Landlords seek better systems for handling rent arrears

Rent arrears claims are clogging up the Tenancy Tribunal, sparking calls for a separate division to handle these cases remotely, without time-consuming in-person hearings.

The New Zealand Property Investors Federation (NZPIF), Ministry of Business, Innovation and Employment (MBIE) and the tribunal recently met to discuss hearing timeframes, and the prospect of a new division dedicated to rent arrears applications.

The federation said the time taken to secure a tribunal hearing, even for a simple rent arrears case, placed an unfair financial burden on landlords through no fault of their own.

According to tribunal data, at the end of February the average wait time from submitting an application to securing a hearing was just over nine weeks. The average wait time for mediation, a first step in the process, was just over five weeks.

NZPIF vice-president Peter Lewis said the existing system could be too slow for landlords dealing with accumulating unpaid rent, often leaving them with significant financial burdens while waiting for a resolution.

The long wait times meant, on average, a tenant could live rent-free for up to 55 days – or nearly two months –before the matter was resolved.

“For landlords, even with a maximum bond claim, unpaid rent then exceeds the bond amount, leaving them struggling to pay their own unavoidable costs,” Lewis said.

Figures based on tribunal data reveal that in the first two months of last year, landlords faced about $1.3 million in unpaid rent arrears.

Most of the tribunal’s arrears orders were for amounts between $2,000 and $3,000, with some reaching up to $10,000.

The loss to the industry each year is well over $100m, tribunal figures show.

One factor affecting wait times is the volume of arrears applications lodged with the tribunal. It received more than 29,000 applications last year, a 14% increase on the previous year and a 43% rise from 2022.

MBIE and the tribunal agreed to examine in more depth the statistics relating to rent arrears applications before they meet with the federation again to discuss any suggestions landlords might have to improve the tribunal’s processes.

The causes

In the fourth quarter of last year, 62.25% of the 6,093 landlord applications to the tribunal were for rent arrears.

This suggests about 6% of all tenancies are going into arrears and about 2% of landlords every quarter take rent arrears cases to the tribunal.

But it is not clear how many landlords bypass the tribunal and come to an arrangement with tenants over arrears or fail to collect missed rent payments.

Nor is it known how many tenants are getting into arrears at multiple properties.

While the numbers are not huge when compared with the number of rental properties throughout the country, it adds up to a big financial burden on landlords, the federation said.

Despite the wait times, Tenancy Tribunal hearing timeframes compare favourably with other tribunals, said Katie Gordon, MBIE’s dispute resolution national manger.

MBIE, the Justice Ministry and the tribunal are continuously monitoring resourcing levels and opportunities to streamline the tribunal’s delivery, to provide a timely and quality service while also managing cost, she said.

While 63% (18,557) of the applications to the tribunal last year included matters relating to rent arrears, those applications usually involved other issues such as compensation or claims for the bond.

When an application included other matters, this contributed to the complexity of a case and therefore the time needed to determine it, Gordon said. 

Other causes of longer wait times included incomplete information being provided with applications, adjournment requests, amended claims, cross claims or late filing of evidence.

Streamlining the tribunal

Gordon said changes had been made to streamline tribunal decisions and these included greater use of remote hearings and improvements to scheduling.

During February, remote hearings by phone and videoconference were held about seven weeks after the application was lodged.

Other options included FastTrack Resolution – an accelerated channel for securing a tribunal order for straightforward matters where the landlord and tenant agree on how to manage the rent arrears.

An enforceable order could be obtained within five days or less after filing the application.

Landlords made 1170 FastTrack Resolution applications last year, an increase of more than 80%.

Despite this, the federation said it was sounding the alarm and pushing for MBIE and the Justice Ministry to consider a separate division of the tribunal to handle simple arrears cases.

It put the idea to all political parties before the 2023 election. Since then, the issue has been bounced from the Justice Minister to the Courts Minister and then to Housing Minister Chris Bishop, who has now delegated it to associate minister Tama Potaka.

Serious cases

NZPIF PR and advocacy manager Matt Ball said tribunal wait times were an issue for both tenants and landlords.

“The tribunal is being clogged up with what essentially are minor cases and more serious cases are taking much longer than necessary to be heard.

Many rent arrears cases do not require the nuanced adjudication that other tenancy disputes might,” he said.

Ball said NZPIF’s argument is that it’s a  straightforward matter: either a tenant has or hasn’t paid the rent. There is little room for dispute, and it is not a complex legal issue.

“If you haven’t paid rent for three weeks, then that can have a severe consequence for the landlord who must keep paying the mortgage and other outgoings on the property.

The process of recouping the arrears could take a significant amount of time that added to the money lost.”

Gordon said MBIE appreciated that wait times for tribunal hearings were a concern for landlords, particularly for rent arrears cases where the debt could continue to grow while applications await resolution.

However, the tribunal prioritises matters that involve threats to personal safety or property, followed by matters such as rent arrears that involved ongoing tenancies.

“Prioritising rent arrears applications over other types of applications for ongoing tenancies would result in those applications having longer wait times,” she said.  

“That would include those from tenants about health and safety matters and compliance with Healthy Homes Standards, for example.”

Changes burden system

Under current regulations, landlords cannot bring a case for tenancy termination until the rent is at least 21 days in arrears.

Stories abound of landlords struggling to evict tenants with large arrears due to lengthy tribunal processes, impacting their ability to relet the property and causing cashflow issues, said David Faulkner, Property Brokers property management general manager.

According to Lewis, mediation – intended as an initial step for dispute resolution – often fails when tenants refuse to participate. In such cases, the matter proceeds to the tribunal, adding at least two weeks to the process.

Part of the problem is because the former Labour government changed the Residential Tenancies Act, he said.

Previously, s 55 allowed for mandatory termination orders when arrears exceeded 21 days. “Labour’s amendments to the RTA in 2021 introduced conditional orders, creating a less definitive process that often required hearings, further burdening the system.”

Another problem was when tenants came to an arrangement to pay their rent arrears and then reneged. Landlords then had to go through the whole tribunal process again.

“It really drags out the whole system. We want to see a return to more unequivocal language,” Lewis said.

“The inefficiencies in the tribunal system have persisted for years, causing frustration for all parties involved.”

Property Brokers, which has a zero tolerance policy on rent arrears, lets tenants know that if their rent falls behind by a week, it will apply to the tribunal to resolve the matter.

While waiting to get a tribunal hearing, the arrears continue accumulating, Faulkner said. “This helped nobody. The landlord is out of pocket and the tenant could find themselves evicted with a bad credit rating.”

Tribunal hearings can be a  waste of time for the landlord and the adjudicator. “Typically, tenants don’t attend these hearings, making the process one of merely putting a formal seal on an order.”  

A more efficient solution would be to handle rent arrears cases remotely outside the tribunal, he said.

“After the tenant is 21 days in arrears, the landlord could submit an application with all the necessary evidence, such as rent statements, arrears notices, a copy of the tenancy agreement and the tenant’s contact address for service. Under s 55 of the RTA, if the tribunal is satisfied the tenant is at least 21 days in arrears, it must make an order terminating the tenancy.”

Faulkner said a remote adjudicator could verify the submitted information and issue orders for termination and possession without a formal hearing.

Tenants would still retain the right to contest the decision within five working days if they could demonstrate a substantial wrong or miscarriage of justice, as stipulated under s 105 of the Act.

“This process would limit the risk to the landlord to approximately five weeks of rent arrears,” he said.

Dealing with rent arrears cases remotely would reduce the tribunal’s workload by about 120 cases a week.

Adjudicators could provide faster resolutions for complex cases with a lighter caseload and there would be consistency and transparency by using standardised procedures for rent arrears cases and economic efficiency by avoiding unnecessary hearings for both landlords and tenants.

Faulkner said implementing this reform required careful planning but the potential gains in efficiency and justice made it worthwhile.

Collection difficult

Getting an order could be the easiest part. Collecting the arrears has proved difficult for many landlords because of the ineffectiveness of civil enforcement in New Zealand.

If the arrears sum is only a moderate amount, many landlords won’t bother to enforce their rights through the tribunal because the potential payoff is low when compared with the cost and time involved in participating in the process, the NZPIF said.

Landlords say successful tribunal claims often result in hollow victories due to weak enforcement.

To address this, they want access granted to tenant information held by government agencies, enabling better tracking and accountability for unpaid rent or damage.

They say it is common for tenants to stop paying rent after giving notice to end a tenancy, with bonds insufficient to cover arrears, damage or other costs.

Another avenue for redress would be to make this practice unlawful to act as a deterrent.

The federation wants a fast-track system implemented for urgent cases, involving tenants who had stop paying rent but refuse to vacate.

A fast-track system would ensure these cases are heard within five days of an application, minimising financial losses for landlords and resolving urgent disputes promptly.

The fast-track initiative would be feasible if routine rent arrears cases were handled administratively, freeing up the tribunal’s time.