Natural disasters and rental properties

The aftermath of a natural disaster should not be a ‘them and us’ situation. It is important that common sense and good will prevail so that the best possible outcome can be achieved for both parties.  If tenants were in the property at the time of the disaster, they may well have experienced significant trauma. The tenants might also be dealing with loss of their possessions. As well as dealing with a damaged investment property, the owner may have to sort out damage to their own place of residence.  The best advice is to be methodical and take things step by step.

Step 1. Assess the damage
When it is safe to do so, arrange to inspect the property as soon as possible after the disaster event.  Don’t take the tenant’s word for it that everything is okay. If necessary, issue the correct entry notice, visit the property and make your own assessment.

Step 2. Contact your insurance company
It is essential that you notify them of the situation and follow any instructions they give.

Step 3. Decide if the property is livable
In the worst case scenario, this will be taken out of your hands as authorities may decide the issue. Otherwise, you may need expert advice on this. Don’t make a guess about structural soundness, electrics or plumbing. You may be exposing yourself to significant liability if you make an uninformed judgement about this.

Step 4. Decide what the tenant will do
This is less of an issue if the property is deemed unlivable by authorities. The tenant has no choice and may simply need assistance in vacating the property as the tenancy has lawfully ended.

Problems may arise if the property has suffered partial damage as one party may want the tenancy to continue and the other wants it to end.  This is where you need to work with the tenant. It is much easier to repair a vacant property, but you cannot ‘force’ a tenant to move out in this situation. If you cannot resolve the situation you will have to seek a resolution of the dispute with the relevant authority.

Whatever the situation make sure the outcome is put in writing. If the tenancy is coming to an end, this would be in the form of a Termination Notice issued by either you or the tenant. If it is agreed that the tenant will remain in the property whilst repairs are undertaken, you should send a letter to the tenant confirming this arrangement and noting that tradespeople will be having access to the property. The standard entry notice periods are waived for such repairs.

Step 5. Speak with your accountant
You need specialist advice on the financial and taxation aspects of the situation.

These are some other questions that often arise in this situation.
The property is unlivable; do I have to pay removal expenses for the tenant?
No. You are not obligated to meet any vacate costs.
The property is unlivable, what happens with the bond?
You cannot make any claim for property damage caused by the disaster.  If the tenant was in arrears at the time the property is declared uninhabitable or if they had caused some other damage, you are entitled to claim this amount.
The tenant is remaining in the property, what happens with the rent?
The tenants must continue to pay rent. However, you may come to an agreement whereby the rent is decreased for the duration of the repairs. This is dependent on the nature of the damage though. For example if the damage to the property means that one room is out of action, or maybe the air conditioning cannot be used, you might decide to reduce the rent as a sign of goodwill for the duration of the repairs.
Put any such agreement in writing and be as clear as possible about the date on which the rent will return to normal.
Can the rent be increased when the repairs are completed?
No – if the same tenancy is in place i.e. the tenant has remained in the property or has temporarily vacated and returns when repairs are completed.
Yes – if a new tenancy has commenced i.e. the previous tenant permanently moved out and a new tenant has moved in.
Do I have to provide alternative accommodation if the tenant is moving out while the property is being repaired?
You are under no obligation to do so.  It is another example of it being a matter of goodwill should you decide to assist.

Duty of disclosure
Most states have laws relating to duty of disclosure requirements for landlords to tenants. For example, in NSW the landlord, if they are aware of the history, must tell the tenant prior to the signing of a tenancy agreement if the premises have been subject to a natural disaster in the previous 5 years.

About Diane Bukowski

From school teacher to website entrepreneur, Diane Bukowski is the managing director of Eezirent – an online service delivering professional tools to self-managing landlords.  
After many years running an award winning real estate office, Diane took up the challenge offered by her business partner to set up a service that would level the playing field for self-managing landlords. The result is Eezirent which allows these investors to advertise their property on www.realestate.com.au, verify their applicants with the National Tenancy Database, and access the documentation and knowledge needed to efficiently manage a lease.
Diane’s blogs aim to provide practical advice to the self-managing landlord.