In late March 2020, the Federal Government announced a moratorium on evictions over the next six months for tenants experiencing financial hardship due to the COVID-19 pandemic.
This moratorium was enacted by state and territory governments and caused some confusion among property investors. While the specifics of the moratorium change depending on your location, here are some key factors to keep in mind.
- What is a moratorium?
- Negotiation is key
- The 6 month moratorium on evictions does not apply for all
- Both landlord and tenant can agree to end a tenancy
- Depreciation will continue to maximise cash flow
What is a moratorium?
A moratorium is a temporary suspension of an activity or law until circumstances allow a lift of the suspension or related issues have been resolved.
The current 6 month moratorium on evictions is part of the Government’s hibernation strategy to reach the other side of the COVID-19 pandemic. The moratorium applies for both residential and commercial tenancies.
Negotiation is key
The moratorium is designed to protect and support tenancies to continue wherever possible.
The emphasis is on both the landlord and tenant to negotiate a temporary arrangement during these unprecedented times. This does not necessarily mean that the agreement must waive weekly rents. Some key areas of negotiation could include whether rent can be waived or deferred or reduced, the amount of rent payable for a period, review dates of the temporary agreement and repayment plans.
Where possible, landlords are encouraged to pass on any reduction in their own expenses to their tenant. This could include factors such as reduction in land taxes and mortgage repayment deferrals.
It’s important that investors remember their property manager is available to help with negotiations as they navigate through the changing environment. In most instances, a property manager is the middle person who facilitates the agreement between landlord and tenant.
The 6 month moratorium on evictions does not apply for all
The state and territory governments have implemented the eviction moratorium in different ways. A key overarching theme is that a tenant must be financially disadvantaged due to COVID-19.
A detailed example is the New South Wales Government’s eligibility requirements. To meet the requirements of the 60-day stop on evictions and the longer six month restrictions, a household in NSW is classed as impacted if:
- one or more rent-paying members of the household have lost employment or income due to COVID-19
- one or more rent-paying members have had to stop working due to their illness, another household member illness or carer responsibilities due to COVID-19
- the above factors result in a household income reduction of 25 per cent or more.
As mentioned, eligibility requirements for the 6 month moratorium on evictions change based on your location. It’s key to check your local government requirements and facilitate communication with your tenants.
Both landlord and tenant can agree to end a tenancy
In some cases, the best outcome for all parties involved is to end a tenancy.
A tenant and landlord can still agree to end a tenancy and mutually decide when and how this is to happen. For example, a tenant may decide it’s better for their personal situation to live with family at this time and the landlord may want to sell the property or do several renovations.
Depreciation will continue to maximise cash flow
Depreciation is a non-cash deduction, meaning property owners don’t need to spend any money to be eligible to claim it.
A rental property doesn’t need to be leased in order to claim depreciation. If the property is classed as genuinely available for rent, the owner can benefit from many depreciation deductions on the building’s structure and eligible assets.
BMT Tax Depreciation is the most trusted specialist in the industry and has completed over 700,000 tax depreciation schedules, Australia wide. BMT found clients an average of almost $9,000 in first full financial year deductions last financial year.
To learn more about depreciation and how it can help maximise your cash flow, Request a Quote or contact BMT on 1300 728 726.