The Landlord's Guide To Renting

Part 5 - Rental Bond claims

A Rental Bond is paid by a tenant at the start of a tenancy.

If the tenant leaves the property damaged, or if the tenant does not pay the rent,
the landlord can make a rental bond claim.

This newsletter sets out the rules around rental bond claims.

What is payable as a rental bond?

4 weeks rent is the maximum rental bond a landlord can request under the Tenancy Law:

• Even if a landlord agrees to pets, a landlord cannot request an extra bond as a pet bond to cover steam cleaning of the carpet and scratch marks. But if the tenant offers extra bond money for permission to keep a pet, landlord can accept it.
• Even if the premises are furnished, a landlord cannot request an extra furniture bond.

Because the rental bond is payable to the Rental Bond Board within 14 days of receipt, it is not available to a landlord without a rental bond claim.

Advance rent provides extra security for a tenant default. But under the Tenancy Law, 2 weeks rent is the maximum amount of rent in advance that a landlord can request.

Tenants are allowed to offer more rent in advance to secure a property. In a tight rental market, tenants who offer up to 6 months in advance are not unheard of.

What tenant damage can be claimed against the tenant / rental bond?

The tenant damage to be claimed should be described in the final Condition Report.

The final (outgoing or exit) Condition Report will show the condition of each item in the premises as either clean or undamaged or working, compared with the condition in the initial (ingoing or entry) Condition Report. The landlord should give a copy of the final Condition Report to the tenant, and in a joint final inspection, both will sign it.

These are common examples of tenant damage and make good which can be claimed:

House cleaning If the tenant does not leave the premises in a reasonably clean condition, the Tribunal has awarded from $200 up to $1,260 for house cleaning.

Stove In Decision 2012/110, the final Condition Report showed a crack in the glass cook top; the initial Condition Report had it ‘undamaged’. The Tribunal rejected the tenant’s argument that the crack was not their fault - that it may have been a manufacturing fault, and awarded the landlord $700 to replace the cook top. In Decision 2012/298, cooking residue had become ingrained on two aluminium burner heads that were new at the start of the tenancy. The Tribunal ordered the tenant to pay 50% of the replacement cost.

Carpet The tenant must leave the carpet clean. But the landlord cannot insist upon the tenant having the carpet professionally cleaned unless a pet has been kept in the premises.

Damaged Carpet In Decision 2012/20, the Tribunal set out these rules: if the carpet is damaged by the tenant, and there is sufficient original carpet available, the tenant is responsible to pay for the cost of patching, provided that it gives an acceptable appearance. Otherwise, the tenant will be responsible for the replacement cost, less 10% for each year since the carpet had been laid. In this Decision, the Tribunal took 30% off the replacement cost because the carpet was 3 years old.

Damaged Floorboards If the floorboards are gouged, the cost of re-sanding can be high - $4,326 was awarded in one case. If they are scratched, it may be fair wear and tear.

Fixtures and fittings Kitchen cupboards, stove, vanity units, shower screens, toilets and built-ins are examples of landlord’s fixtures and fittings.

If they are damaged but can be repaired, the landlord’s claim is the cost of repair. If they are damaged beyond repair, the landlord’s claim is the depreciated value of the fixture or fitting. The depreciation rate is usually between 6.6% and 20% per year, according to the ‘effective life of the depreciating asset’ – see ATO Taxation Ruling 2009/4 (Residential property operators). According to Decision 2012/94, if the damaged item has exceeded its depreciated life, there is no loss to the landlord because the item has no value.

Hooks and shelving The cost of patching and painting the holes in the walls and doors where the tenant has installed picture hooks and clothing hooks, hanging rods, shelving and light fittings is the tenant’s cost, unless the landlord has given consent and does not require removal at the end of the lease.

Keys The cost of re-keying, replacement of keys and opening devices is claimable.

Garden The cost of mowing the lawn, re-turfing and reinstating the garden is claimable. In Decision 2012/135, the cost recovered was $1,500 to remove a vegetable garden which had been built with numerous old railway sleepers.

Rubbish removal The cost is claimable, provided it is reasonable.

Some landlords will look to claim on their landlord’s insurance if the cost of the damage exceeds the rental bond. They will be disappointed because normally, damage caused by tenants is not covered. But if an insurance claim is made and accepted, the excess can be claimed from the tenant if the tenant was at fault (see Decision 2012/162).

Experienced landlords will regularly check the condition of the premises – they can inspect up to 4 times a year with 7 days notice. This way, they do not need to wait until the end of the lease to ask the tenant to repair any tenant damage. If a rental manager carries out the inspection, they will prepare a condition report.

What is fair wear and tear?

Tenants are not liable for damage to an item caused by natural causes or normal use. This kind of damage is known as fair wear and tear.

NSW Fair Trading has produced this guide to help landlords and tenants distinguish between tenant damage which can be claimed from a rental bond, and lesser damage - fair wear and tear which cannot be claimed from a tenant –

For Lease Idyllic country residence Elevated position No Rental Bond required

Tenant claims for compensation at the end of a lease

Some tenants will try to reduce the amount they owe to the landlord by claiming compensation for failing to keep the property in habitable repair or reduction of facilities.

Regular inspections during a tenancy will identify repairs that a landlord should carry out to avoid tenant claims such as these at the end of the tenancy.
 

Making a rental bond claim

At the end of the tenancy, the tenant will ask for a rental bond refund; and the landlord will tally up the rent arrears, water usage charges, the cost of replacement keys and locks, cleaning, rubbish removal and the cost of repairing or replacing damaged items.

Usually, the landlord and tenant will agree on the release of the rental bond after the final inspection. They will complete the Claim for Refund of Bond Money form with how the rental bond is to be disbursed and sign it. According to the Rental Bond Board, in 48% of cases, the rental bond is refunded in full to the tenant, in 41% it is split, and in 11% of cases, it is paid in full to the landlord.

Renting Services will process the rental bond release form electronically, to enable the tenant to immediately transfer the rental bond to their new premises.

If the dispute goes to the Tribunal, the landlord must prove the claim because the rental bond money is the tenant’s money. The required proof is – the initial and outgoing Condition Reports, quotations for repair, invoices and dated photographs.

The Rental Bond Board pays interest on the rental bond at the rate payable under the Commonwealth Bank Everyday Access Account. This sounds fair until you find that the interest rate is a peppercorn interest rate of 0.01% pa – i.e. 1/100th of 1%, which means that a rental bond of $2,800 will earn 28¢ per annum in interest!
 

Tenant Selection

Because 4 weeks rental bond is inadequate security against tenant default, choosing the right tenant is very important – most landlords regard good tenant selection as their single most important task.

Tenant Databases help tenant selection because they contain records of tenants who have ‘black marks’ against their name – such as vacating with rent arrears or having had their tenancy terminated by the Tribunal because of default. Listings remain current for 3 years.

Managing agents can turn away prospective tenants based on the information in a Residential Tenancy Database without being accused of discrimination, in much the same way as Banks can use defaults in credit files as a reason to decline loan applications.

Other useful tools in tenant selection include checking the tenant’s current rental ledger, personal and business references, income verification and affordability tests.

The Landlord’s Guide to Renting has been produced by Cordato Partners Lawyers, as part of its Property Law practice. It contains a brief outline of the Tenancy Law.

Because it is a general guide, is not intended to be relied upon for any specific tenancy situation. For those situations professional advice should be obtained.

If you would like to receive the Guide as a pdf email attachment rather than as a hard copy, or would like further hard copies of the Guide to distribute to clients, friends and relatives -
Contact us by email – info@propertyinvestmentlawyer.com.au or by phone (02) 8297 5600 (speak to Sally Wade). Our office is located at Level 5, 49 York Street, Sydney NSW 2000 (near Wynyard Station).

Also visit our website – www.propertyinvestmentlawyer.com.au to view the Guide and other property investment information.

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