Debate resumed from 4 June 2009.

Ms CHERIE BURTON (Kogarah) [7.45 p.m.]: I am pleased to support the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. This bill will further the Government's efforts in creating a fair and reasonable balance of rights and responsibilities between rental tenants and financial institutions. As members have already heard, this issue was examined as part of a comprehensive review of the residential tenancy laws. The measures in this bill were developed following careful consideration of both sides of this matter. I cannot imagine what it would be like to be ordered to leave your home with little or no notice. But the cold, hard truth of the global recession is that circumstances can and do arise when a tenant who has followed all the rules, paid the rent on time every time, taken good care of the rented accommodation, and committed no fault is, nevertheless, lawfully required to vacate the accommodation with little or no notice and with little or inadequate time to remove possessions.

I ask members to put themselves in the shoes of a tenant who has signed a residential tenancy lease in good faith, paid the bond in full, paid up to one month's rent in advance, paid for removalists, and paid a bond for connection of utility services, only to discover after several thousands of dollars in expenses that they have to go and do it all again with hardly a moment's notice. To add insult to injury, due to their landlord's financial problems tenants may face the loss of some or all of the rent paid in advance. I am sure that all members would agree that such circumstances are neither fair nor reasonable. The loss of rent paid in advance and potential delays in getting their rental bond back would cause more than enough financial stress to render some individuals homeless, not to mention facing the loss of their possessions because they do not have the means to pay for storage. This is a nightmare scenario, but it is not an exaggeration. It can and does happen to hardworking families, despite the fact they have acted in good faith.

This bill in no way implies that there is any intention on the part of lending institutions to be unfair or unreasonable when seeking to recover mortgaged property. The Government recognises that mortgage lenders are entitled to sell properties to recover outstanding debts provided they follow specific legal procedures in the Supreme Court. That said, lenders can and do act swiftly, with serious consequences for tenants, particularly those with young children or elderly family members in their care who may find it difficult to find affordable alternative accommodation in a very short time frame. This bill is another example of the Government's commitment to being upfront with the people of New South Wales about the global financial crisis. We must brace ourselves for difficult times ahead. Any possible increase in the rate of mortgagee repossessions poses serious repercussions for tenants throughout New South Wales. In my electorate of Kogarah 10 writs of possession were executed in the first three months of this year. Not all of those repossessed homes would have been investment properties, but for those caught between their landlord and a lending institution the Government proposal offers a statutory safety net.

This bill comes on top of protections the Government has already put in place for hardworking families who may have defaulted on their mortgage. The Real Properly and Conveyancing Legislation Amendment Act 2009 requires that lending institutions involved in mortgagee repossession sales take all reasonable steps to ensure that the property is sold at not less than the market value. It is only right that the Government seeks to better secure tenants in the face of the global recession. As detailed in the agreement in principle speech for this bill, the Rees Government intends to introduce a major package of residential tenancy law reforms. It is anticipated that an exposure draft bill will be released for public comment before the end of the year. However, the wise and proper decision has been taken to move forward with this particularly significant measure to offer immediate and effective relief for tenants. Clearly, this is a priority issue that deserves the full support of both sides of the House. I understand that Opposition members have already indicated that this will be the case.

The bill contains three key elements: a minimum 30-day notice to be provided to tenants, a rent-free period over the time of the notice, and a streamlined process for the quick recovery of the tenant's bond. Those three measures are fair, proper and reasonable, and consistent with provisions in most other Australian jurisdictions. This bill injects common sense measures that will make a world of difference to tenants unwittingly caught in a difficult situation not of their own making. It will not introduce an onerous or unreasonable burden on financial institutions and mortgage providers that will threaten their viability, nor will it prevent lawful recovery of the property. The Government is progressing with a transparent and accountable approach to a serious issue as demonstrated by the number of industry stakeholders that have already indicated their endorsement of the bill. I urge all members to show their concern for vulnerable members of our community and support this bill. I commend the bill to the House.

Mr GREG APLIN (Albury) [7.51 p.m.]: I lead for the Opposition in debate on the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. The Opposition will not oppose the bill, but we will provide a number of constructive comments that have arisen from our consultation with consumer and industry organisations, which we urge the Minister to consider. What happens to a residential tenant when the landlord is in default under the mortgage and the mortgagee seeks an order for possession of the premises? That is the human issue at the centre of this bill, and it has a very real and frightening impact on many tenants in New South Wales. Recently my office was contacted by Nathan Mares, writing on behalf of his mother. He wrote to tell the story of what really happens in this situation. He said:

Late February [2009] my mother signed a Residential Tenancy Agreement for a townhouse in the northwest Sydney suburb of South Windsor. Less than two months after having moved in she was served a Notice Pursuant to Section 63 of the Real Property Act informing her that her landlords were in arrears on their mortgage on the property she is renting and that she was required from that point on to pay all rent monies to the mortgagee. The Statement of Claim from the NSW Supreme Court Stated that the mortgage was $22,987.34 in arrears, that the first default had occurred nearly nine months before and that the mortgage had been continuously in arrears since the first default. This document also revealed that a Default Notice had been served on the landlords just thirteen days before the date which my mother signed her lease agreement.

My mother has contacted her local State MP's office who contacted the Office for the Minister for Fair Trading, who have advised that:

"If it is the Bank foreclosing on the loan, they are exempted from the Residential Tenancies Act. The Bank can take immediate possession of the property and evict the tenants. The bank can claim possession straight away, and there is really nothing that they can do. The Government is aware of the problem of what rights the tenants should have. The Cabinet is considering a report reviewing tenancy laws at the moment. A decision will be made shortly. They are very mindful that tenants in this situation have very little or no rights at all."

Returning to the letter of Nathan Mares, he said:

I have been advised by staff at the Office of Fair Trading that incidents of mortgagee repossession of residential tenanted properties are becoming more and more common in the current economic climate. Every day these reforms are delayed means more and more families are left without housing through no fault of their own, potentially with little or no notice, with no recourse against reckless landlords and no legal avenue for compensation.

I would appreciate any action you can take in challenging the NSW State Government to expedite these urgent and necessary law reforms so that others do not have to experience the distress and uncertainty that our family continues to suffer through. Yours Sincerely, Nathan G. Mares"

Tenancy advocacy groups have been pressing for these changes for quite some time. The Tenants' Union has said:

The Tenants' Union and the Tenants Advice and Advocacy Services saw a wave of these cases a couple of years ago, when interest rates were rising. We expect to see another wave in the coming months, as unemployment rises. This time, it looks like the law will better protect tenants.

Current laws offer the tenant no support. The tenant has had to pay for not only removal costs but also other expenses involved in finding a new home. The tenant loses doubly—their home and the expense—for the landlord's inability to pay the mortgage. Notice is uncertain for the tenant too. This is an unfair situation and it could become more common in the current hard economic times, particularly now that many ordinary wage earners have acquired residential investment property and have borrowed to the hilt. If the landlord loses their job, they cannot pay the mortgage and the unfortunate scenario unfolds, dragging down the tenant as well.

This problem is not new, nor are the solutions. A briefing paper was prepared for the Government on residential tenancy issues in 2007. It recommended the introduction of a 30-day notice period to tenants if a mortgagee wanted vacant possession after foreclosing on a mortgage. This recommendation disappeared into the void for a long time. Tasmania introduced into law essentially the same protection in 2004, only with a 28-day notice period. Both Queensland and Victoria have already introduced a notice period. A June 2008 article in the Sydney Morning Herald dealt with the plight of some residential tenants who were asked to leave. The article quoted the then Minister as follows:

The Fair Trading Minister, Linda Burney, said the loophole would be addressed in a review of the Residential Tenancies Act that began in 2004. That report was due in April [2008]

Renters and landlords, however, can only speculate how the Residential Tenancies Act will be changed. Despite Ms Burney assuring voters this issue was a priority for 2008, she was unable to say yesterday if the report would be finalised by the spring session of Parliament.

"We had a bigger response in terms of submissions than we expected, it was over 1500," Ms Burney said yesterday.

"It is taking longer than anticipated but it is a very high priority for me. We still need to go through the process with other agencies to make sure it does not create additional red tape."

The number of submissions is indicative of the high level of interest for a thorough update of the residential tenancy laws and of the need for prompt action—1,500 submissions is not something to boast about. It means that a vast number of organisations and individuals are not happy and want the Act improved. The 1,500 are still waiting, for today we are dealing with just a couple of the multitude of residential tenancy issues that need attention. The various reviews and reports, following extended efforts by community and other member industry organisations to prepare detailed submissions, have not yet borne fruit. The Residential Tenancies Act 1987 has not had a proper upgrade in the 20-plus years of its operation—this is long overdue! The investment and rental landscape has changed markedly over this time.

At present around 22 per cent of Australian households rent from the private sector. The figure is higher in New South Wales—around one-third, says the Minister. These rented households have a vital interest in this bill. It is important when reading the bill to understand just how vulnerable households have become to mortgagee repossession. According to the Australian Bureau of Statistics in its March 2009 release of information compiled from the last national census:

The onset of the global 'credit crunch' in mid 2007 and the subsequent financial turmoil appears to have discouraged households from taking on new debt. As an example, the number of owner occupied housing commitments (including refinancing) fell by 22 per cent from the December 2007 quarter to the December 2008 quarter (from 200,000 to 156,000).

However, these developments follow an unprecedented period of growth in household debt in many developed countries over the past 30 years.

One concern about this high level of debt is that in the event of an economic downturn some households may have trouble servicing their debt. Households with high levels of debt that wish to reduce their level of gearing may be affected by falling asset prices.

Based on information from the Reserve Bank of Australia, over the last 18 years the total amount of debt owed by Australian households rose almost six-fold. At September 1990 the level of household debt was almost $190 billion, increasing to around $1.1 trillion by September 2008 in real terms (i.e. adjusted to remove the effect of inflation).

Most debt was incurred to buy houses. Between 1990 and 2008, debt for investor housing increased from 11 per cent to 27 per cent of all household debt.

In 2005-06 12% of households had debt for rental properties and/or other property (including households living in rental properties who had borrowed money to buy or build a home somewhere else).

We are becoming a nation of landlords—almost one in eight households is a landlord. It is no longer an exclusive, wealthy club. Therefore, this bill will impact on ordinary households who are tenants and ordinary households who are investor-landlords. Members are undoubtedly aware that this debt burden has now, in tougher financial times, spilled over into a failure to keep up with the mortgage repayments. Again, as the Australian Bureau of Statistics noted:

Higher arrears rates in New South Wales have been related to relatively weak economic conditions and housing markets in areas of the State. As an example, the increase has been greatest in western Sydney (up from 0.25 per cent in March 2004 to 1.28 per cent in July 2008) where house prices have been under downward pressure and where a disproportionately large number of borrowers took out investment housing loans around the peak of the house price cycle. The 2004-2006 increase in arrears rates in New South Wales resulted in a sharp increase in the number of court applications for property repossession as a proportion of the dwelling stock, from 0.10 per cent in 2003 to 0.22 per cent in 2006 (steady at 0.22 per cent in 2007).

In its March 2009 Financial Stability Review the Reserve Bank of Australia updated the arrears figures and stated:

Across all housing loans in Australia, it is estimated that around 20,000 borrowers were 90 or more days behind on their mortgage repayments in December 2008, compared with an estimate of 13,000 the previous December.

The arrears rate for investor loans now exceeds that for owner-occupier loans; available evidence indicates that investor loans tend to have higher gearing, and be for larger amounts, than owner-occupier loans.

Loan arrears have increased in all States over the past year, though they remain much higher in New South Wales than elsewhere, and particularly in regions in western Sydney.

The past decade has ushered in enormous changes to the way we borrow money to finance residential property acquisition. Generous terms, easy finance, the emergence of non-traditional lenders, securitised loans, the banks becoming competitive once again, new line-of-credit loans that never reduce the principal, loan-to-valuation ratios exceeding 100 per cent, and the ability to borrow huge sums of money are all factors that have drawn ordinary wage earners into becoming property investors and landlords, carrying mountainous levels of household debt. These are significant structural changes to our housing finance landscape, leaving landlords and, in turn, their tenants, vulnerable to the effects of foreclosure.

Currently in this State we have evidence of declines in housing values and higher arrears rates. The pressure is on—two years late, but better late than never—to put proper consumer protections in place. Members should understand the process of what actually happens when a mortgagee forecloses. When the landlord's loan repayments fall in arrears this becomes a default under the terms of the mortgage. If the situation is not remedied, eventually the mortgagee will make application to the court for an order for possession of the premises. At that point the mortgagee should notify any affected tenant of its application by a notice to occupier.

Once the court order for possession is made, the lease is terminated and the tenant is now "holding over", to use the correct terminology. Under the current law the mortgagee must give a tenant reasonable notice of proceedings, but there has been no guidance in law as to what period of notice is reasonable. I believe that has resulted in inconsistency in industry practice. This is to be expected. Tenants are left in a frightening position, not knowing when they must vacate; if they must vacate at all; where to find the money for removalists and a new bond and initial rent in advance; and how to get their old bond back. As the case of Nathan Mares' mother illustrates, this is distressing not only to the tenant but to the tenant's wider family and those who care for him or her. The process has been fraught with uncertainty. Under the bill a minimum 30-day notice period is required. This is welcome, following on from community submissions made years ago. In Victoria notice is required under section 268 of the Residential Tenancies Act 1997, which states:

(1) If a mortgagee in respect of rented premises under a mortgage entered into before the tenancy agreement was entered into becomes entitled to possession of, or to exercise a power of sale in respect of, the premises under a mortgage, the mortgagee may give the tenant a notice to vacate the premises.

(2) The notice must specify a termination date that is not less than 28 days after the date on which the notice is given.

In Queensland the legislation takes longer to get to the same destination. Section 187A (3) of the Residential Tenancies Act 1994 provides:

The appointed person must not obtain possession of the premises unless, at least 4 weeks before obtaining possession, the appointed person or mortgagee gives the tenant written notice informing the tenant that possession is to be obtained.

Maximum penalty—50 penalty units.

The Opposition agrees that a minimum 30 days is fair to all parties, particularly as it will usually take much longer than that for a mortgagee sale to eventuate. Importantly, this notice period is not fixed at 30 days but can be extended. The second part of the bill provides a rent concession to the tenant. Section 71A (3) states:

The former tenant:

(a) is not, during the period in which the former tenant is holding over after termination of the residential tenancy agreement, required to pay any rent, fee or other charge to occupy the residential premises, and

(b) is, if the former tenant has paid any rent in advance for any part of that period, entitled to be repaid the amount of that rent.

Under subsection (4) the tribunal may order repayment of rent to the former tenant. As the Minister explained in her speech:

The purpose of this amendment is to provide a level of immediate compensation for tenants to help cover their relocation expenses. This includes removalist costs and payments for electricity and other utilities to be connected at their new home. Unfortunately there are occasions when tenants are evicted by a mortgagee just days or weeks into a new tenancy meaning that the money they spent on moving in has essentially been wasted.

It should be noted that not everyone agrees with this solution to the issue of relocating the tenant's expenses. Having consulted with the Real Estate Institute of New South Wales and the Institute of Strata Title Management, there is concern among practitioners about the automatic application of this compensation. They say this is not a burden on the mortgagee but ultimately is a cost borne by the landlord, who is already in financial difficulty. The concern has been expressed to me that in particular circumstances a 30-day rent abatement might exceed the true cost to the tenant. The suggestion has been made that arguably this is a matter best handled by the Consumer, Trader and Tenancy Tribunal. However, we acknowledge the pragmatic approach of an automatic provision for 30 days, although our interest would again be roused should mortgagees start using longer notice periods or seek to profit from the situation or simply fail to diligently collect rent and apply it to the borrower's account. I return to the critical part of the bill. Proposed section 71A (3) states:

The former tenant:

(a) is not, during the period in which the former tenant is holding over after termination of the residential tenancy agreement, required to pay any rent, fee or other charge to occupy the residential premises.

Here we have a problem. There is no requirement that the mortgagee deliver its notice to the tenant within any particular period after obtaining the court order for possession. There is no requirement then that the section 71A notice be limited to any particular number of days, and there is no requirement that the rent holiday ceases. We are potentially going beyond 30 days rent as the rock-solid standard for withholding rent. The Consumer Credit Legal Centre says it has on occasion "saved" some landlords, even after the issue of a writ for possession, by demonstrating their capacity to get the loan back on track. One can imagine, for example, if the property has been untenanted and then, after the order for possession is made or shortly before this point, a tenant is found and the property is producing income again. This is where financial counselling might lead to consolidation of debts or otherwise produce a budget to show the landlord can afford to keep the property after all. It is relevant to the landlord if there is going to be an extended rent holiday: this will certainly put the landlord right out of the picture permanently.

I am informed by a banking expert that the borrower's obligations to pay interest on a mortgage continue after the making of an order for possession—indeed, the debt is not satisfied until the property has been sold and the money repaid in full. Interest continues to accrue. How does this sit with the solution established by proposed section 71A of the bill? I am told that the former tenant does not have to pay rent but the mortgage interest is still rolling on. I urge the Minister to look into this apparent hole in the bill and ensure that she is not taking households that own residential investment property and squeezing them between a bank demanding interest and a tenant who is no longer obliged to pay rent. What if the mortgagee is slow to act, either through poor administration or malice against a defaulting borrower, and delays sending the required notice to the tenant? What if the mortgagee decides on a notice period of 90 days, 120 days, or six months?

The innocent tenant must receive financial support. A rent concession is a simple way of delivering this. But the standard must be set at 30 days maximum for withholding rent—not longer, and not, as presently drafted, uncertain in duration. Rent should not be squandered, but should be collected and applied to reduce the landlord's debt: That is fair all round. This is not the only uncertainty delivered by the bill. Ask yourself this question: What happens if the mortgagee does not follow the procedures to be established by this bill? Assume the financial institution, or private lender for that matter, gives the tenant less than 30 days notice in a bid to get the property onto the market quickly. What happens where inadequate administrative procedures mean the wrong notice is given? It could be an accident, or it could be bullying of a vulnerable tenant. The Tenants Union has expressed its concerns in the following terms:

It appears to us that the bill provides no remedy. We submit that the bill should be amended to provide that where a mortgagee has not complied with new s 71A, the former tenant may apply to the Consumer, Trader and Tenancy Tribunal for an order to stay the execution of an order for possession.

We are also concerned that it may be unclear whether mortgagees who take possession in contravention of new s 71A are guilty of an offence and subject to a penalty. Under the current law, recovery of premises except by order of a court or the Tribunal is prohibited (s 72(1) of the Residential Tenancies Act 1987 (New South Wales)) and a substantial penalty (200 penalty units) is attached at s 125 of the Act. The penalty provision refers specifically to s 72(1). The bill would insert a new s 72(1)A without amendment to the penalty provision, so it is not clear whether the penalty would apply to a mortgagee who takes possession in contravention of new s 71A. We submit that the bill should be amended to clarify that the penalty does apply.

We know the notice will be invalid and that the mortgagee will have to issue a correct notice. But the tenant and the landlord have both been prejudiced by these failures. Delay may be inconvenient to the mortgagee, but it can be costly to the borrower and a short notice period, for example, can be unsettling to the tenant. Where is the sanction that encourages responsibility?

Consider also what Queensland has done: Under section 187A of that State's Residential Tenancies Act 1994 a breach by the mortgagee of its notice obligation renders it liable to sanction, with a maximum penalty of 50 penalty units. Let us not act as though this kind of thing will not happen in New South Wales. Now is the time to place an appropriate sanction in the bill, both so that there is some bite to the fresh obligation now being placed on mortgagees and simply so that the position is clear. Under the current law, if the tenant hears that the mortgagee is seeking a court order for possession, it could prompt the tenant to move out in haste before having the full facts. In particular, should the landlord and mortgagee sort out the financial issues between them, and the mortgagee does not pursue a court order for possession, the lease is not actually terminated. This leaves the tenant open to compensating the landlord for loss of rent and other costs due to abandonment—a breach of the still-existing lease.

Unfortunately the Government does not put this problem to rest but instead relies on the notice period to end the confusion. At best, this is an indirect solution. A mortgagee should be required to notify the tenant irrespective of whether or not it wants vacant possession. When applying for an order it should, as part of notifying the tenant, set out its intentions for actual possession or sale. Uncertainty is an issue in itself and should be dealt with. How much stress is caused by not knowing what is to happen? How can anyone blame the tenant, in the absence of genuine information about what is going on around their home, for believing that their tenancy has been brought to an end and they may as well start packing? The estate agent might even tell the tenant the wrong thing.

I call on the Minister to tidy up this corner of the bill. Let us leave no uncertainty. The tenant should be informed as soon as possible in writing of what is going on with his or her home. This task should fall to the mortgagee when the landlord is in serious default under the mortgage and the mortgagee intends seeking a court order. It would be appropriate, and would help minimise the trauma to the tenant, if the mortgagee notified the tenant of its intentions and whether it will be moving to a mortgagee sale with vacant possession. A standard form of notice should be part of this bill, setting out in simple terms the process and the rights and obligations of the tenant and mortgagee. Acting in fear and panic on inadequate or poor information, and departing their home in haste, tenants should not wind up being pursued for future rent. This bill should have been the place where the problem of accidental abandonment was covered.

In conclusion, we do not oppose the bill. Having raised these issues with the Minister, I request that she take them on board and address them, particularly with respect to the need to, first, limit the automatic withholding of rent to 30 days rent; second, provide a sanction for a mortgagee who does not follow the notice procedures; and, third, require the mortgagee to provide early notice to the tenant of its intentions for possession and the meaning of these procedures for the tenant. Finally, I note the Minister's statement that an exposure draft bill to refurbish the Residential Tenancies Act will emerge later this year for comment. I, and at last count 1,500 others, hope it comes soon and with sufficient time allowed for hard-pressed organisations and volunteer committees to prepare their responses. Having waited this long, the last step should not be rendered slippery.

Mr NINOS KHOSHABA (Smithfield) [8.15 p.m.]: I strongly support the measures provided in the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. I have no doubt that the term mortgage stress is familiar to every member of this House. Unfortunately, for many members of our community, mortgage stress is not something that happens to other people: it is a fact of every day life in these unprecedented times. Sadly, there could be a worrying number of mortgage holders who will find themselves suffering a high degree of mortgage stress due to temporary unemployment, relationship breakdown or illness, and this potentially could include a large number of rental property investors.

In my electorate of Smithfield, 32 writs of possession were executed in the first three months of this year. That is not just a number: it represents 32 families who have lost their homes. While projected mortgagee repossessions cannot be broken down to estimate the number involving rental properties, there is little doubt that some tenants face losing their rented homes with little notice or redress. Those tenants also may be facing financial difficulties due to the same factors that have led to their rental premises being repossessed. The clear picture that emerges from mortgagee repossessions of rental properties is that the adverse impacts can be severe for both owners and tenants.

While owners suffer financial and emotional hardship from lost investments, tenants also face significant, possibly overwhelming, burdens. Ask anyone who has moved home recently. They will say that it is an expensive and time-consuming process. While most tenants are usually entitled to a full refund of their rental bond, it is most likely, if they are forced to move on short notice, that they will have to pay another bond for their new accommodation well before their original bond is returned to them. Of course, if a tenant has the benefit of having a well-paid job and a healthy bank balance, the tenant may well be able to absorb these additional costs and experience little difficulty in finding a new rental property. But not everyone will find himself or herself in such an ideal situation.

I imagine that many members have children who are young adults, or young relatives who are just starting out in their careers. They may be combining part-time or casual work with the demands of study. Perhaps members also know of young families with children or single parents who are managing work and childcare responsibilities. Other significant groups of tenants are adults who combine paid employment with the responsibilities of caring for elderly or incapacitated parents, or parents of disabled children whose caring responsibilities endure long after their children have reached adulthood. Then there are those members of our community on sickness or disability benefits, not to mention the many people who may be receiving the aged pension and are tenants in private rental accommodation.

All of those groups of people quite obviously are not in a position to incur the expense of moving in a short time frame without experiencing some degree of financial distress. They even may be forced to go into debt to survive, and that is not a good step for anyone of limited means, with poor job security, in poor health or of advanced age. The measures provided in the Residential Tenancies Amendment Bill 2009 will be of significant benefit to all the groups I have mentioned and to anyone of limited means who is facing eviction from their rental homes due to mortgagee repossession. The measures are fair and balanced, and do not disadvantage anyone. Furthermore, the measures recognise and address circumstances that can be the cause of significant problems for vulnerable members of our community. The balanced and effective measures designed to protect tenants contained in this bill are the right steps for a responsible government to take. I expect them to receive unilateral support both in this Chamber and in the other place. I commend the bill to the House.

Mr THOMAS GEORGE (Lismore) [8.20 p.m.]: The Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009 amends the Residential Tenancies Act 1987. The object of this bill is to require a mortgagee, once he or she becomes entitled to possession of rented premises to the exclusion of the tenant, to give the tenant at least 30 days notice to vacate the premises before the mortgagee takes possession and to provide that the former tenant who is given notice to vacate may withhold or recoup any rent for the period in which he or she is holding over after termination of the residential tenancy agreement. The bill amends the Landlord and Tenant (Rental Bonds) Act 1977 to make it clear that a mortgagee may authorise the Rental Bond Board to release the rental bond to the former tenant once the mortgagee becomes entitled to possession of the rented premises.

The bill will give all tenants in New South Wales legislative protection when a mortgagee seeks to recover possession of rented premises. Presently, the amount of notice given to tenants to vacate in these situations is entirely up to the mortgagee. According to the agreement in principle speech, the Government has conducted a comprehensive review of existing tenancy laws. During the consultation period urgent legislative reform regarding the plight of innocent tenants caught up in the crossfire between banks and landlords received almost unanimous support. The bill has three main objects: firstly, to require mortgagees to give tenants at least 30 days notice if they wish to recover vacant possession of a rental property; secondly, in cases where a tenant is told to leave by a mortgagee, to specify that no rent is payable during the period of the notice given; and, thirdly, to put in place a simple system to allow a mortgagee to authorise release of the tenant's rental bond.

I speak on this bill as a former real estate agent. There would not be a member of this House who does not support tenants in some way or another. However, we must also remember the landlords. If there were no private landlords in the rental market, there would be no way that the Government could house all the displaced tenants. The proposal is that tenants be given at least 30 days notice during which they will not be required to pay rent. I do not know why the words "at least" have been included. The shadow Minister and member for Albury clearly articulated the concerns that have been raised about what might happen if this legislation is passed. What about the honest mum and dad who have a business that is supported by a mortgage over a house that they have rented out and their business fails? No-one in their right mind tries to go broke, especially if they have assets at risk. They work very hard to retain them. What happens if their tenant has been living in the property for a number of years? Does that tenant deserve the same rent-free period as a person who might have rented the property for only a month, two months or a week?

We use the Consumer, Trader and Tenancy Tribunal to make determinations on other rental matters, so why should it not make a determination about the length of the rent-free period? Tasmania enacted essentially the same protections in 2005, but its legislation stipulated only 28 days notice. Queensland and Victoria have done likewise. The 30-day notice given to tenants if a mortgagee wants to take possession after foreclosure of a mortgage has not progressed despite occasional media attention. This Government should be taken to task for the delay in updating this major piece of legislation. The Act has not been updated since 1987—more than 20 years ago—despite the fact that it has been reviewed.

Ms Virginia Judge: Were you here then?

Mr THOMAS GEORGE: No, but I was a real estate agent then. I said earlier that I am speaking from a real estate agent's point of view. We all agree that we must look after tenants and there is no doubt about that. However, should the recompense be the same for a tenant who has lived in a property for a number of years as it is for a tenant who has lived in a property for one or two months? The Office of Fair Trading gets the Consumer, Trader and Tenancy Tribunal to make decisions on other rental matters. I know it is struggling to cope with its current workload, so the Minister might not want to add to its responsibilities. This bill provides for "at least 30 days" notice to be given. The length of the notice period may need to be decided by the Consumer, Trader and Tenancy Tribunal rather than by a blanket provision that applies regardless of whether a tenant has been living in a property for one week, one month or 10 years. I draw that to the Minister's attention from my perspective as a former real estate agent.

The shadow Minister correctly said that we must first limit the automatic withholding period to 30 days unless there are extenuating circumstances. If there are such circumstances, consideration could be given to extending the notice period. However, we must keep in mind that the person who owns the real estate is still copping the costs despite receiving no income. I hasten to point out that I am not taking the side of the owner against that of the tenant. The Government should provide for a sanction to be imposed on a mortgagee who does not provide the appropriate notice as set down in the legislation. The mortgagee should also be required to provide early notice to the tenant of the intention to take possession of the property and the impact that such action will have on the tenant. There needs to be negotiation. Often if the parties talk they can negotiate a suitable outcome. As the shadow Minister indicated, the Coalition will not oppose the bill.

Mr JOHN AQUILINA (Riverstone—Parliamentary Secretary) [8.29 p.m.]: I support the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. As has been indicated, the bill is a demonstration of the Government's ongoing commitment to address inequity in the community, and in this case by helping vulnerable tenants. I listened in deep thought to the contribution of the member for Lismore. I acknowledge from the outset that there are no winners when it comes to property repossessions. Everyone suffers, whether it is the landlord or the tenants. In this Parliament we must come down on the side of the most vulnerable, and in this instance the most vulnerable must be the tenants. I have some specific examples. In my electorate of Riverstone three writs of possession have been executed in the first three months of this year; in 2008 there were 35. They leave a financial and emotional scar on mum and dad investors and on tenants who lose their home through no fault of their own.

Many tenants would not even know if their landlord had a mortgage, let alone whether the landlord was keeping up with the repayments. Why should tenants have to bear the burden of their landlord not being able to keep up with the mortgage repayments? That is the issue. Although there are no winners, we need to consider who are the greatest losers. That is the question: who are the greatest losers? In this case the greatest losers are the tenants. Recently I dealt with the case of a young family in my electorate who were told by the bank to leave their rental property by the end of the week. Members referred to a period of 30 days. In this case the family was told that they had to be out of their home by the end of the week. They faced relocation costs and had to find a new home. It is a trauma for a young family to be told, with only a few days notice, that they have to be out of their home. That is truly devastating.

I feel for the landlord, who is having his house repossessed. But what about the family who, through no fault of their own and without warning, are being told to vacate their home within a few days? This came entirely out of the blue just a few weeks into a six-month lease. They entered into a six-month lease, thinking that they had at least six months in their home, and then they were told that they had to be out of their home within a few days. These tenants had spent thousands of dollars on removalists to move into the house in the first instance, on the bond and to cover other expenses. Yet they lost all of that. As I said, there are no winners in this situation. I will relate another case. I received an email that stated:

Dear John,

I am a tenant in a complex of three townhouses all owned by the same landlords (two individuals)—

I will not give the address although I think the member for Albury referred to it earlier—

Last Tuesday all tenants received a Notice advising that proceedings are underway in the Supreme Court for possession of the land due to the landlords defaulting on a loan. The first default occurred [sometime last year]. Since then there has been a continuous arrears balance and a default notice was issued.

I signed a 12 month lease [with a real estate company] and moved into the townhouse with my three younger children following separation from my husband. The eldest of these children, a daughter, is studying for her HSC this year. I had sought a 12 month lease to ensure that her studies would not be disrupted.

The other tenants and I am dismayed now to find that the mortgagee is seeking vacant possession and we may be evicted with the possibility of little or no notice being given. We are liable for rent (payable now directly to the mortgagee) until we are evicted and therefore cannot sign another lease before this occurs.

We can apply to become joint defendants with the landlord and seek additional time, however, if we were to lose, we would be liable for the mortgagee's legal costs. We cannot afford this and therefore the only course of action we can take is to write to the mortgagee explaining our circumstances and requesting favourable consideration.

I am a [professional] and have only been in my current employment for six months and it is not easy for me to take time off work to search for alternate accommodation and organise moving again, especially since the vacancy rate for rental properties in this area is

The other tenants have similar difficulties. I feel particularly cheated by the landlords as my offer to lease the property was accepted only two weeks after they received a default notice.

I understand that the NSW government has for some time given consideration to amending the residential tenancy laws to protect tenants facing circumstances such as those we are facing. I would be interested to know how this is progressing. There must be many tenants in NSW in a similar position to us, given the economic conditions. The need for reform is now urgent!

In the meantime, what are we to do? Please help us.

What we are doing is enacting legislation to help precisely the people who are in this situation through no fault of their own. One can feel for the landlord, but at least the landlord had some notice. To some degree, the landlord has got into this situation over a prolonged period, maybe through no fault of their own in the sense that they may have had adverse economic circumstances or may not have been able to manage their economic circumstances properly. But what of the tenants? Tenants sign a lease not knowing what the situation is, and they are left at the mercy of the landlords and the bank. It is hard for these people because estate agents and banks are unrelenting when it comes to the circumstances of these people. I will not mention the name of the company because I do not necessarily want to embarrass the company, but the tenant received a brief letter which stated:

Our records show that you rent is paid to This makes you $329.90 in arrears.

You are currently in breach of your lease—

they have just been told that they will be evicted—

When you signed the Tenancy Agreement, you undertook to pay the rent on time. If you have not already forwarded us your rent payment, please do so without delay.

If you have any queries please do not hesitate to contact myself

These people have been told that they are about to be evicted. Having incurred expensive removalist costs to move into the premises in the first place, they will now incur expensive removalist costs to move out of the place through circumstances not of their own making. And they receive that letter! How heartless is that! The tenant told me that she made that payment; she said, "I paid last week's rent to the mortgagee as required by a section 63 notice I received. Yesterday I phoned the real estate agent about the smoke alarm on the premises which beeped continuously on Sunday night. I was told that because I had not paid the rent to them I was going to be evicted in 14 days and given a bad rental record so that I would never be able to rent again."

That is how tenants are victimised. Estate agents terrorise and victimise tenants to get the rent, and they lord it over tenants. It becomes extremely distressing for tenants. I know there are concerns about landlords, but who are the real victims? The victims are the tenants because they are at the mercy of circumstances not of their making. Whatever we want to say about landlords, irrespective of the fact that they may be hard done by and they have some culpability, they have control over the situation that has been created. However, tenants have no control at all; they are totally at the mercy of the situation.

I support the legislation because I see that happening time and time again. As I said, in 2008 in my electorate there were 35 cases of tenants being put in this position, and in the first three months of this year I had three cases, one of which I have quoted extensively today. We need to take care of these people. We need to look after them. I know the period of 30 days is a burden on the landlord but we need to ensure that the tenant is recompensed as well. If they have incurred removalist expenses in getting into a house in the first place and are being forced to vacate their home, move furniture and relocate their families, who is going to recompense them for that? At least the 30 days free of rent, to find alternative premises, will enable them to save some money and use that money on relocation and removalist expenses.

It is a sad situation. Nobody wins in these sorts of cases, but if you are looking at who is the greater victim of the situation, it has to be the tenant. The tenant suffers the most. The tenant is the greater victim. Therefore, it is the tenant who we as a government have a responsibility to look after. They have no control whatsoever over the situation. A mortgagor landlord has some control and is able to expend considerable time and effort in prolonging a situation. A landlord would have negotiated with the banks and would have been in control for a long time.

Meanwhile, the landlord is still duping people into being tenants and signing leases. It is just not fair for those tenants. It is also not fair that the tenants, after signing those leases, found they were vulnerable. They need to be compensated in some way for the failings of the landlord. It is not fair, it is not right, and it should not have happened. Therefore, I congratulate the Minister on introducing this grassroots legislation to assist the most vulnerable in our society who have become victims in situations over which they have no control. It is time we helped them. That is why this bill is good legislation and needs to be supported by the House.

Mr ROB STOKES (Pittwater) [8.42 p.m.]: I speak on the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. I note the contribution of the Leader of the House on this bill. I note his statements in relation to the various weaknesses of the parties involved in these sorts of terrible situations where a mortgagee exercises the power of sale. However, in my experience as a solicitor on the northern beaches it is difficult to say who is in a more vulnerable or weaker position, the landlord or the tenant. It depends on the circumstances. Often landlords end up in these situations through no fault of their own. Obviously, tenants are also often in a very weak position, but the generalisation that one party is always in a weaker position is not necessarily reflected in reality.

The underlying problem is, while there is a clear relationship of interest between the tenant, a borrower landlord and their lender, according to the basic doctrine of privity in contract law, two contracts are running alongside each other, one between the tenant and the borrower landlord and another between the borrower landlord and the lender. While the tenant has a clear interest in the attitude of the lender, there is no contractual relationship between them. So, the doctrine of privity, in one sense, sets up this problem.

A tenant's rights are secured through her contract with the landlord. Consequently, a tenant's security comes to an end when the landlord's does. While lenders can and do negotiate with a borrower before repossession of the property, which is very much a last resort, tenants have very few rights if a lender exercises its power of sale, regardless of how much they are paying, how long they have been there, and how timely their rental payments have been. Currently, a longstanding tenant, with an impeccable rental record, can end up being a completely innocent victim of a landlord's default.

This problem was outlined in an issues paper on residential tenancy issues in 2007. A couple of years later, the problem has become very real, with almost 400 repossessions taking place in the first quarter of this year. This bill is designed to deal with the problem, and it does so in three ways. The first is by requiring a mortgagee who becomes entitled to possession of rented premises, to the exclusion of the tenant, to give the tenant at least 30 days notice to vacate the premises before the mortgagee takes possession. The second is by permitting the tenant to withhold or recoup any rent payments for the period in which they have been given notice to vacate. The third, under the Landlord and Tenant (Rental Bonds) Act 1977, is by permitting a mortgagee who becomes entitled to possession of a premises to authorise the release of the tenant's rental bond.

At first glance this bill appears to be an entirely appropriate response to the real problems that can be encountered by a tenant, although a few points need to be kept in mind. First, in my experience, the situation being addressed by this legislation occurs infrequently, when one looks at the totality of residential rentals in New South Wales. When it occurs it can generate terrible consequences, but we have to keep in mind that in relation to the vast majority of residential rental agreements in New South Wales this problem does not arise. In practice, the mortgagee will normally let the rental agreement continue, giving the landlord time to sort out finances, remembering that a tenancy provides an income which can help a landlord to meet debts. Alternatively, the mortgagee will use the rental payments to cover the mortgage payments for the duration of the tenancy agreement.

I make this point because in protecting the rights of tenants, which is a laudable and important objective, this legislation may have a particularly damaging impact on a landlord at a time when the landlord is also very vulnerable. The key is to provide certainty—certainty of rights that will protect innocent tenants, and certainty for mortgagees and borrowers as to what might happen in the case of repossession. Other States have provided a certain process by legislating a 28-day mandatory notice period, in which a tenant is not required to pay rent. Yet, the fact that this legislation seems to allow for the rent holiday during the 30-day minimum notice period before possession can be taken to be extended to whatever period the mortgagee deems fit could have a catastrophic impact upon a borrower landlord subject to the repossession, and who, by definition, is in a particularly parlous and vulnerable financial position.

For example, the situation could arise where a borrower landlord is unable to meet mortgage repayments because of an ongoing, but ultimately solvable, cash flow problem. Unable to reach an arrangement with a nervous or inflexible lender, or a capricious lender with whom the borrower's relationship has deteriorated—perhaps over other unrelated financial dealings—the borrower landlord is served a notice to pay, following which the lender indicates that it will exercise its power of sale. At this point the tenant seeks some certainty about their position, and, because the lender is not keen to sell in a weak property market, or is not well disposed toward the borrower, is able to negotiate a vacation date eight months into the future. The lender gives the tenant a rent holiday during this period—secure in the knowledge that its position is strengthened by the fact that the interest payments of the borrower continue throughout this period, and that the property market may be strengthening, or just because it might take that long to find a purchaser. After all, the tenant may agree to flexible inspection times for new purchasers, and settlement dates can always be extended to the date that the property becomes vacant.

The loser in this scenario—and the big loser—is the borrower landlord. The lender is able to take advantage of the landlord's weak financial situation—maybe to exert pressure on the borrower—and is able to continue receiving interest payments, as well as locking up the borrower's residual funds in the property, assuming there is a residue following the sale. This situation may be rare or unlikely, but so is the situation where a tenant is chucked out because of a borrower landlord's default. Surely the role of Parliament is to consider all the possible consequences of legislation in these debates. Whatever the fact, problems like this one could easily be dealt with by simply prescribing a 30-day notice period as the limit for a rent holiday in the circumstances of a default by a borrower landlord.

This would recognise the inconvenience and dislocation suffered by the tenant and would not expose borrower landlords, who may also be defaulters due to unforeseen circumstances that make them a victim as well—situations like illnesses preventing a borrower from earning an income, or borrowers with creditors who default on them. The reality is that borrower landlords do not default on their mortgages because they want to—they default, often, because of circumstances out of their control. We need laws that promote certainty and extend compassion to everyone affected in these sorts of issues, not laws that simply choose sides.

The bill is also significant for failing to address residential tenancy issues in cases of foreclosure. For example, what happens when a tenant abandons a lease when a mortgagee advises that it is about to issue a letter of demand or is about to exercise its power of sale but the mortgagee and the landlord subsequently reach an agreement about the mortgage, keeping it on foot; or when the landlord recommences payments under the mortgage before repossession is effected? These scenarios—which are most foreseeable—could see the tenant subject to hefty damages payments under the lease agreement. In those cases, the tenant is actually worse off the earlier they are informed about the financial difficulties of the borrower landlord because it creates the possibility of a longer period of rent lost if they abandon the lease on the basis of their understanding that a mortgagee in possession is planning to throw them out anyway.

This raises an enduring problem with residential leasing. While agents may require prospective tenants to undertake all sorts of reference and credit checks before recommending them for a lease agreement with a landlord, there is little a tenant can do to check on the character or credit risk of the landlord. It might be very relevant for a tenant to know whether rented premises are subject to a mortgage so that some arrangement might be made with the mortgagee in case of a default by the borrower landlord. Such an arrangement could travel as a collateral contract alongside the lease and the mortgage. There are also a couple of issues that I refer to the Minister for her consideration when a tenancy agreement was entered into before the mortgage agreement or when a tenancy agreement is longer than three years and is registered under the Real Property Act. I understand that the tenant may therefore acquire an overriding interest in the property, entitling them to remain in the property under the lease, irrespective of the interests of the mortgagee in possession.

My question is whether this legislation, unintentionally or otherwise, interferes with these rights by mandating a particular process applying to all tenants and all residential lease agreements, thus potentially disadvantaging tenants who have priority over a mortgage signed post the rental agreement. This is particularly relevant given the provisions of new section 71A (7) and (8), which state that the legislation will apply notwithstanding any previous lease agreements or contracts between the parties. Finally, what sanctions apply to a mortgagee who fails to abide by the new provisions, for example, by failing to remit rent paid for the period within 30 days of the vacation date? If the tenant has to rely on taking action in the Local Court to recover these moneys, they will never see them again. Therefore, will the Minister advise whether any penalties will apply to a failure to abide with the amendments to the Residential Tenancies Act? The legislation addresses a most important issue, notwithstanding the serious and complex issues of contract law involved, and the Government needs to look into it very closely indeed.

Mr VICTOR DOMINELLO (Ryde) [8.52 p.m.]: I refer to the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. I congratulate the Minister for Fair Trading on her agreement in principle speech, and particularly on her acknowledgement of the work of Alison Routley from the Office of Fair Trading. I concur that the bill deserves and needs the bipartisan support it has received. However, I have a number of concerns in relation to the operation of the legislation that I ask the Minister to comment on when she replies to the debate. New section 71A (5) (b) essentially allows the mortgagee, the bank, to show the premises so long as the bank provides the tenant with reasonable notice of each such occasion and the tenant agrees to the date and time of the inspection. My concern is that in those circumstances the tenant will be very concerned and upset about the bank evicting him or her with 30 days notice. This new section does not allow for any flexibility. The tenant can deny the bank access to show the premises on certain days and at certain times and the legislation contains no mechanism in that circumstance. The tenant could be a shift worker and say that any time is unacceptable.

I agree completely with the sentiments of this legislation. I also share the view that we must look after the vulnerable in our society—and a tenant who is being evicted is very vulnerable. But there has to be a balancing act. If a tenant does not comply with the spirit of the legislation what can the bank do? As the member for Pittwater stated, the other person affected is the landlord. The landlord is in the unfortunate position of having the bank sell their property. Current mortgages are not simply a lien over the real property. These days they contain a personal covenant whereby if the whole amount owing is not realised from the sale of the property, the bank can issue a bankruptcy notice on the landlord. The landlord and his or her family will then be in another horrendous situation and their lives could potentially be destroyed. For those reasons the bank has an obligation to make sure that it gets market value for the property. The bank must not waste any income stream that could come in as a result of the sale of the property because ultimately it will be used to meet the liabilities that can be discharged under the mortgage. That is the first concern that I ask the Minister to address in her reply. My second concern is in relation to new section 71A (3) (a), which states:

The former tenant:

(a) is not, during the period in which the former tenant is holding over after termination of the residential tenancy agreement, required to pay any rent, fee or other charge to occupy the residential premises

I ask the Minister: What is meant by "fee or other charge"? Does that include electricity or water charges? In such circumstances it is not unreasonable to assume that a handful of tenants will take a very aggressive approach to their circumstances and in retaliation may refill a swimming pool, for example, in order to incur additional charges. Will those charges be paid by the bank—and, in reality, by the landlord? If so, it is not fair. It would visit a terrible circumstance on the landlord, who is already in a vulnerable position. My last concern relates to the words "any court order" in new section 71A (8), which states:

This section has effect despite the terms of any court order, contract or other agreement.

New section 71A (7) states:

This section extends to a residential tenancy agreement in force immediately before the commencement of this section.

If court proceedings were in place immediately before the commencement of the new section relating to a tenancy agreement that was in force immediately before the commencement of this section, and the court made an order after hearing the parties, does the legislation effectively nullify the effect of the court order and proceedings? If that is the effect, I find the provision offensive. Apart from those comments, I agree with the intent of the legislation. I wish to protect those who are vulnerable in society—particularly during these difficult times—and the provisions of the bill, on the whole, are very good.

Ms CLOVER MOORE (Sydney) [9.00 p.m.]: I welcome the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009, which will ensure that tenants get at least 30 days notice to leave a property when a mortgagee repossesses their home. The bill exempts tenants from rental payments during this period. I represent an electorate with a high proportion of renters. The inner city has the highest proportion of rented dwellings in New South Wales. Around half the dwellings in the Sydney electorate were rented in 2006, compared with 29.7 per cent in Sydney and 27.2 per cent in Australia. Currently, tenants' leases are not protected when a mortgagee takes possession of their home and tenants can be evicted with little or no notice. I have raised this matter on behalf of a number of constituents who have faced quite distressing circumstances, expenses and homelessness following repossession due to mortgage defaults.

The legal right of mortgagees should not override tenants' rights to access their home and belongings. Renters who have been evicted tell me that they feel a sense of injustice—that they have been treated like criminals because they are renters. The Tenants Union said that there was a rise in tenant evictions when interest rates increased and says that it expects more cases in view of the global economic crisis. I remind the House about a disgraceful case that I raised with the then Minister for Fair Trading in 2005. Two of my constituents arrived home one evening to find the locks on their flat changed and a notice on the door stating that the property was now in possession of the mortgagee. My constituents were unable to get their clothes or belongings that were inside the flat, for which they had signed a lease.

The next day they received a letter from the mortgagee's lawyers stating that if they did not vacate the property, action would be taken against them for trespassing. They were allowed to gather some belongings the following day, but only under supervision. When they arrived at the flat they found a security guard inside, watching their DVDs and smoking. They had to contact the mortgagee's lawyers to gather the rest of their belongings. My constituents went to the Consumer, Trader and Tenancy Tribunal for an emergency hearing, which was not finalised until five days later, during which time they had no accommodation and were unable to access the flat. The tribunal ruling provided for a refund of their bond and two weeks rent they had paid, but did nothing to compensate them for their moving costs, nor their distress at being locked out of their home. They were unable to obtain accommodation for six weeks, during which time they were required to pay to store their belongings and were forced to impose on friends for emergency accommodation.

Tenants sign leases in good faith and when they face mortgagee repossession they should be given time to find other accommodation while continuing to live in their existing home, particularly given the current difficulties in securing rental property due to low vacancy rates. I welcome the provision to provide 30 days rent free in acknowledgement of the expenses incurred when moving house. Renters tell me that moving expenses such as removalists and paying double rent often cause financial hardship, and this new provision will ease the situation for them. These new protections are really important particularly at this time, when economic forecasters expect increased unemployment, which will lead more people to default on their mortgages and leave more renters vulnerable. I look forward to further tenancy reforms as part of the Residential Tenancies Act review. I commend the bill to the House.

Mr WAYNE MERTON (Baulkham Hills) [9.04 p.m.]: I support the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009. As stated by previous speakers, residential tenancies—particularly those entailing mortgagee repossessions—involve many complex issues. At present many tenants and landlords are facing difficult times.

ACTING-SPEAKER (Mr Thomas George): Order! There is too much audible conversation in the Chamber. Members will listen to the member for Baulkham Hills in silence.

Mr WAYNE MERTON: In many cases tenants who have not have breached their lease agreement or been in arrears in their rent payments have been confronted by a mortgagee requiring them to vacate the premises within seven or 10 days—whatever period the mortgagee thinks is appropriate—because the landlord has defaulted on the mortgage over the subject premises. Interest rates have now gone down but previously they had increased quite dramatically. Tenant evictions have become more prevalent recently as people face unemployment and landlords suddenly find themselves in difficult financial circumstances. As a result, many vulnerable tenants in this State are left in a very precarious situation when confronted by a mortgagee who gives them little notice to vacate the premises. The Government has shown great initiative in introducing legislation to provide tenants with a guarantee of at least 30 days notice before they are required to vacate premises. The member for Pittwater alluded to the fact that this type of legislation addresses many different scenarios and complexities. It is true that the bill, which seeks to amend the Residential Tenancies Act 1987, has some interesting factors. I note that new section 71A states:

If a residential tenancy agreement is terminated because of the operation of section 53 (e), the mortgagee is not to take possession of the residential premises from the former tenant who is holding over after termination of the agreement unless the mortgagee, after becoming entitled to take possession, gives the former tenant a written notice, in accordance with this section, to vacate the premises.

The bill states that the mortgagee cannot take possession of the residential premises unless the tenant is given 30 days notice to vacate. New section 71A (3) states:

The former tenant:

(a) is not, during the period in which the former tenant is holding over after termination of the residential tenancy agreement

I believe that refers to a termination pursuant to section 53 (e) of the Residential Tenancies Act 1987, which states that a residential tenancy agreement is terminated if the mortgagee becomes entitled to the premises to the exclusion of the tenant. It does not spell out what "becomes entitled to the premises to the exclusion of the tenant" means. Does it mean that when the mortgagor breaches the lease the mortgagee becomes entitled to the premises? Does it refer to when the mortgagee has served a notice of default on the mortgagor or does it mean when the mortgagee takes proceedings for ejectment in the Supreme Court to claim possession of the premises? The legislation does not define that phrase.

If there is a breach of the mortgage document, non-payment of mortgage repayments or interest, or something of a similar nature, rent ceases to be payable after termination of the residential tenancy agreement. If the mortgagee is entitled to possession when the tenant defaults on payment, does the rent cease at that stage? Or does the rent cease when the mortgagee serves the mortgagor—the landlord—with a notice of default? Or does the rent cease when the mortgagee obtains an order for vacant possession in the Supreme Court? It could be that rent does not cease at the time the tenant receives the 30-day notice; it could have ceased some period of time—maybe months—before that occurred. This matter should be resolved. If it goes back to an earlier breach whereby the mortgagee is entitled to possession of the premises and the mortgagee does nothing but let the matter drift along and the tenant is there rent-free, the mortgagor—that is the landlord—is becoming worse. The debt is increasing, because payments are going up, and there is no rent payable by the tenant.

I do not think that is the intention, but it is not for me to make that judgement. I believe that the intention of the legislation is that rent should cease at the commencement date of the 30 days' notice. If the notice is served on the first day of the month and requires possession by the last day of that month, I suggest that no rent would be payable from the first day of that month. If it goes back to the date as per section 53 (e), which refers to the termination of a mortgage, and the mortgagee is entitled to the premises to the exclusion of the tenant, the payment of rent ceases for a period in the past. Some clarification is required. I believe the legislation says that rent should cease at the time the 30 days' notice is served, but that is arguable. If people like me can allude to this situation at short notice, someone researching it thoroughly could make some very interesting arguments later to confuse the situation. The last thing the Government wants to do is confuse the situation because it would confuse not only the situation as far as liability for rent is concerned, but also it would compound the difficulty that the landlord might be experiencing.

As the member for Riverstone said, there are absolutely no winners in this situation. The landlord is a loser, the vulnerable tenant is a loser, and in some cases the mortgagee is a loser because with the falling property market there may not be sufficient money to pay the amount outstanding on the mortgage agreement. I suggest looking at these issues. There are different circumstances as far as leases are concerned. If, having signed a six-month lease, a tenant moves into a property at the beginning of a month and at the end of that month someone knocks on the door and says, "Here is a 30-day notice. You have to vacate", that is dreadful. It is harsh and unreasonable, but it is one of the realities of life. That is an instance in which the tenant should be given 30 days, and we accept that. However, if the tenant had been in the premises for some time and was on a month-to-month tenancy and if the owner wanted to sell the property the reality is that the owner has to give the tenant only 30 days' notice, which means that the tenant is in no worse a situation.

If the lease has expired and the landlord wants to take possession of the premises, even though the tenant is on a month-to-month lease, the landlord has to give the tenant 60 days' notice. One has to look at all of these situations. Tenants find it very difficult to get security of tenure. Tenants are often in very difficult circumstances, but we cannot overlook the fact that in many instances landlords are in situations not entirely the same, as the member for Riverstone correctly said: they have their own financial pressures. I do not know how the legislation should be balanced, but at the end of the day my main concern is when the 30-day period starts. Does it start when the notice is served? If that is the situation then that is entirely equitable. If it goes back to some earlier date then that is something that should be looked at.

Ms VIRGINIA JUDGE (Strathfield—Minister for Fair Trading, Minister for Citizenship, and Minister Assisting the Premier on the Arts) [9.16 p.m.], in reply: I thank the members for Kogarah, Smithfield, Riverstone and Sydney for their valuable contributions to this very important debate, and the members for Albury, Lismore, Pittwater, Ryde and Baulkham Hills for putting the Opposition's support for the bill on the record. As members have heard, the primary aim of the Residential Tenancies Amendment (Mortgagee Repossessions) Bill 2009 is to provide a fair and reasonable process for lending institutions to repossess properties without causing undue hardship to tenants.

The bill can be summarised as follows: it will require mortgagees to give tenants at least 30 days' notice if they wish to recover vacant possession of a rental property; specify that no rent is payable during the period of the notice given in cases where a tenant is told to leave by a mortgagee; and put in place a simple system to allow a mortgagee to authorise the release of the tenant's rental bond. I will address some of the issues raised by members opposite. Firstly, someone inexplicably thinks that 1,500 submissions from the public on what was acknowledged to be the greatest reform to residential tenancy law in 20 years is something to be set to one side and not discussed. The Government does not accept that these reforms have been unnecessarily delayed or could have been introduced earlier. I think 1,500 submissions on a bill of this importance demonstrates widespread community interest. It is not just 1,500 people plus one who are interested; there are more than 644,000 individual leases in the private rental market in New South Wales, which is dominated by small investors who rarely own more than one or two properties.

When the Hon. Catherine Cusack was the shadow spokesperson for Fair Trading she said that if the Government introduced a bill the following week it would be supported by the Opposition. That was at a time when the Government had released a report outlining proposed reforms to tenancy laws. The public consultation period had not even closed and most submissions had not yet been received, let alone analysed. Changing the law before knowing what the community has to say about it may be the Opposition's idea of consultation, but the Government does things properly. We have indeed taken the time to consult widely on this issue and to examine closely the complex issues involved to prevent unintended consequences; the Government makes no apology for doing so. Our commitment to helping tenants in these hugely difficult situations is shown by the way these amendments have been introduced ahead of the major package of reforms to come.

The member for Albury also raised the broader suite of reforms. The Government acknowledges that other changes to the tenancy laws are required. However, given the complex and contentious nature of many of the issues involved, further consultation will be required before these changes can be introduced. The Government intends to release an exposure draft bill for public consultation. At this stage it is expected that the draft bill will be released before the end of the year. This will provide the public with an opportunity to look at the precise detail of the proposed reforms in context. Feedback on the draft bill will need to be assessed before the new tenancy laws are introduced in Parliament for debate. It would be inappropriate to rush through any other changes before this process is finalised.

With respect to the point raised by the members for Albury and Pittwater regarding the rent holiday, these amendments will not worsen the position of landlords. Tenants will remain liable to keep paying rent while ever the landlord retains ownership of the property. Importantly, the rent holiday will only kick in when the mortgagee has officially taken over and the landlord is no longer on the scene. The Government has not accepted the suggestion made by some that tenants should be free to walk away from their lease without penalty if they find out that the landlord is having trouble with their mortgage commitments. With mortgage stress set to increase as a result of the looming impact of the global recession, the Government has drafted this bill with the intention of not making life any tougher for struggling property investors. It may well be that most tenants will accept the rent holiday period as adequate compensation and will no longer pursue landlords for large compensation payouts in these circumstances.

With regard to process, these reforms have been subject to widespread community consultation and have been in the public arena for a number of years. Despite this, the concerns expressed by the Consumer Credit Legal Centre, and repeated today by the member for Albury, have not previously been raised. Importantly, I note that the Consumer Credit Legal Centre supports the Government's policy intentions and recognises that the current situation is unsatisfactory for tenants. The bill was never designed to be a remedy for any perceived shortcomings regarding the mortgagee repossession process through the Supreme Court. The amendments in the bill complement the existing Supreme Court procedures. The bill does not attempt to alter the Supreme Court rules, court orders, or the notices sent before the mortgagee becomes entitled to possession. The bill is only concerned with the relationship between the mortgagee and the tenant once the repossession proceedings have been finalised.

I can advise that some of the matters brought to the Government's attention by the Consumer Credit Legal Centre can be dealt with administratively rather than through legislative reform. For instance, tenants could be provided with information about their rights when the court or mortgagee sends formal notices. This will be the subject of discussion with the Attorney General's department as part of the implementation process. Issues surrounding the role of the New South Wales Sheriff in light of these reforms will be part of these discussions also. The main issue raised by the Consumer Credit Legal Centre appears to relate to when the rent holiday period for the tenant starts. The bill provides that rent is not payable for the period the tenant is holding over once the mortgagee becomes entitled to possession.

Let me also correct the member for Pittwater. Firstly, New South Wales legislation goes further than other States' legislation in protecting tenants. We are the only State to provide for a rent holiday. Secondly, our position on the length of the rent holiday is clear—30 days, no more and no less. I am advised that this is properly provided for in the bill. This is an appropriate balance between the interests of both sides. The member for Pittwater also raised a tenant's rights under the Real Property Act, under certain circumstances. I can assure the member that those rights under the Real Property Act would prevail. The intention of the Government is that the rent holiday period should commence when a mortgagee issues to the tenant a valid 30-day notice to vacate. It is not meant to commence immediately the court makes a default order or a writ of possession is issued. There can be any number of reasons why these processes could be delayed, including ongoing negotiations between the mortgagee and the landlord.

I am advised that the Government's intention is made clear under the bill as it stands. As with any legislation, the Government will monitor the implementation of these reforms closely. If any practical implementation issues arise, the Government will address them in the broader package of reforms that will be released for public consultation later this year. In terms of penalties for failure to follow the procedures set out in the bill, I can advise the House that the advice the Government has is that mortgagees will face the same penalty as landlords currently face if they evict a tenant without going through the proper process. Once these changes commence, the penalty of up to $22,000, under section 72 (1) of the existing Act, will be able to be imposed on any mortgagee who recovers possession of a rental property without giving the required 30 days notice or before a notice expires. The insertion of section 72 (1A) by the bill is merely to clarify the circumstances in which a mortgagee will be exempt from section 72 (1). Section 72 (1A) does not create a new offence. It is not a stand-alone provision that needs its own penalty.

The Government does not accept that there is a need for a clarifying amendment when the law as presently drafted is already perfectly clear. If the Government is wrong, and this does prove to be the case, it could be fixed easily by a statute law amendment. The member for Lismore raised the equity between long- and short-standing tenants and the issue of a longer notice period. The Government considered a longer notice period but believes that 30 days strikes the right balance between the interests of tenants and mortgagees. Thirty days provides a reasonable period of time for the tenant to find alternative accommodation while at the same time not unduly delaying the sale process for the mortgagee. Thirty days is a considerable improvement on the few days or a week or so that tenants are given now. Thirty days is consistent with the notice period required from mortgagees in other States. It is also the same period currently given to tenants when the rented premises are sold and the purchaser requires vacant possession.

Reference has been made to the fact that the new notice period in Queensland has not started yet and will not begin until 1 July 2009. There is already criticism of the extended notice period in Queensland. Nevertheless, I can assure the member for Lismore that the Government will monitor the implementation of these amendments and will consider extending the notice period if 30 days proves to be inadequate. I can further advise members that the Government will target specifically mortgagees and the Sheriff's Office as part of its education campaign on the new laws.

ACTING-SPEAKER (Mr Thomas George): Order! There is too much audible conversation in the Chamber. The Minister will be heard in silence.

Ms VIRGINIA JUDGE: Mortgagees already comply with similar laws in other States, so the Government does not expect there will be any problems in meeting these new requirements. In the unlikely event that a tenant is threatened with being illegally locked out, a quicker and more effective approach would be to contact the Office of Fair Trading, or one of the many Tenant Advice and Advocacy Services across New South Wales, who can then speak to the mortgagee to resolve the situation. The threat of a penalty of up to $22,000 should be sufficient to obtain compliance.

The Government rejects the suggestion that there is a need for the bill to be amended to specifically allow tenants to seek orders from the Consumer, Trader and Tenancy Tribunal if they are threatened with being, or have been, illegally locked out. Tenants can already bring an action in the tribunal against mortgagees under section 76 of the Act, even after possession has been recovered. I will respond to the member for Ryde's comments about providing access for sale. Firstly, access should be a matter of agreement between the parties, and the bill encourages both parties to be reasonable on access provision. Secondly, the bill refers only to fees and charges to occupy the premises. Fees for utilities and other services would remain payable by the tenant. Thirdly, in relation to transitional arrangements, section 71 (7) makes it clear that the provisions relate only to agreements in existence at the commencement of the Act and any court order prior to the commencement that terminates the tenancy will be unaffected by these changes.

Finally, I thank members for drawing on the human experiences of tenants and landlords in these difficult and trying circumstances. This year to date, 395 writs of possession have been enforced in New South Wales. These are people's stories, and the examples the members for Riverstone and Sydney, in particular, drew on show that there are no winners. The member for Sydney is right in wanting to see this bill put into law to better protect tenants. I commend her for her thoughtful presentation to the House this evening. In the first three months of this year 18 writs of possession have been executed in the City of Sydney postcode 2000 alone. During the debate on this bill we have heard of the significant injustices that can occur and have occurred to tenants who, through no fault of their own, may find themselves in very vulnerable situations, perhaps even facing homelessness. It is for this reason that these urgent measures were overwhelmingly supported by the community during the consultation process and a broad range of industry stakeholders, including the Tenants Union, the Real Estate Institute and the Australian Bankers Association.

The member for Pittwater raised the point that this situation rarely arises. In many ways I agree. It is unfortunate that these types of matters have to be dealt with by legislative intervention and that it is not enough to rely on common human decency and consideration. These small but significant amendments to residential tenancy laws will indeed create a balance of rights and responsibilities. I emphasise that while the measures provide vital protection to tenants they do not place any onerous burdens on the lending institutions. I thank all members for their interesting contributions to the debate this evening. I know that many members of the community and indeed many members of this House are really keen to see this reform package passed by the State Parliament so that these measures can be implemented. I commend the bill to the House.

Question—That this bill be now agreed to in principle—put and resolved in the affirmative.

Motion agreed to.

Bill agreed to in principle.


Bill declared passed and transmitted to the Legislative Council with a message seeking its concurrence in the bill.