What tenancies are covered by the Act?

The Bill repeals the current exclusions from the Act of tenancies with a substantial service component and of boarding houses. The exclusion of premises used principally as a residence by the landlord or the landlord’s family is extended to cover the owner or the owner’s family. It is also made clear which School hostels (i.e. those within the meaning of section 2 of the Education Act 1989) are exempt from the Act. It is also made clear that for tertiary student accommodation to be exempt from the Act the accommodation must:

• be used exclusively to accommodate tertiary students; and
• must be owned or operated by a tertiary education provider or a person who has a written agreement with the relevant tertiary education providers setting out the respective rights and obligations of the parties, providing for a dispute resolution process and relate to services to the students over and above the services required under the Act (Part I, Clause 6 (amending Section 5 of the Act) and Clause 7 (inserting New section 5B into the Act)).

Fixed term tenancies

The Bill reduces the period of fixed term tenancies exempted from certain provisions of the Act from 120 days to 90 days and also provides that the parties may not enter into such short fixed-term tenancies in order to provide a trial period for testing the suitability of the parties (Part 1, Clause 8, amending Section 7 of the Act).

Landlord must appoint agent

The Bill requires landlords who are absent from New Zealand for longer than 21 days to appoint an agent and to notify the tenant of the agent’s name, contact address, and address for service. If a bond is held in respect of the tenancy, the chief executive must be notified of those particulars in the prescribed form. An agent appointed under this section has, vis-à-vis the tenant, all the rights and obligations of the landlord. (Part 1, Clause 13 inserting New Section 16A into the Act).

Body corporate rules part of tenancy agreement and rent reassessment

The Bill provides that where a unit under the Unit Titles Act 1972 is subject to a tenancy agreement the body corporate rules which affect the tenant must be set out in the agreement. The Bill also permits a tenant of a unit who is affected by a change in the body corporate rules to apply for a rent assessment within three months of being notified of the change or otherwise becoming aware of the change (Part 1, Clause 13, inserting New Section 16B into the Act; Clause 19, amending Section 25 of the Act).

Landlords may not demand additional security

The Act at present prohibits landlords from requiring tenants to provide landlords with a security that is not either a bond permitted by the Act or a guarantee.

The Bill clarifies that the provision of security includes means by which landlords are given access to the accounts of tenants, such as the imprints of credit cards or PIN numbers of credit cards or charge cards. Requiring a tenant to provide security (other than a permitted bond or guarantee) is declared to be an unlawful act and the Tribunal is given power to award exemplary damages to the tenant (Part 1, Clause 14 inserting New Section 18A into the Act).

Landlords duties on receipt of bond

The Bill clarifies that the landlord’s duties on receipt of a bond apply also in the case of part-payments on account of a bond and also provides that those duties do not apply in the case of a bond paid by a tenant under a boarding house tenancy, as long as the bond does not exceed one week’s rent (Part 1, Clause 15, amending Section 19 of the Act).

Refund of bonds

The Act at present provides that if the parties agree on an application for a refund of a bond, the refund is made in accordance with the application. If a party contests an application, the chief executive refers the matter to the Tenancy Tribunal. If a party does not respond, the chief executive has a discretion whether to make the refund or refer the matter to the Tribunal.

The Bill provides as follows:

• in cases where the bond is in dispute, it is for the parties, not the chief executive, to take the dispute to the Tenancy Tribunal. If a party applied to the chief executive for a refund of a bond that is in dispute, the chief executive would be obliged tell the parties how to apply to the Tenancy Tribunal for determination of their dispute;
• a landlord would not be able to apply to the chief executive if more than two months had passed from the termination of the tenancy, but would instead have to apply to the Tenancy Tribunal directly;
• where no claim was made within two months of the termination of a tenancy or the bond monies are not uplifted within two months after a refund is approved, the chief executive may exercise a discretion to take steps to refund the bond (including, if necessary, accessing information under the Social Security Act 1964 to supply address information to the chief executive for the purpose of refunding the bond) (Part 1, Clause 16, repealing Section 22 of the Act and inserting New Sections 22 to 22E into the Act).

Responsibility for outgoings

The Bill provides that the landlord is responsible for all outgoings that are incurred whether or not the premises are occupied, such as general rates, insurance, and, where applicable, body corporate levies. The landlord is also responsible for outgoings for common facilities.

The tenant is responsible for outgoings that are exclusively attributable to the tenant’s occupation of the premises or the use of the facilities. The Bill sets out examples such as charges for electricity and gas, telephone and Internet, and charges for water based on consumption (Part 1, Clause 23 substituting Section 39 of the Act).

Tenant's responsibilities and tenant's burden of proof relating to damage

The Bill provides that a tenancy agreement may stipulate the maximum number of persons that may reside in the premises and creates four new types of unlawful acts as follows:

• a tenant’s failure, without reasonable excuse, to quit the premises on the termination of the tenancy;
• using the premises for an unlawful purpose;
• contravening the obligations imposed by Section 40 ("Tenant's responsibilities") in circumstances that amount to the harassment of other tenants or neighbours; and
• contravening a stipulation as to the maximum number of persons who may reside in the premises.
• The Bill also provides that the tenant must prove that any damage to the premises (not due to fair wear and tear) was not caused intentionally or negligently (Part 1, Clause 24, amending Section 40 of the Act).

Tenant's fixtures

The Bill provides that fixtures put up by the tenant and not removed on the expiry of the tenancy become the property of the landlord unless there is a contrary agreement or arrangement or if anything the landlord has said or done has led the tenant to reasonably believe that he or she is entitled to remove the fixtures after the expiry of the tenancy. The tenant remains liable for any damage caused by removing fixtures (Part 1, Clause 25 amending Section 42 of the Act).

Comment

This restates the common law position relating to tenant's fixtures.

Landlord's responsibilities

The Bill requires a landlord of premises without a reticulated water supply to provide adequate means for the collection and storage of water. and adds two types of unlawful acts as follows:

• failing to comply with the obligations imposed by Section 45(1) of the Act concerning cleanliness, maintenance, and health and safety; and
• interfering with the supply of services (eg, electricity).
• It is also made clear that the landlord’s obligation to compensate a tenant for repairs paid for by the tenant arises not just when the tenant has attempted to notify the landlord of the disrepair but also when the tenant has successfully done so (Part 1, Clause 27 amending Section 45 of the Act).

Landlord's right to enter premises

The Bill makes it clear that a landlord may enter premises if that is necessary to enable services to be provided in accordance with the tenancy agreement and also extends the landlord's right to enter the premises so that the premises can be shown to prospective tenants or purchasers or to a registered valuer to include experts or real estate agents engaged to appraise or sell the premises as well as persons authorised to inspect the premises under any enactment. The maximum fine for a landlord who uses, or threatens to use, force in entering premises is increased from $500 to $2,000 (Part 1, Clause 28, amending Section 48 of the Act).

Termination of tenancy in certain circumstances

The Bill clarifies that fixed-term tenancies may be terminated by notice if a mortgagee takes possession of the premises or in circumstances involving the destruction of or serious damage to the premises. In the case where a sole tenant dies the tenancy terminates on the earliest of the following:

• 21 days after the personal representative of the tenant or a person who is the tenant’s next of kin gives the landlord written notice of the death of the tenant; or
• 21 days after the landlord gives the personal representative of the tenant or a person who is the tenant’s next of kin written notice to vacate the premises that are the subject of the tenancy agreement; or
• on a date agreed in writing by the landlord with the personal representative of the tenant or with a person who is the tenant’s next of kin;
• on a date determined by the Tribunal on an application made, without notice, by the landlord (Part 1, Clause 29 (amending Section 50 of the Act), Clause 30 (inserting New Section 50A into the Act).

Termination of tenancy by notice

Under the Act at present, the landlord must give 90 days’ notice, and the tenant 21 days’ notice of termination. However, the landlord need only give 42 days’ notice where the landlord requires the premises for occupation by the landlord or a member of the landlord’s family or where the landlord has sold the premises and is required to give vacant possession.

The Bill makes the following changes:

• a notice that gives the tenant less than 90 days’ notice for the termination must set out the reasons for the termination
• it is clarified that, in order to qualify for the shorter period of 42 days on the ground that the premises are required by the landlord, the premises must be required by the person who owns the premises or by a member of that person’s family as the principal place of residence by the owner or a member of his or her family (a requirement by a non-owner, such as the landlord’s agent, will not qualify);
• the justification for giving only 42 days’ notice on the ground of having to give vacant possession under an agreement for sale and purchase is limited to agreements that have become unconditional

The Bill also provides for a period of notice of 14 days in cases where a tenant, who has been granted a tenancy because of his or her status as a student, ceases to be an eligible tenant.

The Bill also deals with cases where mortgagees become entitled to the possession of the premises and take the place of the landlord for certain purposes. The Act at present gives the mortgagee the right to terminate a fixed-term tenancy as if it were a periodic tenancy. The Bill gives tenants the corresponding right to terminate a fixed-term tenancy as against mortgagees in possession.

The Bill also provides for reduced periods of notice or abatement of rent where the destruction of premises or serious damage to the premises rendering them uninhabitable is the fault of either party. In that case, the party who is not at fault may give a shorter period of notice terminating the tenancy (7 days’ notice, in the case of the landlord, and 2 days’ notice, in the case of the tenant) (Part 1, Clause 31, amending Section 51 of the Act; Clause 33, inserting New Section 53A into the Act; Clause 37, amending Section 58 of the Act; Clause 39, inserting New Section 59A into the Act).

Renewal or extension of tenancy

The Bill automatically converts expired fixed-term tenancies into periodic tenancies on the same terms as the expired tenancy, unless either party gives notice to the contrary within a period starting 90 days before the expiry of the tenancy, and ending 21 days before the expiry. The Tribunal may order that a tenancy continued as a periodic tenancy under this provision be terminated at an earlier date if satisfied that the hardship the applicant would suffer from the effect of the continuation of the tenancy exceeds the hardship the other party will suffer from the early termination. The applicant may be required to compensate the other party for any loss resulting from the early termination (Part 1, Clause 40, inserting New Section 60A into the Act).

The Bill also requires a tenant to exercise any right to a renewal or extension of the tenancy by giving written notice to the landlord not later than the 21st day before the expiry of the tenancy. However, if that time limit is missed, the Tribunal may nevertheless order a renewal or extension, if satisfied that without the order the tenant would suffer greater hardship than the landlord (Part 1, Clause 40, inserting New Section 60B into the Act).

It is made clear that the fact that a tenancy is extended or renewed is not a separate justification for a rent increase (Part 1, Clause 40 inserting New Section 60C into the Act).

Boarding houses

The Bill makes provision in relation to boarding house tenancies including the following :

• providing that the particular provisions in the Bill relating to boarding house tenancies are generally in substitution for the provisions of the rest of the Act that do not apply (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66A);
• defining "boarding houses" as residential premises containing one or more boarding rooms along with facilities for communal use by the tenants, and intended to be occupied by at least six tenants, a "boarding house tenancy" as one that is intended to, or does in fact, last for 28 days or more and stating that where a tenant shares a boarding room with another tenant, the tenant does not have an exclusive right to occupy the boarding room, but only sleeping quarters in a room (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66B);
• providing for the requirements of a boarding house tenancy agreement, which are additional to those required of other tenancies under the Act (Part 1, Clause 47, inserting New Part 2A into the Act, New section 66C; Cf. Section 13A of the Act);
• providing that there is no obligation for a boarding house landlord to lodge a bond with the chief executive if the bond is for no more than one week’s rent (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66D);
• providing that, in relation to outgoings incurred in respect of a boarding house, the landlord is responsible for all ongoing outgoings that are incurred whether or not the boarding house is occupied (eg, rates), for common facilities, and for outgoings incurred in respect of rooms occupied by more than one tenant, and a tenant is responsible for all outgoings that are exclusively attributable to the tenant’s occupation of a room that is exclusively occupied by the tenant (examples are set out such as separately metered electricity supplied to the tenant’s room or charges for a telephone connected to the tenant’s room and the landlord must provide the tenant each week with an itemised account for any services, where payment for the services is not included in the rent) (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66E);
• providing that boarding house tenancies, unlike some other residential tenancies, are not assignable by the tenant (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66F);
• setting out the basic entitlement of the tenants to quiet enjoyment of the premises (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66G; cf. Section 38 of the Act);
• setting out the landlord’s obligations at the start of a tenancy (including providing the tenant with a copy of the house rules and schedule of services, and providing the room in reasonable order) and the landlord’s ongoing obligations (including ensuring that the premises are kept in a reasonable state of cleanliness and repair, and that all statutory requirements relating to buildings, health, and safety are complied with and ensuring that the tenant has access at all times to his or her room and to toilet and bathroom facilities, as well as access at all reasonable hours to other facilities) and other obligations (Part 1, Clause 47, inserting New Part 2A into the Act, New Sections 66H-66J; cf. Sections 36, 37, and 45 of the Act);
• setting out the obligations of the tenant, including paying the rent on time, ensuring that the tenant’s boarding room is occupied principally for residential purposes (and is kept reasonably clean and tidy), observing the house rules, notifying the landlord of damage and paying for damage caused by the tenant and a tenant must not intentionally or carelessly damage or alter the premises or interfere with the peace, comfort, or privacy of neighbours (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66K; cf. Sections 40, 42, and 46 of the Act);
• authorising a boarding house landlord to make house rules which must not be inconsistent with the Act, or require or purport to permit anything that is or would be illegal (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66O);
• providing that a tenant who objects to a house rule, or to the way a house rule is being applied, may apply to the Tribunal for an order declaring the house rule unlawful, or requiring the landlord to apply the house rule in a particular manner, or varying the rule, or setting the rule aside altogether (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66P);
• providing that a landlord may enter a boarding house at any time but the landlord may not use the facilities for his or her own domestic purposes unless he or she resides at the boarding house (Part 1, Clause 47, inserting New Part 2A into the Act, New Sections 66Q-66T);
• providing for termination of a boarding house tenancy by a landlord (including the formal requirements for such termination) which may be carried out,

• immediately, if the tenant causes, or threatens to cause, serious damage, or endangers, or threatens to endanger, people or property or causes, or threatens to cause, serious disruption to other residents,
• on 48 hours’ notice, if the tenant is more than 7 days in arrears with rent, is using the room for an illegal purpose, or has abandoned the room,
• on 14 days’ notice, if reconstruction, repairs, or renovations are required,
• on 28 days’ notice, in which case no reason need be given (but note that section 54 of the principal Act, which provides protection against notice being served as a retaliatory measure, applies to boarding house tenancies) (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66U);

• providing that a tenant may terminate a tenancy by giving 48 hours’ notice, and that the notice need not be in writing and a boarding house tenancy terminates on the death of a sole tenant. (Part 1, Clause 47, inserting New Part 2A into the Act, New Sections 66V and 66W);
• setting out a procedure for when the landlord thinks the tenancy has been abandoned (the landlord may, on giving 24 hours’ notice, enter the room, and must make all reasonable efforts to contact the tenant’s contact person (if one has been identified in the tenancy agreement) and then terminate the tenancy on 48 hours’ notice) (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66X);
• making provision for the landlord's duties after abandonment of the tenancy (the landlord must store the tenant’s goods for 35 days, during which time the tenant or the contact person may claim the goods, on payment of actual and reasonable storage costs and, after 35 days, the landlord must deliver any personal papers to the police, may dispose of goods worth less than $100, and must apply to the Tribunal for an order about what to do with goods worth more than $100) (Part 1, Clause 47, inserting New Part 2A into the Act, New Section 66Y).

Administrative matters relating to the Tenancy Tribunal

The Bill makes detailed amendments in relation to the operation of the Tenancy Tribunal (Part 1, Clauses 48-54).

Jurisdiction of the Tenancy Tribunal

The Jurisdiction of the Tenancy Tribunal is altered as follows:

• its jurisdiction is made subject to the Limitation Act 1950;
• its monetary jurisdiction is extended from $12,000 to $50,000;
• it is given jurisdiction to determine disputes between landlords and guarantors;
• it is precluded from determining disputes so far as they concern the provision by the landlord of health and disability services about which complaints may be taken to the Health and Disability Commissioner; and
• its jurisdiction is extended l to deal with boarding house tenancies and the matters provided for in New Part 2A of the Act (Part 1, Clause 55 amending Section 77 of the Act).

Procedure and orders of the Tenancy Tribunal

The Bill permits an owner of premises that have not been let to apply to the Tenancy Tribunal for an order declaring the status of those premises. The application may be made without notice. An order made on such an application is binding in any subsequent proceedings, but the Tenancy Tribunal may rescind the order if satisfied that it is wrong or that there has been a change in circumstances. The Bill also makes detailed amendments relating to the procedure of the tribunal and the offices of mediator and adjudicator (Part 1, Clauses 56 -67, amending Sections 78, 86 (substituted), 87 (substituted), 88, 9, 92, 93, 95, 99, 102 and 108 of the Act and inserting New Sections 83A and 91A).

Exemplary damages for unlawful acts

Particular actions by a party to a residential tenancy are identified as "unlawful" acts. The Bill increases the amounts that the Tenancy Tribunal may award as exemplary damages for certain unlawful acts and sets new amounts for acts declared to be unlawful acts by other clauses in the Bill (Part 1, Clause 68, amending Section 109 of the Act; Schedule 1A of the Bill sets out clearly all the unlawful acts affected, their section references and the amounts of exemplary damages which may be claimed).

Enforcement of orders

The Bill provides for the establishment of a procedure to assist parties who have obtained a Tenancy Tribunal order in their favour to enforce that order (Part 1, Clause 72, inserting New Sections 112A to 112F).

Administrative and procedural amendments

The Bill makes other administrative and procedural amendments to hte Act (Part 1, Clauses 73-85).

Transitional provisions

The Bill provides, with qualifications and exceptions, that the amendments made by the Bill apply to tenancies in existence before the relevant amendments took effect (Part 2, Clauses 86-92).

Jurisdiction of the Tenancy tribunal in relation to abandoned goods

Clause 55(4) of the Bill gives the Tenancy Tribunal power to direct a landlord of a boarding house what to do with any item of property belonging to a tenant who has abandoned a boarding house tenancy, if the item is worth $100 or more and has not been claimed within 35 days of the termination of the tenancy.

SOP No 110 proposes to delete this provision because it is unnecessary in the light of the new jurisdiction of the Tenancy Tribunal in relation to abandoned goods under New Section 62B (amending Clause 55(4), New Section 72(2) by substituting paragraph (mc); cf. Clause 42, New Section 62B)).

What tenancies are covered by the Act?

Section 6 of the Act excludes the Act from application to a number of different types of tenancies (for example, tenancies of commercial premises, tenancies of farms or tenancies of hospitals).

The Bill as introduced repeals the current exclusions from the Act of tenancies with a substantial service component and of boarding houses.

The Select Committee has made the following recommendations: elaboration of the types of tenancies covered or not covered by the Act as follows:

• in relation to camping-grounds, the Act should apply to long-term tenancies and that temporary living-spaces in camping-grounds subject to regulations under the Health Act 1956 and tenancies of relocatable homes also subject to those regulations where a tenancy agreement has been entered into for the purpose of, and continues to provide, temporary or transient accommodation be specifically excluded. A definition of the term "relocatable home" is recommended for inclusion in the Bill (Part 1, Clause 6, amending Section 5 of the Act by inserting new paragraphs (ta), (tb) and new subsection (3) (containing a new definition, that of "relocatable home"));
• in relation to retirement villages, a clarification that occupation right agreements for residential units in retirement villages, as defined in the Retirement Villages Act 2003, are specifically excluded from the Act (Part 1, Clause 6, amending Section 5(1) of the Act by substituting paragraph (l));
• in relation to the exception in the Bill for "social housing", a definition of that term is recommended for inclusion in the Bill and is " ... housing for ... persons on low incomes: persons with special housing needs: persons whose disabilities mean that they need support or supervision in their housing" (Part 1, Clause 6, amending Section 5 of the Act by inserting new subsection (2));
• in relation to premises intended to provide temporary or transient accommodation (such as that provided by hotels and motels), being accommodation that is ordinarily provided for periods of less than 28 days at a time, requirements that the premises must be intended to provide temporary or transient accommodation and that the agreement must have been entered into for the purpose of, and must continue to provide, temporary or transient accommodation (Part 1, Clause 6, amending Section 5(1) of the Act by substituting paragraph (k)).

Cleansing orders deleted

The Bill as introduced amended Section 13A of the Act to require landlords to disclose to prospective tenants whether a property has been subject to cleansing orders, for example because it had been used to manufacture methamphetamine, and if so, what steps the landlord has taken to comply with these orders.

The Select Committee has recommended the deletion of this provision (Part 1, Clause 9, substitution of subclause (1)).

Letting fees

The Bill as introduced allowed only estate agents to charge tenants letting fees.

The Select Committee has recommended that property managers as well as real estate agents should be able to charge such fees and has generically named such persons as "letting agents" in the Bill. That term is defined as " ... in relation to a tenancy, means a person who, in the ordinary course of business, acts, or who holds himself or herself out to the public as ready to act, for reward as an agent in respect of the grant or assignment of tenancies, whether or not the person carries on any other business" (Part 1, inserting New Clause 13A, amending Section 17(4)(c) of the Act; Clause 4(1), inserting a new definition, that of "letting agent"; Clause 9, amending Section 13A(1)(m) of the Act).

Termination for breach capable of remedy

Currently the Tenancy Tribunal may terminate a tenancy if either party to the agreement has failed to remedy a breach of the principal Act within a period of 10 working days of being asked to remedy the breach. The Bill provides that the provision may be used in cases of rent arrears.

The Select Committee has recommended that the expression "10 working days" be replaced by the term "14 days" (Part 1, Clause 36, inserting new subsection (3), amending Section 56(1)(b)(i)) of the Act).

Landlords’ right of entry

Section 48(1)(a) of the Act provides that the landlord may not enter the premises during the currency of the tenancy agreement, except (inter alia) with the consent of the tenant given at, or immediately before, the time of entry. The Select Committee has recommended that the word "freely" be inserted after the word "tenant" in this provision (Part 1, Clause 28, inserting new subclause (1AA), amending Section 48(1)(a) of the Act).

Abandoned goods

The Bill as introduced provided that Tenancy Tribunal orders permitting a landlord to dispose of abandoned goods may made be conditional upon giving the tenant opportunities to collect the goods.

The Select Committee has recommended that this provision be substantially amended to provide that a landlord may immediately dispose of foodstuffs and other perishable goods, and must make a reasonable attempt to contact the tenant and arrange collection of other abandoned goods. Where abandoned goods are not collected, a landlord must make a reasonable effort to assess their market value, and be allowed to immediately dispose of the goods where the cost of removing, storing, and selling them would be more than the proceeds of sale. If the cost of removing, storing, and selling the goods would be less than the proceeds of the sale, the landlord is required to store the goods for 35 days before disposing of them. However, the tenant should be entitled to claim the stored goods at any time before disposal, on payment of reasonable storage and removal costs if required. Landlords are permitted to deduct removal, storage, and disposal costs from any proceeds of the sale of abandoned goods, but are required to pay any residual funds from sales to the Residential Tenancies Trust Account in the Department of Building and Housing. If any other amounts are owing to the landlord arising from the tenancy or the disposal of goods, the landlord would be permitted to claim them from the bond, or from the residual balance pursuant only to a Tenancy Tribunal order. Any personal papers unclaimed after 35 days must be handed to the Police. These rules would also apply to abandoned goods in boarding houses (Part 1, substituting New Clause 42, inserting New Sections 62 and 62A-62F into the Act; Part 1, Clause 47, deleting New Clause 66Y).

Tenants’ responsibilities

The Select Committee has recommended that the Bill prohibit tenants from causing or allowing any interference with, or rendering inoperative, any means of escape from fire as defined by the Building Act 2004 and that breaches of this provision be an unlawful act, attracting exemplary damages of up to $3,000 (Part 1, Clause 24, inserting new subclause (1AA), inserting new paragraph (ab) into Section 40(2) of the Act; Clause 47, inserting New Section 66K, inserting new paragraph (ab) in subclause (2) and new paragraph (aa) in paragraph (4); New Schedule 1A (setting maximum amount of exemplary damages for this unlawful act at $3,000)).

Termination

The Select Committee has recommended that it be made clear that landlords may terminate a boarding house tenancy on 48 hours' notice only if the tenant is in rent arrears, the landlord has given the tenant a notice requiring the unpaid rent to be remedied over a period of at least 10 consecutive days (commencing on the day the notice is given), and the tenant has failed to remedy the arrears within the stipulated period. It is also recommended that a landlord be able to terminate the tenancy agreement for a sole tenant in a boarding house in the event that the sole tenant dies 48 hours after the death (Part 1, Clause 47, amending New Sections 66U and 66W).

Advice requested by the Minister

The Select Committee has recommended that the Bill be amended to provide explicitly that the advice that may be requested by the Minister must be connected with the functions of the Bank, and to confirm that this advisory function must not limit the Bank in the performance of its primary monetary policy function (Part 1, Clause 8, substituting Section 33 of the Act).

Confidentiality

The Select Committee has recommended that it be made clear that information collected by the Bank from non-bank financial institutions must remain confidential to the Bank, unless it is shared in statistical form with persons with a proper interest, or with the consent of the person from whom it is collected (Part 1, Clauses 8A, amending Section 36 of the Act by inserting new subsection (6)).

Conflict of interest restrictions

The Select Committee has recommended, that the Governor and Deputy Governor of the Bank be prohibited from holding interests in deposit takers (Part 1, Clauses 8B, amending Section 46(1)(b) of the Act).

Exemptions

The Select Committee has recommended the deletion from the Bill of the requirement for the Bank to consult when granting an exemption from regulatory requirements. It is also recommended that a certain test must be met before an exemption may be granted. This test is that:

• the exemption will be consistent with the maintenance of a sound and efficient financial system;
• compliance with the relevant provision or provisions would, in the circumstances, require the deposit taker, class of deposit takers, or trustee to comply with requirements that are unduly onerous or burdensome; and
• the extent of the exemption is not broader than what is reasonably necessary to address the matters that gave rise to the exemption (Part 1, Clause 11, inserting New Part 5D into the Act, amending New Sections 157E(1)), 157F, 157G and 157J).

Transition period for credit rating requirements

The Select Committee has recommended that the Bill be amended to provide that the credit rating requirements come into force 18 months after the commencement of the Act (Part 1, Clause 11, inserting New Part 5D into the Act, New Section 157I; Clause 12).

Management, governance, enforcements, legal and procedural matters

The Select Committee has made many recommendations relating to amendments in relation to the risk management, governance, enforcement, legal and procedural requirements in the Bill. In particular, it has defined with more precision the nature of various duties which repose in a trustee [2]   of a deposit taker. For example, trustees would be required to report to the Reserve Bank only "material non-compliance" on the part of a deposit taker rather than just any "non-compliance" (amending Clause 11, inserting New Part 5D into the Act, New Section 157ZE). A reasonableness test is also recommended in relation to trustees forming an opinion as to what constitutes such "material non-compliance" (amending Clause 11, inserting New Part 5D into the Act, New Section 157ZF). The Select Committee has also recommended that search warrants may be issued by a District Court as well as by the High Court (amending Clause 11, inserting New Part 5D into the Act, New Section 157ZL). It is also recommended that the legal privileges that would apply in relation to enforcement powers would be consistent with those that apply for evidentiary purposes in proceedings (Clause 11, inserting New Part 5D into the Act, inserting New Section 157ZLA and amending New Section 157ZJ). A defence is recommended to be made available for deposit takers where contravention was due to the actions or default of another person, or in any way beyond the defendant's control, and the deposit taker took reasonable precautions and exercised due diligence to avoid the contravention (Clause 11, inserting New Part 5D into the Act, inserting New Section 157ZQA).

Review of the regime

The Select Committee has recommended that the new deposit takers regime must be reviewed within five years of the commencement of this Bill. The findings of the review would be reported to the Minister of Finance and presented by him or her to the House of Representatives (Clause 11, New Part 5D, inserting New Section 157ZUA into the Bill).

What are covered bonds?

“A covered bond is a dual-recourse instrument under which bondholders both have an unsecured claim on the issuing bank and hold a secured interest over a specific pool of assets, called the cover pool. Covered bonds can be distinguished from senior unsecured debt instruments issued by banks, where the bond-holder is simply an unsecured creditor of the bank, and also from mortgage-backed securities, where the bond-holder holds a secured interest in the cover pool but has no claim on the issuing bank. The main objective of this Bill is to provide legal certainty as to the treatment of cover pool assets in the event that an issuing bank is placed into liquidation or statutory management. Legal certainty would increase economic efficiency and financial stability because banks would not have to pay an uncertainty premium to obtain covered bond funding and because certainty would improve banks’ access to the covered bond market” [2]   .

Covered bonds are common overseas; New Zealand banks have been issuing them for two years under contractual arrangements, but the absence of a legislative framework in this country has put New Zealand issuers at a disadvantage relative to their counterparts elsewhere [3]   .

Specific aims

The Bill attempts to create the following::

• clear segregation of cover pool assets from an issuing bank’s other assets;

• making certain the treatment of cover pool assets under legislative provisions that would apply should an issuing bank be placed into statutory management or liquidation.

• mandatory registration of New Zealand banks’ covered bond programmes, subject to meeting registration requirements;

• requiring that cover pool assets be held by a special purpose vehicle (SPV), which is a separate legal entity from the issuer;

• independent monitoring of cover pools by a cover pool monitor;

• clarification of the treatment of cover pool assets held by a covered bond SPV in the event that an issuer is placed into statutory management or liquidation

• provision for the Reserve Bank of New Zealand to allow entities other than registered banks to register covered bond programmes under this legislative framework in the future.

Regulatory impact statement: http://www.treasury.govt.nz/publications/informationreleases/ris

Risks to unsecured creditors and risks of bank exposure to covered bonds

The Select Committee considered the effect of covered bonds on ordinary deposit-holders. “Because the holders of covered bonds would have preferential access to certain of the issuing bank’s assets in the event of default, this would subordinate the claims of depositors and other unsecured creditors on the assets placed in the cover pool. We have sought to weigh up this increased risk for unsecured creditors against the benefits offered by issuing covered bonds. The main benefit is the reduced likelihood that a bank will default in times of financial market stress, because the ability to issue covered bonds improves banks’ access to longer-term, relatively secure funding. Another potential benefit is that the reduced funding costs for banks from issuing covered bonds may be passed on to unsecured creditors if banks can pay higher deposit rates. On balance, we consider that the risks to unsecured creditors are justified provided their application is limited to a conservative proportion of a bank’s assets” [4]   .

The Select Committee noted that since 2011, the Reserve Bank has imposed a limit of 10 percent on the proportion of a bank’s assets that may be encumbered in favour of covered bonds. The limit is imposed as a condition of banks’ registration, under Section 74 of the Reserve Bank of New Zealand Act 1989. This Bill does not specify any limit. The Select Committee noted that Australia imposes a limit of 8 percent and that a low limit of 4 percent is applied in some other countries such as Canada. However, the Committee also noted that ratings agencies “have assessed the issuance of covered bonds by New Zealand banks with a 10 percent limit as “ratings positive” for unsecured debt; that is, that the benefits outweigh any risks to unsecured creditors” [5]   . The Select Committee recommended that no limit be included in the Bill.

Issuer

The bar-2 Bill substitutes the definition of “issuer” to make it “clearer” and to provide that where a bank with a covered bond programme had its registration cancelled, it would continue to be treated as an issuer unless it transferred all the rights and obligations of the programme to another issuer (Part 1, Clause 9, substituting New Section 139C; New Section 139F(2) deleting paragraph (a)).

Covered bond programmes

The bar-2 Bill makes amendments in relation to “covered bond programmes” by providing that only an issuer may apply to the Bank to register a covered bond programme and an issuer must not issue, or permit the issue of, a covered bond other than under a registered covered bond programme. The offence provision is extended so that not only is it an offence for an issuer to issue a covered bond other than under a registered bond programme, it is also an offence for the issuer to “permit” such (Part 1, Clause 9, amending New Section 139E).

Cover pool monitor

The bar-2 Bill provides greater detail as to the respective duties of the monitor and the issuer (Part 1, Clause 9, amending New Section 139I).

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Primary function of the Reserve Bank

Section 8 of the Act currently provides that “the primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of achieving and maintaining stability in the general level of prices.”

Need for the Bill

“This Bill amends the Reserve Bank of New Zealand Act 1989 to ensure that the primary function of the Reserve Bank is broadened to include other critical macro-economic factors such as the rate of growth, export growth, the value of the dollar, and employment as well as price stability. This would then have the flow-on effect of altering the Policy Targets Agreement between the Minister of Finance and the Governor of the Reserve Bank to reflect the impact of interest rates on these other critical factors” [1]   .

Purpose

The Bill provides that its purpose is to “broaden the economic factors that are considered as part of the primary function of the Reserve Bank” (Clause 4).

New primary function of the Bank

The Bill provides that “the primary function of the Bank is to formulate and implement monetary policy directed to the economic objective of maintaining stability in the general level of prices while maintaining an exchange rate that is conducive to real export growth and job creation” (Clause 5, substituting Section 8 of the Act).

Copyright: © NZ Parliamentary Library, 2012

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Salaries affected

The Bill relates to the salaries determined by the Authority in relation to:

• members of the House of Representatives, being the salaries and allowances required to be fixed by the Authority pursuant to the Civil List Act 1979;
• the highest paid executive officer of each of the corporations and bodies specified in Schedule 1 to the Act and the remuneration of such other officers of those corporations and bodies as the Authority from time to time specifies;
• the officers specified in the Schedule 4 to the Act, for example: the Controller and Auditor-General and the Deputy Controller and Auditor-General; the members and associate members of the Commerce Commission; the members of the Electoral Commission; the chief and certain other members of the Employment Relations Authority; the Director of the Government Communications Security Bureau; the Clerk of the House of Representatives and the Deputy Clerk of the House of Representatives; the General Manager of the Parliamentary Service and the members of the Law Commission);
• certain officers of statutory entities in accordance with section 47(1)(b) of the Crown Entities Act 2004;
• the following judicial officers: the Chief Justice, and the other Judges of the Supreme Court, the President of the Court of Appeal and the other Judges of the Court of Appeal, the Chief High Court Judge and the other Judges of the High Court; the appointed Judges of the Court Martial Appeal Court; the Chief District Court Judge, the Principal Family Court Judge, the Principal Youth Court Judge, the Principal [Environment Judge], and the other District Court Judges; the Chief Judge of the Court Martial and the other Judges of the Court Martial; the Chief Judge of the Employment Court and the other Judges of the Employment Court; the Chief Judge and the Deputy Chief Judge of the Maori Land Court and the other Judges of the Maori Land Court; the Associate Judges of the High Court; and the chief coroner and, in general, the other coroners;
• others under any enactment other than the Act (Part 1, Clause 4, inserting New Section 18A into the Act; cf. Sections 12(1)(a) and 12B(1) of the Act).

Countervailing economic conditions

• The Bill provides that when the Authority is determining the remuneration of any person or group of persons under Section 12(1)(a) or 12B(1) or under any other enactment, the Authority must take into account " ... any prevailing adverse conditions, based on evidence from an authoritative source" and "may determine the remuneration at a rate lower than it would otherwise have determined". However, a determination of remuneration at such a lower rate " ...must not result in the remuneration of a person or group of persons being lower than the remuneration the person or group is entitled to before the determination" ((Part 1, Clause 4, inserting New Section 18A into the Act).

Certificate relating to legislation

The Bill provides that the Minister responsible for a Government Bill, and the chief executive of each public entity that will be responsible for administering the resulting Act immediately after it has been enacted, must each sign a written certificate containing certain information before the Bill is introduced and before commencement of the Bill’s third reading. An analogous obligation would apply to the MP responsible for a Member’s Bill. An obligation is also placed Minister and chief executive before regulations are made (Part 2, Clause 8).

Content of Certificate

The Bill provides that the certificate must contain, in the person’s opinion, (only the first item is necessary in the case of a chief executive if a Minister has already given a certificate)

• whether the legislation is compatible with the principles described below and if not compatible, in what respects;
• whether the incompatibility with the principles is justified to “the extent that is reasonable and can be demonstrably justified in a free and democratic society;
• the reasons for that justification or, if not, the reasons why the legislation is proceeding despite the lack of justification (Part 2, Clause 9).

Principles

The Bill sets out the principles which are applicable with the proviso that any incompatibility with the principles is justified to the extent that it is reasonable and can be demonstrably justified in a free and democratic society. The principles are expressed as follows.

Legislation should:

• under the heading “Rule of law”, be consistent with the following aspects of the rule of law-
  • the law should be clear and accessible,
  • the law should not adversely affect rights and liberties, or impose obligations, retrospectively,
  • every person is equal before the law,
  • issues of legal right and liability should be resolved by the application of law, rather than the exercise of administrative discretion;
• under the heading “Liberties”, not diminish a person's liberty, personal security, freedom of choice or action, or rights to own, use, and dispose of property, except as is necessary to provide for, or protect, any such liberty, freedom, or right of another person;
• under the heading “Taking of property”, not take or impair, or authorise the taking or impairment of, property without the consent of the owner unless-
  • the taking or impairment is necessary in the public interest, and
  • full compensation for the taking or impairment is provided to the owner, and
  • that compensation is provided, to the extent practicable, by or on behalf of the persons who obtain the benefit of the taking or impairment;
• Under the heading “Taxes and charges”, not impose, or authorise the imposition of, a tax except by or under an Act and not impose, or authorise the imposition of, a charge for goods or services (including the exercise of a function or power) unless the amount of the charge is reasonable in relation to both-
  • the benefits that payers are likely to obtain from the goods or services, and
  • the costs of efficiently providing the goods or services;
• under the heading “Role of courts”, preserve the courts' role of authoritatively determining the meaning of legislation and if the legislation authorises a Minister, public entity, or public official to make decisions that may adversely affect any liberty, freedom, or right of a kind referred to above under the heading “Liberties”-
  • provide a right of appeal on the merits against those decisions to a court or other independent bod, and
  • state appropriate criteria for making those decisions;
• under the heading “Good law-making”, not be made unless, to the extent practicable, the persons likely to be affected by the legislation have been consulted and not be made (or, in the case of an Act, not be introduced to the House of Representatives) unless there has been a careful evaluation of—
  • the issue concerned, and
  • the effectiveness of any relevant existing legislation and common law, and
  • whether the public interest requires that the issue be addressed, and
  • any options (including non-legislative options) that are reasonably available for addressing the issue, and
  • who is likely to benefit, and who is likely to suffer a detriment, from the legislation; and
  • all potential adverse consequences of the legislation (including any potential legal liability of the Crown or any other person) that are reasonably foreseeable;

produce benefits that outweigh the costs of the legislation to the public or persons;

be the most effective, efficient, and proportionate response to the issue concerned that is available (Part 2, Clause 7).

Application of the principles

The Bill provides that wherever an enactment can be given a meaning that is compatible with the principles that meaning is to be preferred to other meanings. A Court (the High Court, Court of Appeal or Supreme Court) may make declarations of incompatibility in proceedings relating to an application for such a declaration of incompatibility, under the Declaratory Judgements Act 1908 or judicial review proceedings. But in respect of legislation made before the date the Bill comes into force, only after the tenth anniversary of that date. Such a declaration does not affect the validity, continuing operation, or enforcement of the provision in respect of which it is given and is not binding on the party to the proceedings. No Court may hold any provision of the legislation to be impliedly repealed or revoked or to be in any way invalid or ineffective or decline to apply any provision of the legislation by reason only that the provision is incompatible with any of the principles or that any provision of the Bill has not been complied with (Part 2, Clauses 11-14).

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This work is licensed under the Creative Commons Attribution 3.0 New Zealand licence. In essence, you are free to copy, distribute and adapt the work, as long as you attribute the work to the Parliamentary Library and abide by the other licence terms. To view a copy of this licence, visit : http://creativecommons.org/licenses/by/3.0/nz/.