Landlords: How to Protect Yourself

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The other day I was at a BBQ and was chatting to someone that I had just met about what they do. It turns out that this person had done quite well in property and was now the proud owner of nine rental properties. I was intrigued by the process of how they had done so well and how they had built up their “property empire”. It was a great story. But then they said something that floored me.

“Actually, I am in the process of putting those properties up for sale, there’s just too much risk these days.”

I couldn’t believe it. This person had worked so hard to build up this amazing portfolio and they were going to give it all away! I had to dig deeper. I asked them what this risk was that they were so concerned about. Yep, you guessed it. Just one word.

Meth.

They went on to give me an hour long spiel about how meth had ruined the rental property market and how it was just too dangerous to own rentals these days. When I started asking follow up questions, it became increasingly clear that even this person, who had owned property for years, had no idea about how to protect themselves as a landlord.

This made me realise that there is a massive misconception out there about the liabilities that landlords can face, when methamphetamine contamination is discovered on site. There are a few things to consider here, so I will lay it out in a simple, step by step process of how landlords can protect themselves.

First lets discuss the very real consequences that landlords can face if they do not follow the below step by step process.

Due to the fact that the industry is unregulated, it is best to refer to Tenancy Tribunal cases in order to ascertain the penalties that have been faced in the past. There is a case that was reported on last year that I will refer to.

In this particular case, the tenants made the decision to book a methamphetamine test for the property in which they were staying. Unfortunately the property produced a failed result. At this stage, the matter was taken to the Tenancy Tribunal and as you may have expected, the adjudicator found in favour of the tenant. There were three outcomes for the landlord.

  • The landlord was required to refund the tenant for part of the rent that the tenants had paid up until that point.
  • The tenants could immediately stop paying rent.
  • The landlord could not evict the tenant until the property had been remediated and produced a passed result.

So why was the landlord held responsible in this instance? Ultimately in this instance it is a pretty straightforward case. The landlord had not obtained baseline test before the tenant had moved into the property. Due to this, there were two key factors.

  • The landlord had no way of proving that it was in fact the tenant that was responsible for the contamination.
  • The landlord had subjected the tenant to a home that was not deemed safe to inhabit.

So, in this instance I can completely see why the landlord was held responsible and why this person that I met at the BBQ was so nervous about owning rental properties.

So how can you as a landlord protect yourself?

Firstly, I know what you are going to say. “I already have tenants in the property, so I can’t do a baseline test.” Ultimately, you are right and unfortunately if there is a contaminated result, then you as the landlord will be held responsible. So yes, this is a risk, but it is a risk that you have to take. Ultimately if you really are that worried about it, then give your tenants a 90 day notice, wait for them to move out and then do the test. If you are that concerned that the property has become contaminated, then you probably don’t want those tenants in your property anyway.

Once you have done the test, you have a baseline and can now move forward with significantly reduced risk. Here is a step by step process to follow for properties that are not yet tenanted, that you currently have vacant, or that is about to have a tenant leave for whatever reason.

  • Talk to your insurance company and ensure that they will cover you in the event that a property that you own becomes contaminated by methamphetamine.
  • Get a baseline test. Make sure that whoever you choose to use, provides you with a full and exceptionally detailed report about the areas tested and the results of the test.
  •  Lodge this report either in your own records or with your insurance company.
  • Write into the tenancy agreement that a methamphetamine test has been conducted prior to the tenants moving in and that another methamphetamine test will be conducted when they move out.
    • This not only protects you, but makes it clear to the tenant that any methamphetamine contamination will be discovered and that they will be held responsible.
  • Conduct regular property inspections (at least 6 monthly) and keep your eyes peeled for any tell-tale sign of methamphetamine use and manufacture. This means smoking apparatus, discolouration of any sinks, toilets and external drains as well as unexplained dead spots in the lawn.
  • If you have any doubts, get the property tested immediately. Note that it is highly recommended that the company that you use for subsequent testing, tests the exact same spot each time that a test is performed.
    • So the key here, is to ask the company that you are considering using about their standard operating procedures prior to contracting them for the test.
  • When the tenant moves out, immediately get the property tested. Again it is recommended that the company that you use for subsequent testing, tests the exact same spot each time that a test is performed.
    • This also acts as the new baseline test prior to the next tenant moving in.

Additional key factors

  • Make sure that you use a reputable testing company that does not also offer remediation. Clearly this is a massive conflict of interest.
  • It has also been noted in the media that property managers that also conduct methamphetamine property testing may also be in a conflicted situation.
  • Ensure that the testing company that you select is willing to go to any tribunal situation and stand behind their tests as an independent third party.
  • Ensure that the testing company that you use carries multimillion dollar public liability and professional indemnity insurance.

So, back to the BBQ. I ran through these points that with the person that I met and I am very pleased to say, that they have decided to hang onto their rental properties for a little longer. They were absolutely over the moon!

 

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