Ending an Agreement

Fixed Term and Non fixed Term Tenancies

Changes were made to the Residential Tenancy Act 1997 effective from October 1, 2014.

A property owner and a tenant can mutually agree to end a tenancy at any time. It is advisable to put such agreements in writing. Where there is a fixed term agreement, a tenant and a property owner should discuss their intentions towards the end of the fixed term period and make appropriate arrangements to either end the tenancy or establish a new fixed term tenancy or a non-fixed term tenancy. If these sorts of arrangements are not made, then a fixed term tenancy automatically reverts to a tenancy of non-fixed term once the lease lapses. There is no requirement for the tenant to notify the owner of their intentions. However, obviously, open and honest communication is always preferable to silence where a legal agreement is involved.

When a fixed term agreement is coming to an end there are three possible outcomes: renewal, conversion to a non-fixed term tenancy or termination. Renewal is a straight forward new contract, however a renewed lease may be subject to an increase in rent. Conversion is noted above. Termination by the owner requires that the owner provide the tenant with a notice to vacate 42 days before the expiration of the lease. If the owner does not provide the tenant with the 42 days notice, the lease is taken to extend to enable the tenant to have the full 42 days notice. There are circumstances in which the owner is obliged to only provide 14 days notice for a tenant to vacate. Where a tenant is in breach of the Residential Tenancy Act or they have caused a substantial nuisance.

A fixed term agreement with respect to boarders can also end early so long as both the boarder and the owner agree to end it. The tenant should tell the owner at least 2 days before they want to leave.

In the case of a non-fixed term tenancy, a tenant is required to give a property owner 14 days notice of intention to terminate the tenancy and a property owner must give a tenant 42 days notice to vacate. If a tenant has not breached the Act, a property owner must have a legitimate reason for giving notice, as contained in the Act at section 42. Reasons include that the property is to be sold or substantially renovated, a family member is to move into the residence or the property is to be used for another purpose. If the property is to be sold by a lending institution to recoup debts of the owner, the tenant is entitled to 60 days notice. With respect to boarders, non-fixed term agreements can be ended by the tenant telling the owner at least 2 days before they want to leave.

Notices to terminate and vacate for both tenants and boarders must be in writing and must contain the following details in order for them to be valid:

• the date of service and the date of effect of the notice;
• the name of the tenant and the owner/agent;
• the address of the premises; and
• the grounds for notice (ss40 and 44).

Generally notice is either for 14 or 28 days, depending on the nature of the issue that has lead to the notice to terminate or notice to vacate. Both tenants and boarders on a fixed term tenancy can give a property owner a notice to terminate if the owner fails to make repairs within the required time limits (s38), or if the owner is in breach of the agreement unless that breach is remedied within the 14 days notice period (s39(2)). Similarly, an owner/agent can give both a tenant or boarder a notice to vacate premises if they have breached the agreement, unless the tenant or boarder remedies the breach within 14 days (s43(3)). A notice to vacate can also be given, as stated above in the section on rent, if the tenant or boarder is in rent arrears on a third or more occasion within a 12 month period. Payment of rent after a notice has expired does not constitute a new agreement.

Under certain conditions tenants and property owners can seek court orders to enforce an immediate notice to terminate or vacate (ss41 and 45). A tenant can apply for such an urgent order in the Magistrates Court, Civil Division if serious damage or injury is likely to be committed by the owner.

Conditions where either party can seek court orders include where a  tenant has failed to comply with a proper notice to vacate and/or there is a risk of serious damage or injury likely to be committed by the tenant or the property has been abandoned. Either party may seek an order if any person has caused or is likely to cause damage or physical injury to them or to neighbouring premises. Where a property owner seeks a court order for non-compliance, the owner must serve the tenant with a copy of the court application on the same day as the owner applies for the order. In these cases the court enforces a date for vacant possession of the premises. An unsuccessful party to a court action usually pays the costs of the successful party. There is no set figure. The Magistrates Court, Civil Division now deals with orders under the Act.

Apart from the conditions outlined above, a property owner must not attempt to gain possession of premises by any other means.

To avoid being considered as a tenant after the day the notice takes effect and therefore to avoid the liability to pay rent, a tenant should:

• return the keys – to retain them can amount to remaining in possession;
• remove all furniture and other belongings;
• get the property owner/agent to give a receipt that the premises have been surrendered and accepted in good condition.

Breaking an Agreement

Tenants and boarders who want to leave before their agreement expires should not just walk out. If they do the owner can sue them for the rent. Different situations apply depending on the type of agreement.

Any fixed term lease may be ended earlier by mutual agreement between the property owner and tenant/boarder, or if there have been sufficient problems to justify notice of termination of agreement or notice to vacate. It is advisable to get such an agreement in writing.

A tenant who wishes to leave before the lease ends should give the owner/agent a letter saying why they wish to terminate the lease. The tenant is however liable for the continued payment of rent until such time as a new tenant can be found as well as any other loss resulting from the early vacation.

Tenants who sign a fixed term agreement have generally covenanted (agreed) to pay rent for the full term. However, there is an obligation on the owner of premises to make reasonable attempts to find a new tenant, such as advertising in the paper or seeking the efforts of a real estate agent (s64A(b)). As such, the property owner must mitigate their loss by advertising the premises promptly and not unreasonably refusing prospective tenants. The same stipulations apply to boarders. Where a tenant seeks to break the lease, and no new tenant has been found, the outgoing tenant, if vacating the property is still responsible for the rental payments, however they are no longer responsible for the gardening or cleaning of the property.

Assignment

Tenants or boarders entering a written agreement for a fixed term should clarify their rights to assign. An assignment of a lease is a transfer of the whole of the tenant’s interest in the lease, that is, the whole of the unexpired term of the lease. The parties to the assignment are the assignor and the assignee. Privity of contract exists between the original property owner and the original tenant or boarder. Unless it is explicitly stated in the contract that a party or parties are released from all obligations, original covenants between the parties remain enforceable even after they have disposed of their respective interests.

A tenant or boarder who cannot assign under a lease is liable to pay advertising costs and other costs associated with re-letting, so that a new tenant or boarder can be found as quickly as possible. A tenant or boarder who wishes to leave during the term of the lease should cooperate with the property owner/agent in finding a new tenant/boarder.

Penalty Clauses

Some agreements contain clauses requiring the tenant to pay a specific percentage of the annual rent should they leave before the lease ends, irrespective of whether the landlord or agent actually incurs costs in reletting the premises. Such clauses are void under the Act.

Agreed Damages Clauses

An agreed damages clause might require that upon leaving a tenancy during the agreement period the tenant must cover all of the advertising costs associated with finding a new tenant, and must pay the rent on the property until new tenants are found. Thus, all losses that may be suffered due to the tenant’s actions are paid for by the tenant. This is now covered by the Act.

Abandonment

A property can be declared abandoned if a tenant leaves without notice and ceases to occupy the premises. Tenants who do this sometimes leave behind goods and chattels. If this occurs a property owner can apply to the Magistrates Court, Civil Division to have the property declared abandoned (s47A). The magistrate will determine that the property is abandoned if they are satisfied that the tenant has ceased to occupy the premises without notice of termination. If satisfied, the magistrate will then order that vacant possession of the premises be delivered to the owner. In these circumstances a tenant remains liable for any loss incurred by the owner either from loss of rent or through acquiring vacant possession.

An owner is required to mitigate losses. Once the property has been legally declared abandoned, a property owner may dispose of any goods left by the tenant (s48). If the goods left by the tenant are estimated by the owner to be of no financial value and the owner makes a statutory declaration to the Office of Consumer Affairs and Fair Trading stating this, then the owner may dispose of the goods. If the goods are valued at less than the ‘prescribed amount’ (which is currently $300) then the owner may sell the goods without an order from the Magistrates Court. If the goods are valued at more than or equal to the prescribed amount, the owner must apply to the Magistrates Court to sell the goods. Proceeds of sale can be used by the owner to recover any debts owed by the tenant and to recover any reasonable sale costs. Any remaining balance is to be kept in an interest-bearing account for six months and if not claimed by the tenant during this time the balance becomes the property of the Residential Tenancy Commissioner (s48(4)).