but in this case you reduce the rent to $0 due (not by a little bit but the entire rent owing) for a set time period or without a set time period (at the landlord's discretion).
Why: Perhaps the tenant was without an income for 2 weeks while trying to find their feet again after the initial impact of COVID-19 and the owner is able to help out by suspending/waiving the rent for a week.
How: Refer to 'Reduce the rent' as it would be the same process. Note that we can only suspend the rent for a period that has not yet been paid. For clarity, if the rent is currently 2 weeks late, as the owner you can choose to waive the entire 2 weeks.
Recommendation: Refer to Reduce the rent. Again this may not be in the owners best interest as they will not be able to recoup the cost/loss in anyway as it will not be a debit payable by the tenant therefore you can't recoup it from your Landlord Insurance.
FAQ: Will I as a Cubbi Owner still be charged Cubbi's Service Fees? No. We are here to support you and even so, you're protected by our T&C's that state we charge for the rent received (not owed).
Payment Plan (Defer payments) - New COVID-19 style - MOST RECOMMENDED
What: The owner agrees to defer rent payments, rather then reduce or suspend the rent owing. Essentially allowing the tenant to pay smaller amounts now but the unpaid rent would still accrue. For example if the rent was $500 per week, but the tenant can only afford $300 per week the owner and tenant might agree for the tenant to pay $300 per week now and the $200 left over each week would be paid back later.
Why: To help the tenant manage their cashflow to keep their home. In addition perhaps the owner is able delay mortgage repayments too.
From a landlord's perspective, if the tenant is unable to afford the rent and consequently falls a long way behind in rent and so you have to evict them (after the eviction freeze) it's highly likely that Tribunal will be reluctant to end the tenancy in this climate. They will want to be super clear on 1. What did you do to try and support the tenant? and/or 2. Was there a payment plan entered into? They will want to see evidence of this payment plan. If you cannot show this, it's high risk trying to evict your tenant for non-payment of rent (even after the freeze).
How: The owner and tenant need to have a very open conversation. (You can do this guys!). Start with the income the tenant stated on their application when they applied for the property. What was it? What is it now? What has happened? Why? and What have they tried to do to recover this income. Explore options like Centrelink payments (eg newly increased JobSeeker payments), the new $1500 per fortnight JobKeeper plan and or other work/income they can do/create now. You have to explore everything. Work together.
How (part 2): After you have discussed and worked through the above, contact us and we will create a new type of payment plan that will outline all the above information. This will show Tribunal and your Landlord Insurance provider evidence that you have tried to support your tenant and reduce the risk or loss of rent. This is critical.
Recommendation: As a landlord, if you want to recoup the loss this is probably your best option. The tricky part (and somewhat unknown yet until insurance companies and state governments provide more information) is that, from the advice so far, as this (Payment Plan) is a mutual agreement between the owner and tenant it's unlikely your Landlord Insurance provider will cover you for the total loss HOWEVER on the flip side they also want to see that you have minimised the loss, plus tribunal will want to see evidence of what you have done to support them in this time (if it ever comes to evicting the tenant this year, after the freeze). As you can see it's real balancing act. You might find that your Landlord Insurance provider will cover you for a portion not the entire loss of rent. It's worth talking to your Landlord Insurance provider.
As a landlord, as this is still a mutual agreement your Landlord Insurance may not cover you for any loss incurred.
Ideally if you can wait a little longer to find out more details around Tenancy Evictions: COVID-19 and how your Landlord Insurance policy will respond, it might be better not to put something in writing at this stage.
Alternative short term fix: Make Direct Debit Optional. If the tenant is paying via Direct Debit right now, to help ease their cashflow problems today the owner could give tenants more flexibility as to when they make payments, by making Direct Debit Optional, at which point the tenant is able to cancel their Direct Debit schedule within Cubbi and start paying rent via NPP (Instant Payments) or BPAY at a time and amount that suits their cashflow. Recommend if the tenant is diligent and genuine in their ability and desire to ensure rent is paid.
What: This is where the tenant ends the tenancy early (during a fixed term lease) and moves out. This will cost the tenant but given the current climate the owner and tenant might be able to come to a mutual agreement to help both parties move on.
Why: If the tenant is clearly not able to afford the rent ongoing and the landlord is not able to reduce the rent or go on a payment plan perhaps it's better to be proactive about this and work together to end the tenancy amicably. This way the tenant can move to a cheaper property without getting a bad record, effecting their credit rating and being listed on TICA or NTD (tenant database) as long as rent is not owing after the bond.
How: Based on the existing Break Lease rules the landlord and tenant should have a conversation about the compensation and notice period the tenant should provide to the owner. Simultaneously, the tenant could assist the owner to find a new tenant (by helping with inspections, Video Walk Through etc) while the owner helps the tenant get a new home (by providing a good reference). This might be a good win-win. Obviously it's not ideal moving home right now but it might be in everyone's best interest. The landlord should continue to follow the instructions here: Break Lease.
Recommendation: This should be a second last resort because we need to all work together to reduce people movement.
Final Option (no agreement possible)
If it's impossible for the landlord and tenant to come to a civil agreement and the tenant falls too far behind in rent at this stage it's best to check out Tenancy Evictions: COVID-19. Depending on your state, you will either need to follow new COVID-19 procedures (by using the free mediation service provided by the Tribunal) or follow normal eviction procedures. Each state is slightly different so you can check yours here.
As a landlord you should also check the requirements of the Landlord Insurance provider (policy) so you are in the best position to recoup some or all of the costs through Landlord Insurance. By this we mean, it's likey the best option to send normal eviction notices (for non-payment of rent) and apply for tribunal (within the normal time frames), even if Tribunal cannot action it. It will be your evidence that you have minimised the loss and followed guidlines of your policy. Keep updated here: Tenancy Evictions: COVID-19
Learn about How to find a new tenant during COVID-19.
Please contact us if you need to talk to us. We are here for you and will of course update this as more news comes to light.