Introduction

Landlords in New South Wales sometimes find themselves in a pickle when tenants stop paying rent. Handling this situation well is key to keeping the property business financially sound and on the right side of the law. Tenants have to pay rent, but what can landlords do when the money doesn’t come in? There are straightforward steps to take when this happens, and legal paths landlords can follow to ensure rent is collected, and tenancies are managed smoothly. Knowing these can save a lot of headaches and keep the cash flow steady. It’s a bit like piecing together a puzzle, and just the right move can set everything in order. Curious to know how turning this tricky situation around looks? Read on to discover all the ins and outs.

Tenant’s Duty to Pay Rent in NSW

Tenants are legally required to pay rent promptly according to the schedule outlined in the residential tenancy agreement. This agreement details the amount of rent due, the frequency of payments (whether weekly, fortnightly, or monthly), and the duration of the tenancy. It is crucial for landlords to provide tenants with at least one payment method that is easily accessible and does not incur additional costs, aside from personal banking fees.

Landlords or agents can request up to two weeks of rent in advance but cannot ask for more than this amount. Additionally, landlords are not permitted to ask for subsequent rent payments until all previously paid rent is accounted for. This ensures that payments are managed fairly and without imposing undue financial pressure on tenants.

Every tenant listed on the tenancy agreement is jointly responsible for the rent and certain utility payments. This collective responsibility means that each tenant must ensure timely payment to avoid legal and financial consequences. Late or missing payments can lead to termination notices, complicating a tenant’s ability to rent in the future.

It is also important for landlords to understand that tenants must continue to pay rent even if they are dissatisfied with aspects of their tenancy, such as unaddressed repair issues. Stopping rent payments under such circumstances is not legally justified and can lead to significant consequences for the tenant, including potential eviction.

By ensuring these obligations are clearly communicated and upheld, landlords can maintain a stable and legally compliant rental environment.

What to Do When Tenant Refuses to Pay Rent 

When facing a situation where a tenant has stopped paying rent, landlords should take a structured approach to address the issue effectively while protecting their rights and property.

Review the Tenancy Agreement

First, review the terms of your tenancy agreement to confirm the rent amount and the payment schedule. Understanding the specifics of the agreement will guide your actions and ensure they align with the legal framework.

Communicate with the Tenant

When a tenant misses a payment, it’s crucial to approach the situation with understanding and a focus on resolution. If your tenant is only a day or two late, consider handling the matter outside of court, which is often the best and least confrontational approach. Evaluate the tenant’s previous behaviour—consistency with rent in the past and how well they have maintained the property can be indicators of their general reliability.

 The issue could stem from temporary financial hardships, such as job loss or unexpected medical bills. Engage directly with your tenant to discuss their situation. During this discussion, you might consider offering a temporary freeze on rent and setting up a structured repayment plan to ease their burden. This flexibility can sometimes be enough to help a responsible tenant get back on track.

However, it’s important to recognise that once a pattern of late payments begins, especially if the amounts become substantial, the probability of recovering these debts decreases. Your real estate agent or property manager should assist you in managing these discussions and any arrangements that follow. Ensuring there’s a formal agreement in place for any repayment plan is crucial to protect both parties and provide a clear path forward.

Document Communications and Breaches

Thorough documentation of any breaches by your tenant is crucial for protecting your property and your rights as a landlord. Maintaining detailed records of all tenant-related activities and communications not only helps resolve disputes efficiently but also serves as vital evidence should legal action become necessary due to rent arrears or other violations of the tenancy agreement. Benefits of documenting tenant breaches include:

• Monitoring Repayment Progress: Documenting breaches allows you to effectively track your tenant’s repayment efforts. This record-keeping will enable you to monitor their compliance with the tenancy agreement, helping you decide when further action might be needed if they fail to meet the lease terms.
• Evidence for Disputes: Maintaining written records of breach notices and communications with your tenant is invaluable during disputes. These documents can prove that the tenant was informed of the breach and had an opportunity to rectify the situation before you resorted to legal measures.
• Protection of Rental Income: By keeping accurate records, you can hold tenants accountable for unpaid rent and other lease violations, safeguarding your rental income. This documentation ensures that tenants are less likely to evade their financial obligations and helps maintain the financial stability of your rental business.

Consider a Repayment Plan 

If your tenant has expressed a genuine intention to repay missed rent, considering a structured repayment plan can be an effective solution. This approach not only demonstrates flexibility and understanding but also secures a plan for recovering the owed amounts. Below are the broad steps for implementing a repayment plan:

• Formal Agreement: It’s crucial that any repayment plan is formalised in writing. This written agreement should clearly outline the total amount owed, the schedule of repayments, and any other relevant terms tailored to the situation.
• Signatures of Both Parties: Ensure that both you (the landlord) and the tenant sign the agreement. This mutual acknowledgement legally binds both parties to the terms set out in the plan, providing a clear commitment from the tenant to adhere to the new payment schedule.
• Clarify Terms: The agreement should specify the duration of the repayment plan, the amount of each instalment, and the frequency of payments. Clearly stating these details helps prevent any future misunderstandings or disputes about what was agreed upon.
• Record Keeping: Keep a copy of the signed agreement for both parties. Having this documentation readily available will be useful for reference and in case any disputes arise later regarding the terms of the repayment.

A well-structured and mutually agreed upon repayment plan can help maintain a positive landlord-tenant relationship while ensuring that the rent arrears are addressed in a manageable way for the tenant.

Issuing a Termination Notice

Terminating a tenancy agreement due to non-payment is a significant step that landlords should handle with care and adherence to legal procedures. Here’s how landlords can proceed when a tenant fails to meet their rent obligations: 

• Serve a Non-Payment Termination Notice: Under Section 88 of the Residential Tenancies Act 2010 (NSW), landlords have the right to issue a termination notice for non-payment if the tenant has not paid rent or other charges like water usage and utilities for 14 days or more.
• Requirements for a Termination Notice: To ensure the notice is legally valid, it must:
  • Be in writing.
  • Be signed and dated by the landlord or their representative.
  • Include the address of the rental property.
  • Specify the date by which the tenancy is to be terminated and the tenant must vacate the premises.
  • State the reasons for termination, detailing the outstanding payments.
  • Inform the tenant that they can avoid termination by paying all overdue rent or by adhering to a repayment plan that both parties have agreed upon.
• Timely Issuance of Notice: While the termination notice can technically be issued any time after the rent is overdue by 14 days, it is crucial to serve it promptly to maintain the legal standing and urgency of the issue.

By following these steps, landlords ensure that they comply with the legal requirements, giving them a solid foundation if further action, such as eviction proceedings, becomes necessary. It also offers tenants a clear understanding of their situation and a final opportunity to rectify their payment issues, either by settling the dues or agreeing to a repayment plan.

Approaching the Tribunal for a Termination and Possession Order 

If you, as a landlord, face a situation where a tenant consistently fails to pay rent and all preliminary efforts to resolve the matter (such as negotiation or repayment plans) have been unsuccessful, you may need to take legal steps to reclaim your property. Here’s how you can approach the NSW Civil and Administrative Tribunal (NCAT) for a termination and possession order:

• Application to NCAT: Start by applying to NCAT for a termination and possession order. This is necessary when a tenant refuses to pay rent despite previous warnings and notices.
• Notice of Hearing: Upon submitting your application, NCAT will issue a notice to all parties involved, detailing the date, time, and location of the hearing. It’s crucial to attend this hearing as it determines the outcome of your application.
• Conciliation Encouraged: Before the hearing, NCAT promotes conciliation—a form of conflict resolution where a third party helps the disputing parties reach a voluntary agreement. This step is aimed at resolving the issue without a formal hearing if possible.
• Preparing for the Hearing:
  • Evidence Collection: Gather all relevant documents and evidence to support your claim. This includes the lease agreement, any correspondence with the tenant (including emails and letters), rent receipts, and records of any repayment plans offered to the tenant.
  • Presentation of Evidence: During the hearing, present your evidence clearly to demonstrate the tenant’s persistent non-payment and any efforts made to resolve the matter amicably.
  • NCAT’s Decision: After reviewing the evidence and considering the history of the tenancy, NCAT will make a decision. If they issue a termination order, they will set a date by which the tenant must vacate the property, granting you, the landlord, vacant possession.
  • Enforcement of the Order: If the tenant fails to vacate the property by the set date, you may need to take further legal action to enforce the tribunal’s order.

 Approaching NCAT can be a significant step, so it’s recommended to seek legal advice to ensure that you are fully prepared and your rights are protected throughout the process.

Apply for a Warrant for Possession 

If a tenant does not vacate the property despite a termination order from the NCAT, landlords have the option to apply for a warrant for possession. This legal document authorises a Sheriff’s Officer to enter the premises and physically remove the tenant. Here’s how to proceed:

• Application to the NSW Sheriff’s Office: Submit an application for a warrant for possession at your local NSW Sheriff’s Office. This warrant is necessary for legally enforcing the eviction of a tenant who refuses to leave the property after being ordered to do so by NCAT.
• Execution of the Warrant: Once granted, a Sheriff’s Officer will carry out the eviction. The officer has the authority to enter the premises and ensure that the tenant leaves, facilitating the process for you to regain possession of your property.
• Legal Compliance: It’s crucial to understand that you, as a landlord, cannot personally remove the tenant or their belongings from the property without this warrant. Entering the property to take possession without a warrant can lead to significant legal penalties. Under section 120 of the Residential Tenancies Act 2010 (NSW), unauthorised entry for the purpose of taking possession could result in a penalty of up to $22,000.

Put the Defaulting Tenant’s Name on a Tenancy Database 

As a landlord, listing a defaulting tenant on a tenancy database can be a significant step in managing your rental properties effectively. Tenant databases are managed by private companies and are designed to share information about tenant behaviours, specifically targeting those considered problematic. Here’s how they work:

• Purpose and Function: Tenant databases collect and distribute information about tenants who have been identified as ‘bad tenants’ by landlords, real estate agents, or residential park operators. These databases are distinct from credit reporting agencies, focusing solely on rental behaviour rather than financial creditworthiness.
• Access and Use: Real estate agents, landlords, and park operators can subscribe to these databases. Subscription allows them to access records about potential tenants and contribute their experiences with previous tenants. This system helps landlords assess the risk associated with prospective tenants based on their past rental history.
• Reporting Tenants: If a tenant fails to meet their rental obligations or breaches their tenancy agreement significantly, you as a landlord have the option to report this behaviour to a tenant database. This report can include issues like repeated late payments, significant property damage, or eviction for breach of lease terms.
• Legal Considerations: It’s essential to follow fair reporting practices. This includes providing tenants with a notice that they may be listed on a tenancy database due to their actions and giving them an opportunity to rectify the situation. Misuse of these databases can lead to legal repercussions.
• Impact on Tenants: Being listed on a tenancy database can severely impact a tenant’s ability to secure rental properties in the future, as their rental history will be accessible to any subscribed landlord or agent.

Using tenant databases responsibly ensures that other landlords can make informed decisions while also upholding the integrity of the rental market. It’s a tool for accountability, but it requires careful, ethical handling to ensure fair treatment for all parties involved.

General Guarantee of Tenancy Continuing

In New South Wales, tenants are provided a measure of security under the “general guarantee,” which ensures that a tenancy cannot be terminated solely due to late payments if certain conditions are met. This guarantee plays a crucial role in safeguarding tenants from eviction under specific circumstances. Here’s how it works:

• Catching Up on Payments: If a tenant manages to pay all outstanding rent and utility charges, the general guarantee protects their tenancy from being terminated on the grounds of those particular late payments.
• Compliance with a Repayment Plan: Similarly, if a tenant is adhering to a repayment plan agreed upon with the landlord for settling outstanding dues, their tenancy remains secure under the same guarantee.
• Application to NCAT: Should a landlord have already applied to the NCAT for a termination of the tenancy due to late payments, the Tribunal is precluded from issuing a termination order if the tenant catches up or adheres to the agreed repayment plan. Consequently, the tenancy will continue despite the application.
• Post-Termination Order Scenario: Even if NCAT has issued a termination order, but the tenant still resides in the property and subsequently settles the outstanding payments or complies with a repayment plan, the tenancy can continue. Under these circumstances, the landlord cannot enforce the termination order, nor can they utilise a warrant for possession to evict the tenant.

Exception for Frequent Late Payments

However, there exists an important exception to this guarantee. If a tenant habitually pays rent or utility charges late, NCAT retains the authority to order the definite end of the tenancy, regardless of whether the tenant eventually clears the overdue payments. This provision is intended to address scenarios where the tenant’s consistent late payments could signify a deeper, ongoing disregard for the tenancy obligations, thereby justifying a termination of the lease.

Landlords should be aware of these provisions to ensure they operate within the legal framework while managing their properties and addressing issues related to late payments.

Deal With Rent Arrears Effectively: Ensure Your Tenants Pay Their Rent

Handling tenant rent arrears requires a balanced approach that respects both the rights of the tenant and the financial interests of the landlord. From initial communication to possibly engaging with tribunal processes, landlords have multiple strategies to address non-payment of rent effectively. Ensuring thorough documentation and understanding legal entitlements and responsibilities is key to managing these situations with minimal conflict. 

For landlords needing further assistance or facing complex tenant issues, reaching out to a professional for legal advice can provide the necessary guidance to navigate these challenges successfully. If you require expert advice on managing tenant rent arrears or any other property management issues, PBL Law Group offers comprehensive support. Contact us today!