Fixed term tenancies in light of the Residential Tenancies Amendment Act 2020 – is a fixed term really a fixed term?
History of the Act
As its name suggests, the Residential Tenancies Act 1986 (the Act) serves to outline the rights of landlords and tenants in relation to ‘residential premises’. The Act defines residential premises as being any premises used (or intended) for occupation by any person as a place of residence, whether or not such occupation is lawful.
The scope of the Act is therefore extremely wide, providing rights not only to those in standard residential property arrangements but to tenants who may find themselves in ‘unlawful’ premises, whether it be a converted garage or even an industrial warehouse.
However, this was not always the case, as it was only with the implementation of the Residential Tenancies Amendment Act 2019 that the reaches of the Act were able to be extended in this manner. Now, with the new Residential Tenancies Amendment Act 2020 (the Amendment Act), the rights of tenants have been strengthened even further.
The Act pre 11 February 2021
Prior to the Amendment Act, section 60A of the Act provided that a fixed-term tenancy would become periodic* upon its expiry unless contrary notice was given within the prescribed time frame. This notice could be given by either the tenant or the landlord and required no particular cause or reason.
Importantly, under the Act, these provisions still apply to existing fixed-term tenancies which were entered into prior to 11 February 2021. However, in cases where such tenancies are renewed, they may be deemed to be new tenancies, making them subject to the post 11 February section detailed below.
(* A periodic tenancy has no fixed end date in the agreement.)
The Act post 11 February 2021
For tenancies entered into after this date, the Amendment Act implements a different approach and removes the right of the landlord to prevent a fixed-term tenancy from becoming periodic (upon its expiry) simply by providing notice (without cause) within a particular timeframe. Under the new section 60A(2) of the Act, fixed-term tenancies will automatically become periodic tenancies upon their expiry, unless one of the following occurs:
a) before the expiry, the parties renew or extend the existing tenancy agreement; or
b) before the expiry, the parties agree not to continue with the tenancy; or
c) at least 28 days before the expiry, the tenant gives the landlord written notice of the tenant’s intention not to continue with the tenancy; or
d) before the expiry, a party gives notice as mentioned in any of section 50(1)(a) to (b) that terminates the tenancy on or before the expiry, or that would do if the tenancy were already periodic. (That is to say, as put by Tenancy Services, “if the landlord doesn't want it to become a periodic tenancy, they need to give a reason for ending the tenancy, and provide notice based on the requirements of that reason. The reasons are the same as for ending a periodic tenancy”).
Such reasons for terminating periodic tenancies are outlined in section 51 of the Act.
‘Contracting Out’ and Section 60A(2)(b) of the Act
It is important to be mindful that parties cannot include clauses in a tenancy agreement that conflict with the provisions of the Act. If challenged, the Tenancy Tribunal would likely hold that such clauses were unenforceable, even amounting to an “unlawful act” subject to the fines outlined in Schedule 1A of the Act. In our view, a clause in the tenancy agreement establishing that the tenancy will not extend beyond the expiry of the fixed term would likely be sufficient to constitute a valid agreement under section 60A(2)(b) above. The section itself does not specify whether such agreement must take place after the commencement of the tenancy, in order to be deemed effective.
Conclusion
As the amendments to section 60 of the Act have only been in force for a short period of time, the full implications for landlords remain to be seen.
While (as previously suggested) the inclusion of a clause establishing that neither party intends for the fixed-term tenancy to continue past its expiry may be adequate under the Act, we will likely only have certainty after this issue has been confirmed by the Tenancy Tribunal in the future.
If this article has raised any questions for you, we'd love to hear from you. Please contact Sam Pinson, Solicitor on sam.pinson@gibsonsheat.com.
Disclaimer: The information contained here is of a general nature and should be used as a guide only. Any reference to law is to New Zealand law and legislation. We recommend before acting on it, you consult your accountant or tax adviser