We have thousands of files pass through our office each year. The most frustrating part of our job as debt collectors is locating the defaulting tenants once they have vacated the rented property.
Prior to 1988 when the Privacy Act was enacted we were able (legally) to undertake such things as motor vehicle registration searches, driver’s license searches and utility company searches to see if we could locate the defaulting tenant. It was great because most people had to have such things as power in their home, current driver’s licence and have their vehicle registered. However once the Privacy Act 1988 came into being we, as commercial agents (along with a myriad of other professions), were banned from undertaking these sort of searches.
As a result, in order to locate defaulting tenants we have to resort to other means. Yes, we have access to a number of publicly available databases such as the electoral roll, White Pages, Australian Business Register and the like which all assist in our endeavours.
However, by far the most important tool in the location process is the Tenancy Application Form. Why? Because if the form is completed satisfactorily it gives us leads from which to track the tenant.
Why did we introduce this topic headed ‘ Tenancy Application Forms – Why Bother’? The reason being is that a large number of recovery files we receive, the tenancy application form is totally useless. These application forms contain no useful information which will allow us to make concerted and fruitful enquiries to establish the current location of the defaulting tenant.
UNLESS WE CAN LOCATE THE DEFAULTING TENANT WE CAN DO NOTHING IN TERMS OF RECOVERY
We consider the tenancy application form as the most important in the tenancy.
For a moment sit back and consider your role in your agency. You are invariably referred to as property managers. We consider that a misnomer. What do you actually do? Well the truth is that you manage a portfolio of investment properties – let’s say for an example that the property is worth $300,000 and you manage 100 of them – that is an investment portfolio worth $30,000,000 – yes that’s right $30 million. Investment advisers on Wall Street would give their eye teeth for a portfolio of that value.
As investment or asset managers you have two primary duties to your investor (i.e. your landlord). They are:
- Risk Minimization.
- Maximizing the return on the investment.
In relation to the second, maximization of return, that means such things as achieving the best possible rental for the property, ensuring that the property is well maintained, and carrying out regular inspections.
In terms of risk minimization, that includes such things as ensuring rent is paid on time, issuing notices within the legislative timeframes AND ENSURING THAT YOU HAVE UNDERTAKEN THE TENANT SELECTION PROCESS PROPERLY.
At Barclay we have a view regarding tenancies, which is:
‘YOU MUST REGARD EVERY POTENTIAL TENANT AS A POTENTIAL DEFAULTING TENANT’.
Harsh? No we do not think so. After all, your primary concern is your landlord, and more importantly the commission you receive for managing the property. You do not want the tenancy to be a problem.
So what do you do to fulfill your duty to your landlord for risk minimization ( Yes you do have a duty of care and if it can be shown that you have failed in that duty of care .i.e. negligence you can potentially be liable to your landlord for the damages suffered).
What do you do to avoid a potential problem?
- Check the tenants on a defaulting tenant database. You have TICA, NTD and the like but you also have Barclay. Most people do not realize that we have been around as long as the other data base operators. Nor do they realize that none of us have any more formal recognition than the other. We are all privately owned and the information on our respective databases is dependent upon who has been a subscriber over the years. There is information on our database that is not on other company’s databases. Our database is free to use and is simple to use. If you are realistic about your ole as an investment or asset manager, then you would use the database. At the end of the day, of your landlord complains about your management of the property you can show that you exercised the risk minimization procedures.
- Ensure that you have a properly completed tenancy application form for each tenant – in fact we recommend that you have a tenancy application form from each adult occupant of the property, and that each of those persons are named as tenants on the tenancy agreement.
Some recommendations for Tenancy Application Forms.
- Ensure the application is completed in full. Some agencies have endorsed on their applications, words to the effect ‘APPLICATIONS THAT ARE NOT COMPLETED IN FULL WILL NOT BE PROCESSED’. If you say that, then ensure that you stick to it. If it is not completed satisfactorily, give it back to the Applicant and tell them it is not to your satisfaction. Remember, tenancies involve dynamics – and one of those dynamics is that one person has to be in control at all times – and that person has to be you, the managing agent. The minute you allow that control to change, then you will have problems. Let the Applicant know at that early stage of the Application how the tenancy is going to function and who is going to be in charge.
- Make sure that your application form is ‘effective’ – i.e. that it obtains as much information about the prospective tenant. You need to know such things as whether they are known by any other name, do they have pets and if so what sort and are they registered, are they smokers, how many motor vehicles are to be garaged at the property (if the property only has one garage and they have four cars, where are they going to be kept – on the front lawn no doubt), do they own a lawnmower, have they have looked after a pool before. One question we recently saw on an application was – DO YOU OWN A VACUUM CLEANER? Now that is really pertinent. And remember, besides having these questions answered on the actual application, you are entitled to further question the Applicant. For instance, if you ask if they have a lawnmower and they so ‘No’, and they are renting a property which has lawn, you are perfectly entitled to ask how they intend to care for the yard. Depending on the response, it may be that you decide that they are not suitable for that particular property.
- Obviously you will need the FULL name of the Applicant, their date of birth, address and contact numbers. Make sure that you actually check these details off the documents they give you as the 100-point checklist. These days we also recommend that your application form contains provision for an email address. And given the mutli-culturism of Australia today we strongly recommend that your application states whether the applicant identifies as ‘male’ or ‘female’.
- Always ask fore rental references. It is recommended that you ask for the last two places of residence. Ask if these places were rented or owned. If the answer is that it was owned, do an RP Data search or similar to check. If they say they rented privately, again get the name of the owner and do a search to see whether this person actually owned the property. Ask whether the bond was refunded in full or is expected to be refunded in full. If the answer is no, then ask why. If the previous rental properties were managed by an agent, seek a rental reference from them. We are aware that there is a reluctance on the part of some agents to provide rental references. To be honest we cannot understand why. As we are all part of the same industry we should all be prepared to cooperate with each other. We understand that this reluctance may stem from some fear of legal liability to the tenant if a ‘bad’ reference is given. That fear is absolutely unfounded if the reference given is completely truthful.
- Ask for a minimum of three personal references. When doing so, make sure complete details are provided. For instance, for the name do not accept ‘Jane’ without the surname. If they don’t know the surname, they couldn’t be too good a personal friend. For their address, you want the complete address, not ‘Smith Street’. You want the street number, name and suburb. When they give a contact number, invariably these days they will give a mobile number. Also ask if the referee has a landline. If the answer is yes, then ask for that as well. If the answer is ‘I don’t know’ then again you would have to question the value of that referee.
- Contact the referees, ensuring that you keep contemporaneous notes of your conversation. Do not be afraid to ask questions. One of the most important question is ‘how long have you known X?’ If the answer is ‘not long’ or ‘our kids go to the same school and I know them from there’ you would again question the value of the reference. You would be amazed at the number of referees we contact in the course of lour recovery work where the answers are things like ‘I didn’t even know I was put down as a referee’, ‘I didn’t know him/her that well’ and the like. Ask if they have been to their home. Ask how they keep the home. Let them answer. Don’t ask a question that only calls for a ‘yes’ or ‘no’ answer. If they have children, ask about their behaviour. If they have pets, ask for instance how the dog behaves. Ask if they have seen the dog allowed inside the house. As we have said, do not be afraid to ask questions. The Applicant has put these people down as referees, so that therefore gives you carte blanche to ask what you like. In the case of a couple, ask if their relationship is stable. Ask the referee if they know where they work, and does this answeraccord with other information on the application. Ask them if they owned a property would they rent to them. If you are not satisfied with the responses, then simply tell the Applicant that they will have to come up with another referee.
- One matter that we commonly see with referees is that attempts are made to contact the referee, without success. In those circumstances, we suggest that you advise the Applicant that the attempts have been made and that the Application will not be processed until they contact the referee and have them contact you – otherwise the Application will be put on hold. When speaking to the referee ask them to confirm their address (is it the same as given to you on the Application?), their contact number, and if a mobile number was only listed on the Application, if they have a landline. If they do, ensure that you keep a record of it. Ask them if they have an email address and also record that.
- Always ensure that you obtain complete details of employment – including the full name of the employer, the position they are employed in, the nett weekly wage, how long they have been employed. If employed for less than 12 months it is also recommended that you obtain details of the previous employer. Never accept a mobile number only as the point of contact for an employer. 99.99% of employers in Australia have landlines. If you are going to be given a mobile number only, chances are that it will only be a work colleague and not someone of authority. When phoning the employer ask for the person who handles the payroll and again do not be afraid to ask the questions – what is their pay rate, how long have they been employed, are they a good employee. Again record this information and check to see whether it accords with the information give on the Application Form.
- If the Applicant is self employed, ensure that you obtain all relevant information – such things as the business or company name, its principal place of business or registered office, if a company the ACN, if a company or business its ABN, the name of the accountant. Ask for the last tax return lodged by the business and the Notice of Assessment issued by the Tax Office. It is all very well for the Applicant to produce a Balance Sheet and Profit & Loss, however anyone can produce a stunning set of figures on MYOB. You can check things like the company by going to the ASIC website and seeing whether the company or business is registered. You can check the ABN by going to the ABR Public website and checking to see if the Business Number is still current and whether it relates to the Applicant.
- Most applications ask for ‘emergency contact’ or ‘next of kin’. In some cases applications have provision for both emergency contact and next of kin. In that case, in the case of multiple applicants, it is okay for them to put each other down as the emergency contact, however it is not permissible for them to also list each other as next of kin. In the case of an application that has provision only for either emergency contact or next of kin, never allow them to put each other down. The contact person must always be a third party not associated with the tenancy, and not one of the referees or a work referee. In the case of husband and wife or partners, never permit them to put down the same person for both. It must always be someone different from each side of the family. And again the same rule apply to those for referees – you must have the complete address, contact numbers and landline if available.
- Turning now to the documents for identification – often referred to as the 100-point checklist. While we have a checklist on our website which also refers to the ‘100 points’ you should always remember that it is up to you to specify exactly what you require. If there are documents that you will only accept, then say so. They can be more than the traditional ‘100 points’. The choice is absolutely yours. You might for instance say that your mandatory requirements are – photo identification (drivers licence, passport, 18+ card), last utility account (electricity, gas, telephone), last three pay slips, , copy of bank statements for the past three months, copies of Centrelink benefit recipient statements for the past three months. Bank statements tell a story – for instance a series of purchases on a regular basis at Dan Murphy’s might give you a hint about your prospective tenant. Let’s be honest – copies of RSL membership cards are absolutely useless, as with a copy of the Visa or Mastercard Debit or Credit Card. If you are going to obtain this information, then ensure that it is relevant and useful.
- If you do obtain a copy of the photo identification, make sure that you can identify the person. We see hundreds of files come through our office where the photograph is totally indistinct. It is useless to us. If you are going to take a copy of the photo ID, ensure that the features are discernible, otherwise do not bother. If you do not have the facilities in your office to take a proper copy of the ID, tell the applicant they will have to get a copy satisfactory to you themselves and that the application will not be processed until that has been done.
- If the Applicant is a Centrelink recipient. Check the income statements to ensure that the Applicant is receiving what he/she has stated in the Application.
- If you are renting to foreign nationals (whether they come from New Zealand, Tonga, Samoa, China etc) always ensure that you obtain complete contact details for someone in their country of origin – preferably a parent or relative. Again, this should be a full name, address and contact number – landline preferred.
- It should go without saying – but ensure that the application is legible. It is not your job to complete the application. If the Applicant has difficulty in completing the Application then you might suggest that they seek assistance through community welfare organizations such as Tenancy Advisory Services, Salvation Army etc.
- Above all, never be afraid to ask questions. The Tenancy Application Form is only part of the process of tenant selection. If you feel it is warranted, then you are entitled to interview the prospective tenant(s). Ask the couple who have applied how long they have been been together.
The above is not meant to be exhaustive in terms of the information that you glean from prospective tenants. However it is a guide to what we recommend as proactive property management.
We do recommend that the tenant details are updated at least every six months. They should be given a form to complete and return detailing their current contact details, work details, email address and next of kin.
You may now be saying – this is all like too much hard work. If you feel that way, fine. But it is your landlord you have to answer to at the end of the day and if they contact us and ask why we have not recovered any money and we have to say that the information supplied was deficient – guess who is going to cop the flack. You.
So the tenancy application form – why bother – yes bother a lot.