Property problems: Discount for rent paid on time flouts law

Q. I have some flats and want the tenants to pay strictly on time. I wrote up the periodical tenancy agreements at the maximum rental figure for each flat with a 10 per cent discount if the tenant paid right on time, with no discount if they are a day late. Somebody has told me that this is illegal as it equates to a constant rent increase, which is against the Residential Tenancies Act. The act only allows rent increases at six-monthly periods. Which is correct?

A. Residential tenancies are regulated by the Residential Tenancies Act 1986. The act sets out the rights and obligations of landlords and tenants. As a landlord, you have a duty to ensure that the terms of your tenancy agreement comply with the act. The terms must also be reasonable.

The act imposes controls on the powers landlords have in relation to rent. The rental term of your agreement breaches section 32 of the act. This section provides that any provision in a tenancy agreement which accelerates the payment of rent, increases the rent or provides for payment of a sum for damages or breach by the tenant of any term under the agreement is of no effect.

In essence, your tenants are being penalised for failing to pay the rent on time. By not receiving the 10 per cent discount, the tenants are effectively having to pay for a breach of a term of their agreements. This is not allowed under the act.

This also amounts to accelerated rent or an increase in rent; that is, your tenants have to pay more rent if they do not pay rent on the due date.

Under section 24(1)(d), a landlord cannot increase rent more than once every six months. The landlord must also give at least 60 days' notice to a tenant of an increase in rent.

Any provision of a tenancy agreement that is inconsistent with the act has no effect in law. A landlord or tenant cannot contract out of the act. This regime is designed to address the perceived power imbalance between a landlord and tenant.

The issue remains that you want your tenants to pay strictly on time. Under section 40(1)(a) of the act, your tenants must pay the rent when it is due. If your tenants fail to pay rent when it is due, you first should talk to them to remedy the breach. If this fails, you may apply to the Tenancy Tribunal for an order terminating the tenancy.

By virtue of section 55(3), you are not obliged to give the tenant notice of your intention to apply to the tribunal. But the tribunal will make an order only if it is satisfied that the rent was at least 21 days in arrears at the time you filed the application. Alternatively, the tribunal can make a conditional order, setting out the terms of the payment of any rent in arrears and any other conditions.

A conditional order automatically takes effect as a final termination order if the tenants fail to comply with its terms. Note that under section 33(1) of the act, you are not allowed to seize tenants' goods if they fail to pay on time.

Non-payment of rent is a common problem and it is important to screen prospective tenants carefully. Some landlords select tenants after a casual meeting and do not run credit checks or references. You could consider using a professional property manager. A competent manager should manage the relationship between you and your tenants, and ensure that tenants pay rent in accordance with their agreements. If they don't, the property manager should take appropriate action. Choose a manager carefully, based on the positive experience of their other clients.

In any case, keep a close eye on rent and nip any problems in the bud. As soon as non-payment becomes an issue, contact the Tenancy Services helpline or a lawyer.