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Rent arrears

Last updated: 29 Mar 2021

When can a residential rental provider issue a notice to vacate for rental arrears?

Rent arrears refer to money that is overdue after missing one or more required payments.

Under s 91ZM Residential Tenancies Act 1997 (Vic) (RTA), a residential rental provider may give a notice to vacate to a renter on the grounds of non-payment of rent where the renter owes at least 14 days rent within a 12 month period of the residential rental agreement. A notice to vacate cannot be issued in relation to any amount owing under a payment plan ordered by the Tribunal: s 91ZM(7).

For information on notices to vacate in general and options to challenge them see Checking notices to vacate.

Five strikes rule

A “five strikes” rule applies to notices to vacate for rental arrears.

A notice to vacate that is issued by the residential rental provider to the renter on the first, second, third or fourth occasions of non-payment of rent within the relevant 12 month period will cease to be effective if the unpaid rent is paid prior to the termination date in the notice: s 91ZM(1). A possession order application made in relation to such a notice to vacate where the unpaid rent is paid by the termination date must be dismissed: s 331(4).

A notice to vacate issued for the fifth occasion of non-payment of rent within the relevant 12 month period remains effective even if the renter pays the unpaid rent on or before the termination date in the notice. The Tribunal also has more limited options in possession order hearings on the fifth occasion of non-payment of rent within the relevant 12 month period: s 91ZM(2)(d); s 331. See further Does the Tribunal have any discretion with rent arrears applications? below.

It is Homeless Law’s view that a notice to vacate must be issued for each occasion of non-payment of rent in order to count as a “strike” for the purposes of the five strikes rule: see s 91ZM(6).

The 12 month period for the purposes of s 91ZM commences from the start date of the residential rental agreement. The 12 month period then resets on each anniversary of the commencement of the residential rental agreement: s 91ZM(7). It is therefore necessary to examine how many notices to vacate the renter has received in the relevant 12 month period of the residential rental agreement in order to assess what options the renter has access to.

Note that the rental arrears scheme for rooming houses (s 142ZF), caravan parks (ss 206AU, 206AV) and specialist disability accommodation (SDA) (s 498ZX(1)(a)) differs substantially to the scheme for residential rental agreements.

Practice tip

Arrears matters often involve pointing to facts which explain the circumstances in which arrears accrued and how the debt will be paid off. Accordingly it can be helpful to make an early assessment as to what evidence you will need to persuade the Tribunal how the arrears accrued and how the debt can be paid off in an appropriate time frame.

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Practice tip: Where renters are in arrears it is a good idea to refer them to National Debt Helpline before any Tribunal hearing. National Debt Helpline can help clients to create a budget over the phone and advise them how much money they can offer to reduce the arrears. They can also send the renter a copy of the budget and this can be relied upon in the hearing.

How much rental arrears?

In accordance with the RTA, advocates should check that at least 14 days rent was owed at the time the notice was given to the renter (i.e. at the time when the notice to vacate was served on the renter).

Renters may only be issued with a notice to vacate for arrears when 14 days rent is owing (s 91ZM(5)). Accordingly, when advising clients who have been given a notice to vacate for arrears it is important to calculate the exact number of days rent that is owed. This calculation should be made from the date on which the notice is given to the renter.

How is daily rent calculated?

Rent accrues from day to day: s 39. Arrears can be calculated by:

  • If rent is payable per calendar month: multiply monthly rental by 12 then divide by 365 (adjust for leap year) and multiply the daily rate by the number of days unpaid.
  • If rent payable per fortnight: divide fortnightly rent by 14 and multiply the daily rate by the number of days unpaid.

Social Housing Renters and Rental Rebates

If the client is a social housing renter, they will typically be charged a rebated rent. This a subsidised rent is calculated as a percentage of the total household income as opposed to market rent.

Typically, public housing renters will have their rebated rent set at 25% of the total household income and these renters do not receive Commonwealth Rent Assistance payments.

Community housing renters however will typically be charged 30% of their total household income plus 100% of their Commonwealth Rent Assistance payments. (See the Performance Standard relating to rent).

Both Public and Community housing providers regularly undertake “rent reviews” every 3 to 6 months. Rent reviews require clients to provide bank statements, Centrelink income statements and other evidence to support the renter’s total household income and household composition. This documentation is normally accompanied by a statutory declaration attesting to the accuracy of the information provided in the rebate application.

A very common reason for social housing renters to fall into rent arrears is for them to either fail to return paperwork during rent reviews or for them to fail to provide the necessary evidence for the rebate application to be assessed. Social housing providers may also cancel rebates if they become suspicious about the renter’s household composition or undeclared sources of income.

When a rebate is cancelled or not applied, social housing rental providers will charge market rent which is typically unaffordable and dramatically exceeds the rebated rent, the renter would otherwise be entitled to.

As such, it is important when acting for social housing renters with rent arrears to be alive to these issues. It is also important to resolve any underlying dispute relating to a rental rebate before any Tribunal hearing for arears. This is so the correct amount of arrears are before the Tribunal and any payment plan ordered reflects the correct rebated rent as opposed to an unaffordable market rent. This may require you to request an adjournment and consider Appealing a decision of the Director of Housing or the Appealing a decision of a Community Housing Provider if the housing provider refuses to asses a rebate, consent to adjournment or is incorrectly applying their polices.

Instructions

Given the need to understand how arrears were accrued and how they will be paid off, it may be helpful to ask the following questions:

  • How long have you been in the rented premises?
  • Have you previously been in rental arrears? (If yes, how was this resolved?)
  • Have you previously been issued a notice to vacate on the grounds of rental arrears at the rented premises? (If yes, when were the notices issued?)
  • Why / how were the current rent arrears accrued? (Although this information is important, it is also necessary to proceed cautiously in light of the potentially sensitive personal information concerned.)
  • In relation to the reason for rent arrears – is there any corroborating proof of this reason? (for example, medical or employment records)
  • Was there a change in your circumstances that made it difficult for you to pay your rent?
  • Has any payment been made since the notice to vacate? Has the rent arrears amount been reduced?
  • How will you repay the owing rent arrears? (This needs to be realistic and take into account the client’s financial circumstances and responsibilities.)

Defending a possession order application

Notices to vacate for rental arrears are not ‘immediate’ notices, and 14 days must pass after the issuing of the notice before the residential rental provider can apply to the Tribunal for a possession order: s 91ZM(5).

The Tribunal can only make a possession order if (s 330(1)):

  • a residential rental provider was entitled to give the notice to vacate (and the notice has not been withdrawn); and
  • it is reasonable and proportionate (as defined by s 330A) to make the possession order, taking into account the interests of the residential rental provider, the renter, any co-renters and any neighbours who have been affected or may be affected by the acts of the renter.

The reasonable and proportionate test in s 330A was introduced in 2021 and therefore there is limited case law available on its operation. However, an equivalent test was applied under the COVID-19 temporary tenancy laws. The following rental arrears cases decided under the COVID-19 tenancy laws may shed light on how the reasonable and proportionate test will be determined in applications for possession under s 91ZM:

See Checking Notices to Vacate, Possession – when a residential rental provider ends the rental and the Reasonable and Proportionate Test for more information.

How are rent arrears matters dealt with?

Generally, rent arrears matters rely on explaining to the Tribunal:

  • the way in which the arrears debt accrued (where applicable, your client should demonstrate that the accrual of arrears was unforeseen or related to extraordinary circumstances or some incident of hardship); and
  • the way in which the debt will be paid off, in addition to existing rental payments on an affordable payment plan.

Does the Tribunal have any discretion with rent arrears applications?

Section 331(1)(b) RTA states that the Tribunal may dismiss or adjourn an application for possession based on arrears where ‘the Tribunal considers that satisfactory arrangements have been or can be made to avoid financial loss to the residential rental provider…’.

For the purposes of s 331(1)(b), the Tribunal may adjourn the application and refer the renter to a financial counselling service or require the service to conduct an assessment of the person’s ability to enter into and comply with a payment plan in relation to any arrears (s 331(1A)). It can be helpful to encourage the client to engage with a financial counsellor at the earliest possible stage so that a budget and payment pan can be presented to the Tribunal at the hearing.

Typically, the Tribunal will elect to adjourn the possession order application for a period of time on the condition that renter will comply with the orders for a payment arrangement or obtain support from a financial counsellor. Sometimes other conditions are attached to the adjournment order under s 331(2) such as and order that the renter set up Centrepay or direct debit payment facilities. On the resumption of the adjourned hearing, if the renter has paid all of their arrears and accrued no further arrears then the Tribunal must dismiss the application for a possession order: ss 91ZM(3); 331(3)(b). If they have continued to accrue arrears then the Tribunal may make a possession order: ss 91ZM(4); 331(3)(a).

As noted above, s 331(1) does not apply if the possession order application relates to the fifth occasion of non-payment of rent within the applicable 12 month period: s 91ZM(2)(d). The reasonable and proportionate test continues to apply however. In particular, in applying the reasonable and proportionate test, the Tribunal must have regard to s 330A(h) which requires the Tribunal to consider whether any other order or course of action is reasonably available instead of making a possession order.

This leaves open some room for making submissions that the Tribunal could use its power under s 130 of the Victorian Civil and Administrative Tribunal Act 1998 (Vic) to adjourn the proceeding and attach similar kinds of conditions to that adjournment as it could have under s 331 including repayment terms and a right of renewal for the rental provider. The Tribunal however may not find that it is reasonable and proportionate to contemplate such an order given Parliament’s intended intention to exclude s 331 on the fifth occurrence of non-payment of rent within a 12 month period.

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