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Rental guarantor legislation sparks concern in the ACT

After months of negotiation, the ACT Government has this week enacted legislation that allows licensed commercial bond guarantors to operate within the Territory.

The move enables renters to pay a fee to a commercial guarantor rather than forking out the cash required for a bond. While the initiative has been welcomed by commercial guarantors such as Snug, it’s being eyed with caution by the real estate industry and rental bodies alike.

Snug explains their service sees renters purchase BondCover for around five per cent of the face value of the rental bond. A renter with a $2,000 cash bond could obtain BondCover for around $100 per annum and put the balance of $1,900 towards other uses.

Snug founder Justin Butterworth argues it addresses a rental system that’s “outdated and unfair”.

He explains BondCover provides similar protection as a cash bond by guaranteeing that the owner will be paid for a valid bond claim under the lease, thus retaining the tenant and landlord rights and obligations, with the option for Tribunal if required.

Should a claim be considered valid, the tenant can either pay up or Snug will honour the claim and then recoup their costs.

He explains it’s in the interests of tenants to do the right thing, because failing to pay would see them lose their no-claim bonus and be ineligible for any BondCover in the future.

“Snug research on nearly 2 million bonds uncovered that 99 per cent of renters (by value) do the right thing: around 80 per cent of rental bonds are refunded without claim, around 19 per cent is largely negotiated then resolved between parties and, of the one per cent that head to the Tribunal, the large majority of renters pay.

“BondCover is a win-win-win for renters, owners and agents. BondCover helps address housing affordability, returns precious cash back to the economy and it makes renting easier.”

But the REIACT, agents and even renter representatives are taking a more circumspect view.

Lindsey Burne is the Director of LJ Hooker Dickson and LJ Hooker Woden, and noted his agency would not be an early adopter of the service.

“We want to watch with some caution to see how this plays out in the next 12 months.”

Mr Burne outlined three main areas of concern, noting agents acted in the interests of tenants and landlords, and the service raised questions for both.

“I’m not convinced it’s great for landlords or tenants.

“I’m concerned it may be used by people who generally can’t afford a bond, but they need to be fully aware of the ongoing cost. Tenants looking at this product should be really careful and understand how much it could cost them over the long term and what happens if a claim is made against the bond.

“For landlords, how long will it take for any claims to be resolved? We’ll be recommending to our clients to sit back and watch.”

Meanwhile, he also noted the service had potential implications for the rights of tenants in general.

As explained in the Canberra Times, currently the ACT Rental Bond Authority earns interest off the bonds it holds, with part of that used to fund the ACT Tenants Union. The ACT Government earned $1.8 million in interest from rental bonds last financial year.

“What happens when a large segment of money leaves that trust?” Mr Burne asked. “There’ll be less interest available to run services.”

This concern was echoed by ACT Tenants Union executive officer Deb Pippen, who told the Canberra Times a loss of funding would mean fewer staff which would harm the amount of assistance they could provide tenants.

“We expressed our concern about the products on the whole to the government,” Ms Pippen said.

“It sounds like a sweet deal and that’s the problem; a lot of people don’t realise that instead of a bond that is being held in trust for tenants, this is an ongoing fee.”

Meanwhile, the REIACT yesterday issued a statement calling for everyone involved in renting to be fully aware of how the product worked before entering into the arrangement.

“While the changes to the Residential Tenancy Act have now made it possible for Commercial Bond Guarantee providers to operate in the ACT, it is important to remember that all parties must be in agreement for the arrangement to go ahead, i.e. the landlord (lessor), the tenant (renter) and the managing agent,” Chair of the REIACT Property Management Committee Craig Bright said.

“If either the renter or the landlord do not want to participate in a Commercial Bond Guarantee arrangement then it cannot proceed.

“Most importantly, we want to see providers being clear and upfront about the long-term premium that renters will be responsible for.

“While renters will initially only need to pay the premium equivalent 5% (approximately) of their total bond, this will only cover them for one year after which time they will need to pay another premium. If they are renting for many years – which many people now do – then this will be an ongoing cost they will need to factor in. It should be noted that none of the premiums paid are refundable.

“Another important point is that all commercial providers need to be approved by ACT Government through ACESS Canberra, who will be responsible for administering a register of the Commercial Bond Guarantee which will be updated monthly. To our knowledge no providers are yet registered in the ACT, although we understand that some already operating in other jurisdictions are interested in doing so.”

Snug is in the process of applying for licensing under the new ACT regulatory system.

 

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Cassandra Charlesworth

Cassandra Charlesworth is a features writer for Elite Agent Magazine with over 15 years’ journalism experience in metropolitan and regional newsrooms. She has a specialist interest in real estate, tech disruption and a good old-fashioned “yarn”.

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