Breach notices: What to do when your tenant defaults on rent

When a tenant signs a rental agreement, they are ultimately agreeing to the ‘house rules’. But, what happens when they break the ‘house rules’ and how does it impact your insurance?

It is a situation no agent or landlord wants to deal with, but it is something many do face. If a tenant breaches their tenancy agreement, responding in a quick and appropriate manner can save you time, stress and even money.

But first, what exactly is a breach?...  A breach is when a tenant disobeys the rules set out in the lease. This could include damaging the property, being a nuisance to neighbours, or a common breach is rent default. 

When a tenant falls behind in rental payments, it is important landlords and property managers act quickly. While there were moratoriums in place (due to COVID-19) to prevent tenants being evicted, things are now back to normal in most states and all routine processes to evict a tenant should be followed.

A quick response to breaches can have a big impact on your landlord insurance. 

We know it can be complicated and confusing, so we have answered common questions about how to respond to a breach when your tenant fails to pay rent on time…

HELP! My tenants are behind in rent – what should I do?

As soon as a tenant is behind in rent, a breach notice should be issued immediately to prevent further loss. NOTE: a breach notice cannot be issued until the tenant is a certain number of days behind in payments. This number varies depending on the location of the property.

So, when can I issue a breach notice for rent default?

This is when you can issue a breach notice in your state:

• Queensland - If your tenant falls more than seven days behind in rent, you can issue a notice to remedy breach (form 11), giving them seven days to catch up in payments.
• Western Australia - If your tenant falls more than one day behind in rent, you can issue a breach notice for non-payment of rent (form 21), giving them 14 days to catch up in payments.
• Victoria and New South Wales - In VIC and NSW, there is no formal breach notice for rent default. However, you can (and should) notify the tenant on the first day of the arrears, giving them 14 days to catch up on payments. NOTE for those in NSW: Due to COVID-19, a six-month transitional period (following the moratorium on evictions) has been initiated. This may impact your ability to issue breach notices and evict a tenant if their hardship is due to the pandemic. Here you will find more information.
• South Australia - If your tenant falls more than 14 days behind in rent, you can issue a notice to tenant to remedy breach of agreement (form 2), giving them seven days to catch up in payments. NOTE: If the tenant is unable to pay rent due to the implications of COVID-19, a moratorium on evictions remains in place until 31 May 2021.
• Northern Territory - If your tenant falls more than 14 days behind in rent, you can issue a notice to remedy unpaid rent (form RT03), giving them seven days to catch up in payments.
• Australian Capital Territory - If your tenant falls more than seven days behind in rent, you can issue a notice to remedy breach, giving them 14 days to catch up in payments.
• Tasmania - If your tenant is 14 or more days behind in payments, you can terminate the agreement by issuing a notice to vacate, giving them 14 days to catch up on payments.

What should I include on a breach notice?

Breach notices are different in each state, however they all pretty much notify the tenant they have done something wrong and ask for the situation to be fixed within a certain number of days.

In order to be valid, there are a number of things a breach notice should include, which again may differ from state to state. But typically, a breach notice should highlight:

• Specifics around how the tenant has breached their lease agreement and/or the Residential Tenancies Act.
• Information about the loss or damage caused by the breach.
• Details outlining what is required to be fixed or what compensation needs to be paid.
• The consequences if the tenant does not respond accordingly.
• The date (to show the day the breach notice was issued) and a signature.

If the notice is not served properly, it will not look good for the landlord if the matter goes to a court or tribunal. Tribunals have been known to completely reject a landlord’s claim in court simply because the notice wasn’t served correctly.

What happens if the tenant catches up on rent?

That is great news! Apart from making sure you have a thorough record of the breach, including the dates you issued the first breach notice and the date they responded, you don’t need to do anything else. But, if it happens again, the same process should be followed.

What if they don’t?

If the breach is not resolved, the landlord and property manager may be able to issue a termination notice and end the lease agreement. Click here to read about eviction and the next steps you should take if a breach is not resolved.

How does this whole situation impact landlord insurance?

Landlord insurance is a great safety net when something goes wrong. However, to make sure your insurance is valid, and you are able to maximise your return when it comes to making a claim, landlords and property managers need to make sure they are following the right processes.

This means, as soon as your tenant breaks the rules, a breach notice should be issued to ensure you are on top of the situation.

For example –

These are the steps you should take in Western Australia when your tenant is one day behind in rent…

Step one: Promptly issue a breach notice on day one of arrears, giving the tenant the required 14 days to catch up on payments.

Step two: If the tenant catches up on payments, great! No more steps are needed. If not, and the tenant refuses to pay the outstanding cash within the timeframe, you can issue a notice of termination, requiring the tenant to vacate the home within seven days. Click here for more info about issuing a termination notice.

This is what you shouldn’t do…

Do not wait until it is too late. While it seems odd to delay issuing a breach notice, it is common in a downturned property market where rents are decreasing. This is because landlords oftentimes fear they will lose their tenant and get less rental income. 

However, reality is, the tenant is likely to continue to default on rent and the landlord will be out of pocket further as the insurance cover for arrears is typically capped at a certain number of weeks.

How landlord insurance plays a part

If you are a client of EBM RentCover (and have a RentCover Ultra or Platinum policy), this is how insurance would help in the above example…

EBM RentCover would typically cover up to six weeks from the period from the day after the rent was paid up to, to the day the tenant vacates the property + if you have a fixed-term lease, we would cover the time it takes to secure a new tenant.

If, however, the tenant refuses to leave the property within the timeframe outlined in the termination notice, the landlord/property manager may be required to apply to the courts for possession of the rental. This would then typically be covered under denial of access, which offers up to 52 weeks cover when a tenant refuses to leave a property.

If you have a question about breach notices and how it impacts your insurance, contact EBM RentCover’s Expert Care team on 1800 661 662.

*While we have taken care to ensure the information above is true and correct at the time of publication, changes in circumstances and legislation after the displayed date may impact the accuracy of this article. If you need us we are there, contact 1800 661 662 if you have any questions.