We note with some interest that the concept of Fair Trading is becoming antique! It is now all part of Service NSW and Fair Trading has been relegated to business unit. Maybe somebody recognised that there was no “fair” in Fair Trading.
On 23 March 2020, Fair Trading commenced amendments to the Residential Tenancies Act 2010 (RTA). Notwithstanding that the COVID-19 was well and truly in swing, Service NSW determined to impose new burdens upon landlords.
Part 5A of the RTA now imposes minimum standards upon landlords. A landlord must ensure among other things that the property is structurally sound, there is sufficient light and adequate ventilation. There are four other standards, but they relate to the connection of utilities and essential items that don’t create any real change to a landlord’s obligations.
Now, landlords must deliver a property that is structurally sound and has sufficient light and air. Property Managers need to now sign off on this requirement. We will talk about this new obligation for Property Managers in later additions of this newsletter.
The value of a rent roll is adjudicated against a benchmark figure. In other words, all rent rolls have a general valuation.
For example, for each dollar of management fee, a value of a rent roll is 3.5 times.
After identifying the benchmark valuation figure, a rent roll is de-valued on two significant areas:
- Compliance, and
When discussing the item of risk, you don’t merely consider the risk associated with the law, licensing and litigation. Risk means in this context, the impact on the cost associated with conducting a rent roll.
It has always been the case that, landlords who do not maintain and repair their property, cause a deduction in valuation. Landlords who don’t repair and maintain their property, do not fetch the best rent for their property. By not fetching the best rent for their property, the management fee charged by the agency is reduced. Hence, it affects the value of a rent roll.
Now with these new requirements, is a rent roll further devalued? Due to the new burden that property Managers need to sign off on the structural integrity of a property, Landlords who don’t maintain and repair the common property place the agency with significant risk. If it is one of your major landlords that don’t maintain and repair their property, this could be a significant reduction of price for your rent roll.
Rent rolls are one of the best assets in business. It is one of the few assets that is valued for anticipated future income and not based on a proven track record. It is the best superannuation that I have ever seen for business owners. Notwithstanding this, if it is so important, it should be protected.
Alternatively, if you are going to buy a rent roll, part of your due diligence needs to be on the landlord behaviour. Firstly, how many properties does one landlord have; Secondly, are those landlords providing you with stock that is easy to rent; and Thirdly, are those landlords causing you significant risk.
The life of managing a rent roll is always difficult. Service NSW in their introduction of building standards during COVID 19 clearly is both unfair and another impost upon the value of our business.