How do rent negotiations work?

Not many people have much experience at negotiating a rent reduction. The information below can help to prepare for meeting with the landlord or agent. This can be if they do not agree with your initial proposal but do agree to discuss the rent amount further, and also if negotiations go further to NSW Fair Trading.

 

What are 'good faith' negotiations?

 

In general 'good faith' negotiation means parties dealing honestly and fairly with one another to genuinely work towards a mutually beneficial agreement in a timely manner. 'Good faith' will depend on the circumstances of each case and parties must act reasonably and be prepared to change their position or make concessions to achieve an agreement.

Good faith requires:

  • a willingness of the parties to share loss not caused by either;
  • a willingness of the parties to share information; and
  • active cooperation in the combined aims of the parties and of public health.

Active cooperation includes putting forward options for consideration and considering options proposed by the other party or the facilitator.

Parties should consider the interests of both parties and be:

  • honest
  • fair
  • reasonable and proportionate

Negotiations should be undertaken on a 'without prejudice' basis.

 

What is a 'fair and reasonable' offer?

 

There are a number of things you should consider, and be asking the landlord and/or agent to consider, when assessing whether a rent reduction offer is ‘fair and reasonable’.

 

Proportionate rent reductions

Is the proposed reduction in rent proportionate to your household’s total loss of income?

You might find it useful to consider whether the rent reduction offered by the landlord is proportionate to (i.e. corresponds with) the reduction in income your household has faced as a result of COVID-19. For example, if your household lost 25% total income is the rent payable under the rent reduction offered similarly reduced by at least 25%? If the total rent reduction offered is not comparable, it may be useful to bring this to the attention of the landlord or agent and provide an explanation of any financial hardship your household is likely to face as a result. 

For commercial leases a mandatory code of conduct has been agreed on by national cabinet establishing a clear set of leasing principles in place during the evictions moratorium. One of these principles is that landlords must offer a commercial tenant impacted by COVID-19 a reduction in rent payable corresponding to the reduction in trade and revenue they have experienced during the COVID-19 pandemic period and a subsequent reasonable recovery period. At least 50% of the reduction offered must be in the form of a waiver (unless the commercial tenant explicitly agrees to waive this requirement). Any deferred rent is to be repaid over a reasonable timeframe, with minimum timeframes set in relation to this.

No similar mandatory code has been established for residential tenancies. The commercial code of conduct is not directly applicable, but you may still find it useful to reference it as a possible guide to community standards or expectations during the special circumstances presented by the pandemic.

 

Your financial situation: financial hardship and housing affordability

‘Good faith’ rent reduction negotiations should include consideration of the financial hardship you are currently facing, and may continue to face if rent is not reduced to an affordable level.

What is an affordable level of rent?

A generally accepted and useful benchmark of housing affordability is whether your housing costs are no more than 30% of your gross household income where your income is below a certain threshold. For people who rent, housing costs are very often considered in terms of rent payable only. We consider housing costs to include rent plus other costs required to make the property liveable – your energy and water costs.

An absolute minimum adequate income after housing costs

At an absolute minimum, a ‘fair and reasonable’ offer should ensure the reduced rent payable will allow you enough remaining income for your other everyday living costs, like food and healthcare. It may be useful to refer to the absolute baseline on sufficient income set in the Healthy Living Budget Standards developed by the Social Policy Research Centre UNSW as a guide.

The figures below are drawn from the Healthy Living Budget Standards, and set out a required adequate income after housing costs for various household types. They are applicable in the NSW context, and have been adjusted in line with inflation and rounded down to the nearest whole dollar.

  • Single person: $297
  • Couple, no children: $465
  • Couple, 1 child: $609
  • Couple, 2 children: $755
  • Sole parent, 1 child: $459

Make sure any rent reduction offer made allows your household sufficient income after housing costs to meet your basic living needs. 

Remember where reduced rent offered includes deferred rent (wholly, or in part) you need to consider whether this in terms of affordability in the immediate term, but also for the period in which repayments for any deferred rent are required.

 

The landlord’s financial situation

As part of 'good faith' negotiations you are expected to consider the landlord’s financial situation and any hardship they might be experiencing, or that may result from a reduction in your rent.

Landlord’s Insurance

The landlord may say they are not able to enter into negotiations or offer any rent reduction because their landlord insurance does not allow them to do this. While a landlord’s demonstrated inability to claim against loss via landlord insurance might be one factor considered when assessing the landlord’s anticipated financial situation, it does not follow that a landlord can refuse to negotiate a 'fair and reasonable' rent reduction with their tenant.

Land Tax Relief

The NSW Government is currently offering a waiver of up to 25% on land tax for landlord’s who are required to pay land tax and where they have passed an equivalent waiver on as reduced rent for an impacted tenant. Not all landlords are required to pay land tax – in fact the number is quite small, only around 16% of NSW landlords. However a landlord who isn’t required to pay land tax is still required to enter into ‘good faith’ negotiations with an impacted tenant. An offer made by a landlord that is limited to the amount they may have received in relief, that hasn’t also adequately considered your financial circumstances and any hardship such a limit forces on you, should not be regarded as ‘fair and reasonable’.

Landlords will likely ask you if you have considered and taken advantage of the full range of relief options available to you. You can likewise ask them if they have investigated and taken into consideration any other relief they may be eligible for (including deferred mortgage repayments with their lender and where appropriate claiming losses on their income tax) when making an offer.  Details about the relief can be found here.

We have a simple step by step guide to help you determine whether your landlord is required to pay land tax. Remember, even if your landlord does not pay land tax they are still required to enter into 'good faith' rent reduction negotiations with you if you are an impacted tenant.

Relative financial position

Just as the landlord and the Tribunal will consider any assets you might have, the comparison of “relative financial position” also includes an assessment of the landlord’s assets. Often their main asset will be the property you live in. The property may have increased in value since they purchased it - this is relevant to their financial position.

You can check your home on domain.com.au or realestate.com.au to find out when it was last sold, and often how much for. This gives an indication of how much similar properties have risen in value.

It is relevant the size and cost of the landlord’s mortgage. See below for the types of information you can ask of the landlord.

General market rents and trends

Landlords should consider the alternatives to negotiating with you – the property may sit vacant, or they may need to drop the rent significantly.

Refer to the result on our Rent Tracker Postcode Tool. You can adjust it to match your property type, size and postcode. This shows what similar properties in your area are actually being rented for.

You can download a PDF of your Rent Tracker result by clicking on the download image download symbol at the bottom of the chart. You can then provide this to the landlord, agent or the Tribunal.

You should also consider the vacancy rate in your area. If there are a large number of properties vacant, this is a indication that the landlord will find it more difficult to find a tenant (and also, that it may be easier for you to find a better deal if you need to leave).

 

What information needs to be shared in negotiation?

 

Establishing you are a COVID-19 ‘impacted tenant'

Initially when you approach the landlord about a rent reduction they might ask you to demonstrate you are an ‘impacted tenant’. See eligibility criteria: COVID-19 Guide: Am I a COVID-19 'impacted tenant'?

You will need to provide some basic evidence of the change in your financial situation to demonstrate eligibility. This could include basic documents, such as:

  • proof of job termination/stand-down, or loss of work hours
  • other proof of reduced income
  • proof of any Government income support you are receiving or have applied for – indicate to the landlord or agent which of these is relevant
  • proof of prior income

The first step when initiating negotiations will involve demonstrating eligibility. This is relatively straightforward and requires only basic evidence to establish you have lost 25% of total household income due to the COVID-19 pandemic.

A landlord or agent may request a range of other financial information when you first initiate negotiations. Demonstrating eligibility should only require relatively limited documentation. However, it is likely you will need to share further financial information about your overall financial situation when you begin the next step of 'good faith' negotiations – but this is a two way street. You should also expect the landlord to be open and reasonable about sharing information about their financial situation during negotiations.

Information to be shared during 'good faith' negotiations

During 'good faith' negotiations there is an expectation you will need to share the necessary personal financial information required to provide an honest and open indication of your financial position and any hardship you are facing.

Renters have sent us examples of very intrusive forms requesting all types of detailed financial information.There is no legal obligation to provide these details, however, refusing outright may lead to failed negotiations.

If you have lost your employment as a result of the health crisis, ask your ex-employer to provide you with a short email (if you don't already have some documentation) which you could forward to the landlord/agent. You could also choose to provide your bank statement with appropriate redaction so that, for example, purchases made cannot be seen. A letter or statement setting out of your financial position (which you have absolute control over in terms of content) may also assist.

Similar to negotiating the amount of rent reduction, you should negotiate the extent of the information provided.

The Australian Securities and Investments Commission warned real estate agents in this letter that they face up to five years jail if they ask tenants to withdraw super in order to pay the rent. This can be directly by asking you, or indirectly for instance by asking you about you superannuation balance when assessing whether or not to give you a rent reduction.

Information from landlords

It is important to note that negotiations are not intended to be a one way flow of information. There is an expectation on landlords to also be open about their situation. NSW Fair Trading says the landlord should respond to you including information about:

  • their financial situation – being open and honest, including whether they rely on the rental income to cover mortgage repayments or other expenses;
  • conversations with their lender about waiving or reducing their own mortgage repayments;
  • the rent payment that they would be able to accept;
  • clarify how much of the rent payment loss (arrears) will be waived and how much will need to be repaid;
  • the value of the property;
  • if they are eligible for the NSW Government land tax relief (see also our step-by-step guide for assessing whether your landlord pays land tax)

Privacy concerns and considerations

You may be concerned about whether personal financial, health  or other information you share may be held after negotiations, and if so how this will be stored. In negotiation, privacy should be discussed very early in the process. It may be possible for the destruction of any personal information and/or documents to be negotiated.

It is certainly worth asking about the destruction of documents created in the negotiation process, except the final agreement.

Real estate agents may have some reasons for keeping records of events/transactions under the Property, Stock and Business Agents Act. If they can demonstrate the need to keep a copy of any personal information shared, you can ask what measures are in place to ensure this information is stored securely and confidentially.  If an agent has annual turnover of more than $3 million they may be covered by Commonwealth privacy law, details can be found here 

If you are using the Fair Trading formal dispute resolution process ask early on how to clarify what will happen to information collected and used during negotiations. This should be clarified for each party, but also for information collected by Fair Trading in their mediation role.

Fair Trading's general Privacy Statement can be found here and a guide to NSW privacy laws is on the Information and Privacy Commission website.  If health information is provided the Health records and Information Privacy Act will apply, see details here.

 

What can I expect in a negotiation?


While there is no guarantee what your first attempt at negotiating will look like, it is useful to be aware that NSW Fair Trading has set out what it expects should happen in a negotiation. See Six month moratorium on residential tenancy evictions during COVID-19 (NSW Fair Trading website). This information is good to keep in mind and refer the other party to:

Where an agent is involved, the agent must contact the landlord as soon as practical to inform them of the tenant’s circumstances and explore opportunities for a payment arrangement. The landlord’s circumstances and opportunity for mortgage relief through their financial provider by way of a freeze or reduced payments, or land tax and income tax relief (if applicable) must also be considered.
Fair Trading requires landlords and tenants to approach negotiations with an open mind and an empathetic ear. Understanding of both the tenant’s and landlord’s financial position will help to ensure a workable outcome.
Parties should be prepared to look at a range of options where these are affordable, such as but not limited to:

  • providing a full or partial rent waiver;
  • reducing rent in a manner that reflects the tenant’s reduction in income;
  • agreeing to a longer repayment period for tenants to repay arrears;
  • waiving arrears;
  • allowing the tenant to end a fixed-term agreement early, possibly without or with a reduced penalty or by applying the break fee formula that applies in agreements entered into after 23 March 2020 to earlier agreements.

 

The role of the agent

 

It is important to always remember that agents are engaged by landlords to act in their interests, and their Code of Conduct require them to generally act in the client’s (landlord's, not tenant's) best interests. The agent does not have you as a client – they work for the landlord. However, they do have obligations to act fairly. You should consider a complaint to NSW Fair Trading if they do not.

During this time it is useful to be able to draw to an agent’s attention that NSW Fair Trading has said the COVID-19 pandemic presents a highly unusual set of circumstances and means agents may have to change the way they relate to both parties. The NSW Fair Trading expects agents to play more of an intermediary role between the tenant and landlord to comply with both the letter and spirit of the tenancy laws and the government’s broader relief package.

They have said what was in the landlord’s best interests before COVID-19 may well not apply now, so due consideration should be given to whether maintaining an existing tenancy with changed terms may be more viable than seeking termination and attempting to re-let the property.

Fair Trading encourages agents to:

  • Ensure the process for tenants is accessible and easy to understand
  • Ensure both parties are aware of the option to engage Fair Trading for dispute resolution if the parties cannot reach an agreement
  • Ensure that correspondence is passed on/communicated in a timely manner
  • Ensure any evidence required from tenants is reasonable and sufficient to demonstrate he person is COVID-19 impacted and has suffered a loss of household income
  • Be aware that agreements for COVID-19 impacted tenants are not limited to deferring rent payments and can include other variations of a tenant’s usual obligations such a reducing rent for an agreed period, reducing rent for the remainder of the lease term or agreeing to break a lease agreement early due to financial hardship with reduction or waiver of the break fee
  • Ensure the landlord is aware of relief options available to them, including negotiating deferred mortgage repayments with their lender, the availability of land tax rebates for any rent reductions made available to the tenant, and claiming losses on their tax
  • Keep good documentary records of their interactions and discussions with landlords and tenants during negotiations, which will be especially important if the matter eventually progresses to NCAT and good faith negotiations must be demonstrated.

 

If my landlord won't negotiate?

 

If the landlord won't negotiate, you have a couple of options:

Formal negotiations

NSW Fair Trading provides a dispute resolution process that landlords and tenants can use if they can’t reach an agreement themselves.

You can do this by lodging and application with Fair Trading on their general Complaint Form.  You just need to complete this form and add the details and documents they refer to.  

Fair Trading will request evidence from the tenant about their previous income and current income from all sources, including any Government income support. Information will also be sought about any application the tenant has made for income support.

Tenants need to have an idea of how much rent they can pay when considering negotiations. Fair Trading will then contact the landlord to seek a mutual agreement on a temporary arrangement for the payment of rent.

For more Fair Trading information see their page on COVID-19 evictions, it has some extra guidance about the processes.

Moving out

Where the landlord is not responding or refusing to engage, or in a range of other circumstances where negotiations have failed, you are able to end your fixed term tenancy early with reduced penalty. You can apply to the Tribunal to terminate the agreement and will face a maximum of 2 weeks break fee.

See further information at COVID-19 Guide: If I need to move out

If you stay in the property and don’t pay the full rent you will still owe that money and the landlord can take action through the Tribunal to have you repay it.

See also COVID 19 Guide: Eviction

 

 

 

Also check out this video on negotiating rent with your landlord by Inner City Tenants Advice and Advocacy Service.