It’s the one word that has the power to make any tenant squeamish and reduce even the most fearless to tears when it comes close to vacate time…bonds. That one word can signify the difference between being reimbursed a month’s worth of rent or never laying eyes on it again, and bond refunding is (unfortunately for both sides of the equation) still an extremely prevalent issue.
A recent article on Domain, The part of the rental equation we are missing: a landlord bond, shone a light on the apparent disconnect between a landlord and a tenant when it comes to bonds. The proposed model for the landlord bond—or more accurately, the landlord sinking fund—is for the Property Manager to withhold 10% of the weekly rental payments and compile the withheld money in a sinking fund until a nominated quota (e.g. $2,000) has been reached.
Once the quota has been achieved, the landlord will receive the full rental income amount, and the Property Manager can then attend to maintenance issues on the property by using a portion of the $2,000 in the sinking fund. Following any maintenance work, the deductions will recommence to top up the sinking fund to the $2,000 quota.
The Repairs Process
Currently, if a maintenance issue arises at a rental property, there are usually (at least) four steps until the repair work can be commenced:
- Tenant emails Property Manager
- Property Manager gathers quotes for work to be undertaken (if it’s a minor job, it may get Owner approval without quotes or estimates)
- Property Manager emails quotes to Owner and seeks approval to conduct work
- Owner emails Property Manager with approval to conduct work
- Property Manager gives tradesperson the all clear to commence work and updates the tenant
Even if the turnaround for each of these steps is only 2-3 hours, an entire day can pass before approval to conduct the repairs is granted, potentially leaving a tenant with an increasingly deafening dripping tap and a sleepless night. Further, if a reasonably large maintenance job surfaces in the same month as the rates and strata levies are due, it can put even a very astute investor under the pump financially.
Using the landlord sinking fund idea, repair work could commence after only two steps:
- Tenant emails Property Manager
- Property Manager gathers quotes, approves work and pays from sinking fund
This model would most often result in issues being rectified on the same day (dependant on a tradesperson’s availability) as a Property Manager is made aware of them, and a much happier rental experience for the tenant. Communication is absolutely key to any healthy tenancy, though, and keeping an owner well-informed about the goings on at their investment forms an essential part of a Property Manager’s job. Although the use of the sinking fund, by definition, wouldn’t require permission from the landlord, any Property Manager worth their salt would keep the landlord in the loop.
We spoke to Managing Director of Independent Property Management, Hannah Gill, to dissect exactly how the introduction of a landlord sinking fund would affect both landlords and tenants.
How would a sinking fund affect landlords?
“From a landlord’s perspective, it’s vitally important for a successful tenancy that even the most minor maintenance work is completed. A leaking showerhead may not seem like a big deal to a landlord, but the resulting inconvenience and frustration felt by a tenant can sometimes lead to a shorter lease term. With the Property Manager’s ability to access the sinking fund, the maintenance would be attended to quickly, which would encourage the tenant to stay longer and look after the property. The gradual payment of 10% per week of rent is another huge bonus and would help reduce cash flow pressures.”
What about the tenants?
“In a rental agreement, a tenant is paying for the rights to a property and, therefore, the useability of that property. Occasionally, landlords are uncontactable, resulting in quotes being unable to be assessed, leading to a delay in maintenance work being completed. The introduction of a landlord sinking fund would remove all possibility of a delay to maintenance work being undertaken, as the Property Manager would liaise with both the tenant and trades on behalf of the owner and enact the work immediately.”
Are there any potential problems?
“It’s vitally important as an Owner to choose a diligent Property Manager and develop a good working relationship with them, as the sinking fund does present an opportunity for a Property Manager to not do their due diligence by their landlord by not gathering sufficient quotes for work undertaken. This can leave the sinking fund more scarce than necessary as well as frustrate landlords. You should be able to trust your Property Manager to do the right thing by you, with an understanding of your circumstances and preferences when it comes to trades. A Property Manager who’s on the ball will be able to give estimates right away, reducing delays by having to source quotes for relatively straightforward work.”
Are there any moves to introduce the sinking fund in Canberra…or at Independent Property Management?
“I don’t know of any moves to introduce a landlord sinking fund in Canberra, in fact, that article on Domain was the first I’d heard about it. We could implement a sinking fund, but in the first instance, it’d probably be on a case-by-case basis and up to each owner to agree to. Ultimately, we’re always keen to find ways to add value for our clients, so if this is something our owners perceive as valuable in helping manage cash flow, then it definitely makes sense as something to introduce.”
Setting up a landlord sinking fund might not work for everyone, but at face value, it appears to be a good mechanism for dealing with maintenance issues for both owners and tenants. It will ease cash flow for property investors if there is a need for larger maintenance work, and empower Property Managers to act confidently on behalf of owners in liaising with trades and organising quotes. Further, busy investors who own multiple rental properties may not have time to concern themselves with minor maintenance issues for each of their properties, so a sinking fund would be a simple resolution to manage their stress around being contactable at all times.