ROBERTS & OGILVIE (Residential Tenancies)
[2013] ACAT 21
•16 April 2013
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
ROBERTS & OGILVIE (Residential Tenancies) [2013] ACAT 21
RT 13/188
Catchwords: RESIDENTIAL TENANCIES – lessor’s application for termination and possession order – hardship of lessors: financial difficulties, possible bankruptcy and its impact on one lessor’s public service security clearance, need to realise property to pay financial obligations, and likelihood of lesser price for tenanted property as opposed to selling untenanted property – hardship of tenants: children one of whom has special needs, difficulties of finding an alternative property, and costs of moving and the attendant disruption - balancing of hardship between lessors and tenants
List of legislation: Residential Tenancies Act 1997, s.50 and Schedule 1 (clause 50 of the standard residential tenancy terms)
Tribunal: Mr C.G Chenoweth – Senior Member
Date of Orders: 16 April 2013
Date of Reasons for Decision: 16 April 2013
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) RT 13/188
BETWEEN:
DARREN ROBERTS &
KARLENE ROBERTS
Applicant
AND:
MATHEW OGILVIE &
NATALIE OGILVIE
Respondent
TRIBUNAL: Mr C.G Chenoweth – Senior Member
DATE: 16 April 2013
ORDER
The Tribunal Orders that:
The application is dismissed.
………………………………..
Mr C.G Chenoweth
Senior Member
REASONS FOR DECISION
The applicants are brother and sister. They are the owners of a residence at Bungendore, New South Wales and a house at Higgins ACT (" the property"). The applicants leased the property to the respondents by an agreement dated 13 February 2013. The term of occupancy commenced on 1 March 2013 and was for a 12 month period. The rent was $500.00 per week. The respondents were in occupation at the time of the hearing of this matter.
The applicants indicated in their original application to the tribunal dated 28 February 2013 that on Monday, 25 February 2013 they were notified by their financial broker that unless they sold both the Bungendore property and the property, they would both be bankrupt within three months. The applicants have debts exceeding $1 million. A substantial amount of these debts was secured by mortgages over the two properties. They notified their real estate agent immediately of their situation and that they would have to sell the property immediately. The applicants asked the agent to notify the respondents that they should not move in, so that the property could be sold with vacant possession. They considered that a sale with vacant possession would result in a higher price for the property than a sale with a tenant. The applicants also communicated directly with the respondents on 28 February 2013, asking them not to move in.
The respondents’ advice to the applicants was that the respondents had terminated the lease on their previous property, they had taken leave from work to make the move, they had hired labour and vehicles to move their possessions and they had nowhere else to move to with their three children. The respondents completed the move to take occupancy of the property on 1 March 2013, in accordance with the lease.
On 28 February 2013, the applicants served a termination notice under the lease on the respondents. On the same day, they commenced proceedings in the tribunal. The application sought a termination and possession order of the property for the reasons set out in paragraph 2.
The application was made under section 50 (1) and (2) of the Residential Tenancies Act 1997 ("R T Act"). The terms of the sections are as follows:
50Significant hardship
(1)On application by a lessor, the ACAT may make a termination and possession order in relation to premises occupied under a fixed term agreement if satisfied that—
(a)the lessor would suffer significant hardship if the ACAT did not make the order; and
(b)that hardship would be greater than the hardship the tenant would suffer if the ACAT made the order.
(2)If—
(a)the ACAT decides to terminate a residential tenancy agreement in accordance with this section; and
(b)the ACAT is satisfied that—
(i)the lessor would suffer significant hardship if the agreement were not terminated within 8 weeks after the making of the decision to terminate; and
(ii)that hardship would be greater than the hardship the tenant would suffer if the agreement were terminated within 8 weeks after that day;
the ACAT must—
(c)specify the day, less than 8 weeks after the making of the decision to terminate, when the termination is to happen; and
(d)give the tenant the notice of the proposed termination that is reasonable in the circumstances.
It should be noted that the terms of section 50 (1) require a balancing of hardship between that suffered by the landlord if the lease is allowed to continue and that suffered by the tenant if the application to terminate the lease is granted. That hardship may be quite different in each case: in the present case, the hardship claimed by the applicant was the loss of an opportunity to sell the property at the best possible price to repay their debts, on the assumption that the best price could be obtained with the sale at vacant possession. If the sales of the Bungendore property and the property could be achieved at prices that, after payment of selling expenses, equalled or exceeded their debts they would be able to avoid bankruptcy. Ms Karlene Roberts also claimed that if she went bankrupt, this could affect her employment because of her security rating.
In the case of the respondents, the hardship that they would suffer would be the need to find another property to rent, which may or may not be at a similar rent, and the costs and disruption that would affect the respondents and their children along with the uncertainty of where they should live. The effect of making the order would be to reduce the security of a 12 month right of occupancy for the tenant, to one that would be only eight weeks or less.
There is no guidance in the R T Act as to how the tribunal is to weigh those different and competing hardships, in order to achieve a just outcome. Accordingly, I have had to evaluate those competing hardships on the basis of the evidence provided by the parties, and my own assessment of the likelihood of those hardships arising and if they do, the likely effect on the parties. There are different considerations that arise for each party.
Although occupancy under the lease of the property had not commenced on the day that the applicants gave their notice to the respondents and filed their application in the tribunal, the parties had signed the lease of the property by themselves or their agent. The lease document describes the applicants as the lessors. From the time that the lease was signed the applicants were obliged to give possession of the property and the respondents were obliged to pay the rent in accordance with the terms of the lease. Accordingly, the applicants are able to make the application provided for in section 50 (1) of the R T Act.
The relief sought by the applicants was a termination and possession order in relation to the property. The grounds upon which this was sought are as follows:
"That the fixed tenancy agreement be terminated based on the fact that the lessor faces greater hardship than the tenant by having terminated. This is to allow the sale of the home for the maximum price to retrieve the debts owed by the lessor."
As noted above, the applicants have substantial debts at the time of the hearing of this matter, exceeding $1 million. These debts consist of bank loans secured by mortgages over the Bungendore and Higgins properties, other personal loans and substantial credit card debts. They have no assets beyond the properties themselves. The debts were incurred partly to build the Bungendore property and (presumably) to purchase the property, partly as a result of prior obligations incurred and for personal living and family maintenance expenses. A folder setting out their financial details and the current level of indebtedness on the number of their accounts was provided to the tribunal and the respondents.
There was no explanation as to why the applicants did not realise prior to the signing of the lease for the property that they were in a very difficult financial situation, nor what consideration they had previously given to their financial position prior to the meeting on the 25th February 2013 with their financial adviser. The general experience of prudent business people would seem to indicate that to take on such a very high level of debt with no clear pattern for its reduction demonstrated financial naivete, or perhaps indifference, to the consequences. The net amount that would result from a lease of the property at $500 per week for a 12 month period would be nowhere near sufficient of itself to reduce the indebtedness of the applicants, and was likely to have led to its increase. In the light of this, it is hard to see why the applicants would have taken the step that they did to lease the property. However, the respondents were unaware of any of this.
The advice that the applicants were presumably given at the meeting on 25 February galvanised them to try and reduce their liabilities through the immediate sale of the property. While the applicants resided at the Bungendore property, and Mr Roberts’ children visited there from time to time in accordance with agreed arrangements with his former wife, the applicants indicated that this residence was also to be sold and that they had instructed a real estate agent to proceed with the sale. Presumably, they would then need to find some other property to rent as a residence. The financial adviser was not called to give evidence at the hearing, but I am prepared to accept the information given about the discussion with the financial adviser as provided by the applicants.
At a directions hearing in relation to the matter, I told the applicants that there would need to be some evidence from an independent expert to indicate that their hardship would be lessened by a sale of the property with vacant possession rather than tenanted. Obviously, the property can be sold with a tenant in place. Indeed, some investors may prefer to purchase a property on that basis because there would be security of return from the date of settlement, without the need to advertise to seek to obtain a tenant. On the other hand, the sale of a property with a tenant in occupation is likely to diminish the appeal of the property to a person or family seeking to immediately occupy.
The prospect of the sale of the property with tenants in it, and the opinion of the applicants that on a sale they would receive a lesser amount of money with which to satisfy their debts, was the principal ground upon which the application was made. In addition to that, Ms Karlene Roberts said that bankruptcy would have a significant personal effect on her. She is a public servant working in a sensitive area in her department, with a high security clearance. She was concerned that if she became bankrupt because of these personal debts, her security clearance may be affected and her employment could be threatened.
In the hearing of this matter, Ms Roberts handed up the Australian Government "Personnel Security Adjudication Guidelines" (‘the Guidelines’) which refers to the question of financial considerations that could affect a security clearance. In Guidelines C, there is reference to the following:
"A clearance subject, who is financially overextended may be at a heightened risk of engaging in illegal acts, including espionage to generate funds. This risk is further heightened if the financial difficulties have arisen from compulsive behaviour, e.g. gambling."
There is no suggestion in this matter that the financial difficulties of the applicant have arisen from gambling. The applicants indicated that their financial difficulties had arisen from becoming overextended and the inappropriate reliance on a financial adviser who was advising them about their loans.
The Guidelines make it clear that an inability or unwillingness to satisfy debts could raise a security concern and may be disqualifying. I accept that if the applicants did go bankrupt because of the pressure of their personal debts, there would be an issue that Ms Roberts would have to discuss with her employer and that it may affect her security clearance. Whether it would affect it at all, or to what extent, I am unable to say. Presumably those people who have the responsibility to determine security clearances have faced this situation before, and may have a view about the effect of bankruptcy, having regard to the factors which brought it about. One may also speculate that the risk to a security cleared person rises at a time when they still have their debts and are vulnerable to inappropriate pressure, rather than after bankruptcy itself has occurred when the debts are extinguished with the usual restrictions that apply to a bankrupt. Bankruptcy itself does not necessarily indicate a moral failure: there are many in the community who have made unwise business decisions and had to suffer the restrictions of bankruptcy without that being a reflection on their character. No evidence was produced from the Department as to what view the security clearance people might take, and it is probably unrealistic to expect it. I note that it is a factor which may have an effect of potential hardship on Ms Roberts, but in the absence of any evidence I am unable to give it much weight.
The applicants have a combined salary income of approximately $170,000 per annum plus superannuation. They also receive an income of $500 a week from the rental of the property. In addition to the usual living expenses, Mr Roberts has obligations to support his children.
Both of the respondents are in employment. Their combined income is approximately $147,000 plus superannuation. They have significant personal debts of approximately $52,000, which they are working to pay off. Part of these liabilities arise from the previous business operated by Mr Ogilvie, which had to close leaving him with substantial liabilities. They have no other assets.
The respondents have three children, and incur child care and school fees for them in addition to the usual living expenses. One of their children has special needs which make it undesirable to disrupt her life by further moving. A medical certificate was produced by the respondents to explain the circumstances of that difficulty, which are not necessary to include in these reasons. Those circumstances are known to the applicants. If the termination of the lease was granted and the respondents had to find another place to live and then move to it, they could not be sure that they could find a similar place at a similar rent, and would be facing the costs of moving the family with its attendant disruption. The applicants did point to several properties in the immediate area with a rent similar to that which is being paid for the property. No assessment of their suitability in any detail has been made by the applicant, nor can be made by me. As this is an application by the applicants, it is not the responsibility of the respondents to evaluate or assess these houses as an alternative to the property. Even if one was suitable, the difficulties of moving referred to earlier remain.
The applicants have engaged Ray White Real Estate to sell the Bungendore property. Advice from the sales consultant was admitted as Exhibit B. That advice indicated that the selling time for houses in Bungendore is longer than is to be expected in Canberra, and that the number of expressions of interest and inspections is likely to be a lot less. The view of the sales consultant was that the Bungendore selling period is up to 4 times as long as they would expect in the ACT.
The applicants also obtained a letter (unsigned) from a real estate consultant with Ray White Tuggeranong. I admitted this as Exhibit A. This letter indicated that in the opinion of the consultant, the selling price of a property while tenanted is reduced from that which may be expected if the property has vacant possession. This is because, in general, tenants may not present the property as well as an owner offering vacant possession, and also because the offering of the property with the tenant restricts the sale to investors only. The view of the consultant was that the difference could "easily equate to thousands if not tens of thousands of dollars less to the vendors." The consultant’s view was that the selling time is almost always longer with a tenant in place.
There is no indication that the consultant who expressed these views had inspected the property, or was familiar with the area in which it is situated. The agent was not called to give verbal evidence about his opinion. To that extent, the opinion is of limited use as it is general comment only.
At the time of the hearing of this matter, the property had not been listed for sale. Presumably, the applicants had deferred listing the property pending the outcome of this application. General experience would indicate that in order to market the property properly, it would need to be listed for a month or so and then settlement would take place somewhere between 30 and 60 days thereafter, depending on negotiations between the seller and the purchaser. Even if the application was granted, it could be up to 3 months before the applicants received any money from the sale. If the property was listed and sold, they would at least be in a position to advise their lenders that the sale was going through and their liabilities would be reduced accordingly.
The applicants have the obligation of satisfying me that on the balance of probabilities, and in accordance with section 50 of the R T Act, the hardship that they would suffer if the application was refused exceeds that which the tenant would suffer if the application was granted.
Whether or not the application is granted, and the sale of the property at a reasonable price effected and the debts of the applicants reduced, does not ensure that the applicants could avoid bankruptcy. It would certainly reduce the extent of their debts, and may assist them to persuade the lenders to allow them further time to sell the Bungendore house, but there is no certainty in that. Further, the property may not sell for the price that they hope to obtain, and the sale of the Bungendore property may not come about, or may be a sale at a much reduced price. As indicated above, the applicants are at liberty to put the property on the market but subject to the tenancy to the respondents. While I note the comments of the real estate agent referred to above in paragraph 22, this is mere speculation (albeit based on his experience) without reference to the particular property, and would depend upon the individual circumstances of a potential purchaser.
While there is much uncertainty about the extent and timing of the hardship that the applicants may suffer if the application was refused, I am satisfied that the respondents will suffer significant hardship if it is granted. The worry and uncertainty that would have been in their minds since the approach was first made to give a termination of the lease that they had signed; the prospect of having to look for another property and negotiate a lease of it; and the time, cost and inconvenience of having to pack up their household goods and then move to a further property (even if one could be found at a suitable price and in an appropriate area) are in my opinion real and substantial difficulties. Added to this is the particular pressure that would be placed on the family due to the circumstances of the child referred to in paragraph 20 above, in relation to whom the medical certificate is tendered.
I am not satisfied on the balance of probabilities that in all the circumstances as presented in this application, the lessor would suffer a significant hardship if the tribunal did not make the order, and that the hardship that the lessor would suffer would be greater than the hardship that the tenant would suffer if such an order was made. Accordingly, the application is dismissed. The consequence of my decision is that the lease remains in place.
………………………………..
Mr C.G Chenoweth
Senior Member
PUBLICATION DETAILS
TO BE PUBLISHED
To be completed by Tribunal Staff
PART A
FILE NUMBER: | RT 13/188 |
PARTIES, APPLICANT: | Darren Roberts & Karlene Roberts |
PARTIES, RESPONDENT: | Mathew Ogilvie & Natalie Ogilvie |
COUNSEL APPEARING, APPLICANT | |
COUNSEL APPEARING, RESPONDENT | |
SOLICITORS FOR APPLICANT | |
SOLICITORS FOR RESPONDENT | |
TRIBUNAL MEMBERS: | Mr C.G Chenoweth, Senior Member |
DATES OF HEARING: | 8 April 2013 |
PLACE OF HEARING: | ACAT, Canberra |
PART B
RECOMMENDATION:
FULL REPORT ( ) CASE NOTE ( ) UNREPORTED DECISION ( )
COMMENTS:
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