NSW Covid 19 - how would you handle this issue?

Hey guys, like many, my tenant in a 3bdr apartment in Bondi Beach is now behind on rent and looking for a reduction claiming they have had hours reduced and will be leaving if we don't reduce from around 950 to 700 a week.

It'd be a big hit for me as i'm living on the rent I receive from the property and not making much else at the moment - I do have a emergency fund though. I own the property I live in as well and just keep the one apartment to pay my expenses.

Our property manager is slammed at the moment but they're telling me to take the money and run because they think if NSW goes into lockdown that it will be hard to get a new tenant.

I'm seeing all this new support from Government coming through by the day (none of which I can access I think) so i'm reluctant to take such a big hit on the rent unless it's certain that I won't be able to get another tenant.

I know the tenant has been subleasing the rooms on Facebook and has made good money over the years off my property and I feel like this is opportunistic because they've provided no proof or anything to show their income has taken a hit due to covid19.

Property manager doesn't want to put too much more time into this and they are trying to get me to take the 700 and re-assess when things blow over. I'm concerned that there's no end date to the 700 a week and we can only re-assess month to month. The lease was in place until end of the year pretty much.

What would you do in my situation? Any advice much appreciated

 

Do you think you could release it and if so at what amount? I think this is what it comes down to for you. But you might also make a counter offer

 

I asked the property manager (CEO of big eastern suburb real estate agent) how quickly they could do a walkthrough and put it online for relisting if I said no to tenant and he told me he couldn't even tell me because he doesn't know what's happening with the NSW lockdown and he doesn't know when they could even get the tenant to vacate.

Tenant was originally saying 600 a week then they said they can go up to 700 but that's it. If we say no then we have to find new tenant.

Agent thinks i'm being dumb for thinking I could relist and get even 850 for it given the state of the market at the moment - but still 700 feels a long way to come down from 950. Still, these are not normal times. It's hard to know what the right move is

 

There is also no guarantee that the tenant will keep paying. Perhaps you could request them to explain how they could afford it. $700pw is a large amount for one person

 

If we agree to the 700 pw in the interim would we still be able to go for the bond if they decide not to pay or if they decide they don't want to go back to the rent amount that's in the lease?

 

This situation is evolving daily.

If you choose to accept the lower rent, put a time limit on it. Say for 4 weeks then will reconsider. Your PM should be able to word it legally, and get the tenant to sign.

 

It's an impossible decision isn't it. I'm quite lucky up where I am that most of my rents are quite low (e.g. $300wk) so the government benefits make it affordable for the average house of two. Your rent is quite a bit higher and I'd think you'd need more income to make it livable.

@Mel Morgan what have your experiences been down that way at the moment?

 

I think the big question is can you survive without any rent?. The worst case scenario is that you end up with $0 rent, or drastically reduced just to get someone in. It’s a gamble your going to have to take.

 

I could but depends how long. Do you think it's more likely to end up empty? Apparently lots of furnished airbnb's are coming back on to the rental market in bondi so that's what has me leaning towards taking the 700 and re-assessing later

 

I dont know the answer, but this tenant or in general, if they leave, where would they go? they still have to pay rent somewhere, albeit $950 is quite a high rent, how much would a 1bdr unit rent for?

 

There are loads of people who would love to rent your property at $1000 on Bondi beach. The agent is just wanting a secure income and spreading panic. In 2- 3 weeks time the social distancing will remain but Australians will be free to move around and visit properties. Australia has again proven to be the lucky country. The growth in cases has flattened. Plenty of people with jobs will move to Bondi to replace the guy you lost. Get as much rent out of this guy as you can over next 3 weeks, don’t drop the price and when he leaves rent it to somebody else. Your guy will move to more affordable lodgings and that will spur the economy in other ways. Don’t stress man, your property is wonderfully located. You need the money so you can continue doing your own thing and being free man.

 

1. Do you have landlord insurance? Most of insurance do cover rent default for certain amount or certain weeks
2. It is a uncertain time no doubt, it is not a bad idea to play safe when people know so little to the future. If I was you, I would sit down with the PM and the tenant, put down a "gentleman agreement" with each party, which agree on $700 for a certain amount of time. Then the rent will resume $900 or whatever you think it is suitable. This should give you more time to re-access you circumstance.
3. Of course, they could be fishing and try to exploit the situation. If you find out this is the case, tell them GTFO

 

It sound like the tenant has been there for many years, have they been a good tenant? This would impact my decision. I would also consider the state of the market, its not a great time to have a vacant now imo.

Perhaps the tenant is in a lesser position to pay, perhaps they are aware they can leverage the current situation. It doesn't really matter which one it is though right now..sometimes you're the hammer, sometimes you're the nail.

I like Terrys suggestion of a counter offer myself..

 

I'm dealing with situations like this daily (and I'm based in the Eastern Suburbs). Bondi Beach is a very transient suburb, reliant on a large overseas population, with a good portion in casual/hospitality type jobs.

Having said that, the first thing I would do is ask for evidence that their hours are reduced and certainty that they still have a set number of hours. I would also want to see whether they have considered govt incentives (I believe if hours are cut more than 20% then they are eligible for some of the Jobseeker payment) and potentially there's the wage subsidy coming.

Secondly I would have a really good look at the 3 bedroom unit market around you (or I'm happy to if you want to PM me) and decide where your property would have to be priced and how long the vacancy is likely to be. Say if its likely to re-let at $900pw, if you take into account 3 weeks of vacancy and 1 week of let fees plus advertising - that will cost you approx $150pw over 6 months or $325pw over 3 months.

If it was me, I would consider negotiating a new 12 month lease agreement that would make make rent say $700pw for 4 months and $950pw again for the remainder. This helps the tenant out but gives you certainty moving forward.

Of course lots of agents are swamped at this time and struggling to deal with this on a case by case basis and not putting the time into understanding tenants issues and negotating.

 

Another option I negotiated this week is a much smaller decrease (5%) and deferring a portion of the rent (40%) for 4 weeks till the tenant thinks they can get on their feet and then repayment of 20% per week. It really depends on the tenant's situation.

 

(if the tenant is genuine) I think you have just been asked by Scomo to negotiate. I wonder if the bank will forgo their margin.....

 

State and Territories will be moving to put a moratorium on evictions of persons as a result of financial distress if they are unable to meet their commitments, and so there would be a moratorium on evictions for the next six months under those rental arrangements.
Now, there is a lot more work to be done here and my message to tenants, particularly commercial tenants, and commercial landlords, is a very straightforward one — we need you to sit down, talk to each other and work this out about looking at the businesses which have been closed, businesses that may have had a significant reduction in their revenues and we need landlords and tenants to sit down and come up with arrangements that enable them to get through this crisis so on the other side, the landlord has a tenant which is a business that can pay rent, and the business is a business that can re-emerge on the other side of this and be able to go on and employ people on the other side of these arrangements.

(reported on the ABC news)

 

so what if tenant just decides to not pay, and then you can't get rid of them - do they just live rent free for 6 months and you have no recourse to get the money from them as a landlord?

 

I told our property manager before that I would prefer to negotiate a deferral rather than a reduction and they said: "They can’t defer. They won’t be able to repay. None of the tenants in this situation will be able to repay that kind of debt as this could go on for a long while. Regardless none of the tenants are being asked to repay. "