It’s landlords who are finding themselves out in the cold as property managers begin to walk away from clients who haven’t insulated their rentals, reports Don Rowe.

Two weeks after the first of New Zealand’s healthy homes deadlines, property managers are dropping landlords who refuse to insulate.

David Faulkner, director of property management consulting firm Real-iQ, estimated around 5% of landlords have been dropped by property managers concerned about scrutiny from an increasingly punitive MBIE, the risk of litigation and the likelihood of negative media coverage.

“For about three years now we’ve been writing to landlords saying do the insulation, do the insulation, do the insulation. We’ve been picking up the phone and calling landlords. Some landlords, I hate to say it, have buried their heads in the sand, hoping the problem goes away.

“No property manager in the world, I believe, wants to manage a property that’s not compliant. It’s more work, it’s hard work, you’re at risk of litigation, and you find yourself on the front page of a newspaper for the wrong reasons.”

There had also been cases of landlords presenting falsified insulation statements to property managers, Faulkner said.

“We’ve seen cases of landlords presenting insulation statements and saying ‘here you go, it’s compliant’, then we find out at a later date it’s not. Now in my opinion, that’s a breach of the Fair Trading Act, because they’re falsifying documentation. That’s criminal.”

Last month, the insulation industry was at total capacity, with businesses warning of huge wait times for supply and labour.

“Landlords have had ample time and information to get the required work done and failing to comply is not only unlawful, it also exposes tenants to potential harm by not having a home that is warm and dry enough during the winter months,” Peter Hackshaw, acting national manager of the MBIE’s Tenancy Compliance and Investigations Team (TCIT), said at the time.

But according to Faulkner, the Tenancy Compliance and Investigations Team had put itself offside with the property management industry after senior operations advisor Paul Davies warned the government was “coming after” property managers at a Real Estate Institute of New Zealand (REINZ) conference last year.

“They should have come to property managers and said ‘if you’re having problems with landlords, tell us who they are, and we will approach them directly’. Ultimately, it isn’t the property managers’ fault if the landlord doesn’t do the insulation. Why should they pay $4000 in exemplary damages?”

Most reputable property managers are dropping landlords, Faulkner said, and that was likely to result in a growth in the number of small businesses operating on the margins. Property management is an unregulated industry, and a dwindling stock of rentals available to managers would see desperate businesses retain dodgy landlords.

“Unfortunately we’ve got an industry which is saturated with small companies and the desperate ones will tolerate a lot to make a profit. When you’ve got small companies in a desperate position, and you’re seeing mum and dad investors sell as we are, these small businesses see their numbers dwindle to a point where they can’t function, and so they will continue to manage non-compliant properties and take the risk. It’s another reason why our industry should have regulations. It should be regulated.”

Bindi Norwell, chief executive at REINZ, warned members in a statement last month about their legal exposure, and said she was aware many property managers were dropping landlords. She said MBIE had been clear that July 1 was a hard deadline that would be vigorously enforced.

“Because they’ve had three years I know that MBIE were not going to be lenient on this,” she said. “MBIE has increased their workforce as well to start auditing companies and landlords, as well as encouraging tenants to report if their properties weren’t insulated, so it comes from lots of angles in terms of identifying those that don’t comply.”

An increase in funding has led to the TCIT more than doubling its staff, including tenancy compliance officers, since last year. But landlords should view insulation as an investment, not a punishment, argued Norwell, who said that potential rental investors were increasingly concerned with standards like the Homestar ratings.

“It’s not as if you’re going to lose that value – it goes into your house, you retain that capital,” she said. “There are lots of tools now that people use to rate properties depending on whether or not they’re meeting their insulation standards and healthy home standards, so actually if you’ve got a higher rating on these things, your home is more marketable and saleable.

“We’re also hearing about landlords sitting on properties and leaving them empty if they’re not insulated because they don’t want to risk fines. But over time that’s quite a costly path, so hopefully that will go as well.”

Steve Watson, national manager of the TCIT, said 39 complaints were currently being investigated but that it would ultimately be up to the Tenancy Tribunal, which comes under the Ministry of Justice, to decide what level of exemplary damages to award.

“The team will not hesitate to hold landlords to account whose inaction in relation to insulation, or other aspects of tenancy law, have put the health of tenants at risk.”