Part and parcel of being a landlord is preparing for potential issues, which may include having to ask tenants to relocate, even briefly, while a problem is rectified.
In this case, do you owe your tenant compensation? We asked Lauren Robinson of Rental Results to answer our reader’s question...
Q: I have four tenants in my property and they are on a fixed-term lease (they only recently re-signed). Not long ago our floorboards started cupping, and it was discovered to be due to a leaking pipe below the island bench in the kitchen.
The damage is extensive and predicted to get worse (due to the moisture present) if it is not repaired soon. The insurance company has estimated that it will take 40 days to complete the repairs, and the tenants will need to vacate the premises. The insurance company will cover the repairs to the floor, skirting boards, cabinets and all other structural repairs, as well as loss of rent.
Our agent has advised that, whether we terminate the lease or move the tenants out for 40 days, some sort of compensation will be required. We are relying on the rental income to make the repayments on the property, so fi nances are quite tight. I would be very interested to know my rights and obligations and hear any suggestions you may have. I would also like to know what would be considered adequate compensation based on the current monthly rental of $3,800.
Kind regards, Bob
A: Hi Bob,
Regarding whether you should terminate the lease or move your tenants out for the period of time that the work is required is really open for discussion with your tenants. You have a few options, as outlined below:
- offer the tenant a mutual termination and end the agreement
- relocate them elsewhere at your cost
- compensate them for having to relocate for the duration of the work being carried out
- offer a rent reduction
If they are being asked not to live at the property for the duration, it would generally be expected that they would be reimbursed for the rent they have paid for that period, unless you were to provide alternative accommodation.
If the property can be partially lived in, then compensation would be proportionate to the areas they can and can’t use. However, there is no right or wrong formula; it is down to what can be negotiated fairly.
Before coming to a decision, the first step would be to discuss the issue with the tenants. Let them know the severity of the situation at the property; explain what is causing the damage, how this affects the property, how it may worsen, how soon the repairs need to start, the process for the repairs, and the options available to them.
In order to reach the best outcome for the owner, it all comes down to good communication and a good relationship between the property manager and the tenants. Remember to put all information and agreements in writing and keep copies for future reference. Be respectful, firm and fair in your approach, and be ready to refer to the tenancy agreements.
Should you choose to end the lease, it can be terminated based on non-liveability of the property. Check your state legislation for the specifics of non-liveability. For example, according to the Queensland legislation, a property becomes unliveable when it is fully or partially destroyed, or can no longer be used lawfully as a residence. The unliveability of a property must be considered on a case-by-case basis. In this case, the repair work is urgent, so the property can be considered unliveable until the repairs are done.
As to adequate compensation, there is no magic number. I would suggest that there may not need to be some sort of compensation. Again, it would depend on your discussion with the tenants.
Speak to your landlord insurance company to confirm if you can claim any compensation offered to the tenants; however, generally this would not be covered under the policy. The key here is clear communication to get the best outcome for all parties.
Lauren Robinson is the director of Rental Results and has over 17 years’ experience in the property management industry
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