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An Early Exit From A Fixed-term Tenancy Could Be Expensive

Tenants who choose to end fixed-term tenancy agreements are discovering that they are likely to receive large bills.

“This is not unexpected” said Sharon Cullwick, Executive Officer of the NZ Property Investors’ Federation (NZPIF) “In fact these costs are likely to rise if legislation is passed requiring property managers to be qualified to perform their duties.”

She explains that before the February 11th 2021 deadline when the implementation of the Residential Tenancies Act (RTA) 2020 came into effect, a tenant could discuss with a landlord or property manager their intention to break a fixed-term tenancy. Although the outgoing tenant would have been expected to pay for costs associated with obtaining a new tenant, the property manager or landlord would often absorbed a lot of these costs to help the tenant move on.

However, the RTA 2020 stipulates that the landlord is entitled to recover from the outgoing tenant any expenses reasonably incurred by the landlord in relation to the assignment. To protect the tenant, an itemised account of the expenses must be provided. If the landlord decides to recover these costs and does not provide this itemised account, an unlawful act is committed, and a fine of $750 could be given by the Tenancy Tribunal.

Contrary to the belief currently being portrayed, these are actual costs of finding a replacement tenant and are not made up to enable one party to have power over another.

Examples of these costs are the hourly rate for the time taken by the landlord or property manager to prepare an advertisement to find a new tenant, photography of the property, cost of advertising, house inspections for the leaving tenant and the new tenant, meth tests, cost of time spent to show potential tenants the property, cost of credit checks, and petrol costs. There could be other costs associated with the process as well and the total could easily add up to $500 - $1,000.

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These costs relate to replacing a tenant who does not adhere to their fixed-term tenancy agreement and not to the general property management business. And, as in any business, costs need to be paid somehow. Ultimately, they end up being paid by the customer, who in this case, is the tenant breaking the fix-term tenancy.

“Care should be taken by tenants who sign up for a fixed-term tenancy. If they have no intention of staying in the property for the term, they will discover there are consequences”, said Cullwick.

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