On average, Housing New Zealand spends around $10,000 on repairs after each tenancy. As a landlord and property manager it’s tempting to do everything you can to minimise the amount of risk you are exposed to. However, there are rules that need to be followed when it comes to the type and amount of security that can be asked for.
Rule 1: Maximum bond
Legally landlords can ask for a maximum of four week’s worth of rent upfront as a bond. A guarantor’s agreement and ‘other’ forms of security are not allowed. That money is then held with Tenancy Services and if anything goes wrong, tenants fall behind with rent or cause damage, that money can be made available to repair the damage. You will be in hot water if you ask for more than four week’s worth of rent up front, or try and add extra fees. Under the Residential Tenancies Act 1986 you can be fined $1,000 for asking for a bond greater than four weeks.
Rule 2: Maximum rent in advance
A good tip for landlords and property managers is to request for payment of rent in advance. This way if a tenant skips town or causes damage, some of your costs are already covered by way of an upfront payment that doesn’t have to go through Tenancy Services. By law, you can ask for up to two week’s rent in advance. Any more than that, and you could face a $1,000 fine.
Rule 3: Charging 'key money'
Landlords can also face $1,000 fines for requiring additional security, over and above the bond submitted to Tenancy Services, or for charging additional fees in relation to the tenancy. A common mistake some landlords make is trying to charge ‘key money.’ This might be an extra charge to secure the tenancy over another potential tenant, to make changes to the tenancy, or just an extra cost-covering fee. Some examples include a bond on a lawnmower or gardening equipment used for upkeep on the property, or a ‘pet bond’ to be allowed to keep an animal. Any extra fees, charges, or bills on top of bond and rent-in-advance are illegal, and will result in a $1,000 fine.
Rule 4: Charging a letting fee
There are two notable exceptions to the laws around extra fees. One is a ‘letting fee’, which is normally one week’s rent plus GST. It’s essentially a commission that covers the cost of setting up the tenancy, reviewing applications from prospective tenants, the first property inspection, doing the paperwork and filing it with Tenancy Services.
Only a property manager can charge a letting fee. If you’re a private landlord managing your own properties, this does not apply to you and you may find yourself facing an additional fine. Also, if the letting fee is significantly more than one week’s rent plus GST, it may be seen as unreasonable under the Residential Tenancies Act 1986 and you might possibly face additional charges.
Rule 5: Charging an 'option fee'
The other exception is an ‘option fee’. You can charge one week’s rent to hold the property for potential tenants while they make a decision around whether or not to sign the lease. If the tenants decide to go somewhere else, that fee is yours. If the potential tenants do decide to move in, then this amount must either be refunded or put towards rent. Again, if you try keeping an option fee regardless or charging over and above one week’s rent, a $1,000 fine could be heading your way.
Rule 6: Charging a cleaning fee at end of a tenancy
Naturally at the end of a tenancy you want your property to be looking as good as possible to encourage new tenants to sign up. The burden falls on the tenants to clean the property and leave it in good condition. Many landlords try and include clauses in the Tenancy Agreement requiring the property to be professionally cleaned. This is not enforceable under the Act. At best your tenants can refuse to hire professional cleaners, but you won’t get very far with the Tenancy Tribunal or Tenancy Services arguing your case. At worst, your tenants may lodge a claim against you, resulting in a $1,000 fine.
Being on top of how much bond and rent in advance you can charge is part of every landlord' s responsibility. For more best practice tips to help you better manage and protect your investment, download our free guide:
