How to avoid choosing a nightmare tenant
Most tenants are law-abiding, rent-paying individuals, just like most landlords are fair and reasonable businesspeople.
But for every rule, there are exceptions. Tenant Anna-Ria Melroy hit headlines recently when it became known that she had ripped off multiple landlords to the tune of $40,000.
Melroy has been taken to the Tenancy Tribunal several times for unpaid rent and bond. She targeted private landlords, used aliases, changed her name in one case, and spun a number of sob stories to get into properties.
One landlord says: "She came across as being the sort of person who had had a hard life, dealt a few bad cards, and was trying to make good of it".
Melroy's story sends a shiver down many landlords' spines.
However, according to people in the tenancy world, there were plenty of red flags in Melroy's case that could have tipped landlords off.
"Unfortunately, people like this – and there are lots of them – prey on private landlords, because property managers know how to weed them out," Chris Matthews, a spokesman for TPS Credit Control and property managers support service Tenancy.co.nz says.
TPS' managing director Craeg Williams is "pretty familiar" with Melroy's case, so here is his advice on how you could stop another Anna-Ria Melroy being your tenant.
Get applicants to fill out the tenancy application form, in full
If you don't do this, you will only get half or less of the information you need to make a proper assessment.
Ask for a drivers' licence, as it is an official document verifying a person's identification. Check the date of birth matches.
If it's wrong, the applicant may get a completely fresh credit report.
"We see it time and again, where people change the day or month of their birth," Williams says.
Check the Ministry of Justice website
This can be used to see if there has been a Tenancy Tribunal order against a tenant.
Its limitations are that it only goes back three years, and it does not show whether the tenant has previously been through mediation with a landlord, which is deemed to be a private matter.
Run credit and background checks
A credit check often reveals multiple debts.
Ordinary landlords can pay for someone do this. But property managers pay a premium for better information, information you can't just Google.
In addition to finance checks, they can get access to court rulings and a violent crime data base.
In one recent case Williams says a property manager did a credit but not a background check and found out later the person was on the run from police. They were now helping the police with their enquiries.
For a small fee, landlords can search the PPSR register at the Companies Office, which will turn up whether the applicant has goods on finance plans.
"We've come across debtors that are apparently on a benefit and they've got a number of jetskis and 50 inch televisions and the amount of things on finance are disproportionate to what their income should be."
Call five of their friends or family members
Landlord references are good, employer ones even better.
But Williams also suggests asking for up to five social contacts on an application.
Why? Because social contacts are more likely to be current, and because posing the same questions to several people is a good way of checking the consistency of someone's story.
"My rule of thumb is, every phone number you have for a family member or friend, gives you a 10 to 15 per cent chance of recovery."
In one extreme case, he says, a contact got halfway down the list of questions and then confessed to him that she was the "town contact' for anyone wanting a reference for a rental.
A good question to ask is, would you be a guarantor for this person? Not whether they actually will be, but whether they consider the person is trustworthy enough to guarantee.
A job is not necessarily the clincher
"When it comes to a tenancy, someone with a job isn't necessarily the best applicant and somebody who's on a beneficiary in my opinion is not always going to be the worst applicant," says Williams.
Beneficiaries with good credit and background checks can be "quite good payers".
Conversely, William's "pet peeve" is against the self-employed. This is because if a self-employed tenant gets into arrears, the courts find it impossible to enforce "attachment orders" against them, orders which force employers to extract rent arrears out of a debtor's pay.
Williams says he sees "hundreds of cases, where we can't get the money purely because they're self-employed".
"It is a very, very big problem in New Zealand and not many people know about it."
His advice if you do hire to a self-employed person and it's a lower to middle-end house, is to ask a guarantor.
"You might offend people but that's the way you do business."
Ensure everyone is on the tenancy agreement
Sometimes when couples apply, only one partner will fill in the form because the other has bad credit, so ask for applications from them both.
The same with a group. If the sole name on the lease leaves, you'll be left with the other tenants, who may be more difficult to retrieve outstanding money from.
The vicious cycle
One of the major causes of tenancy debt is when people get behind, give up and turn their attention to the future rather than paying arrears.
"If they think they can't get out of that situation, what they tend to do is stop paying any further rent to ensure that they have enough money for their bond for the next place,"Williams says.
Avoid tit for tat
A breakdown between landlord and tenant is one of the biggest causes of tenancy debt and a neglectful landlord can often be the cause.
If a landlord is not responsive to requests to fix problems, a tenant may decide they are not providing value and won't pay up.
"So one of the things that property managers and landlords should always be vigilant about is that concerns that are being raised are being addressed, Williams says
Take quick action
It is possible to apply for a Tenancy Tribunal from the second day a tenant is in arrears.
While this may seem antagonistic, it can take three to four weeks to get a hearing, which just contributes to the problem. Hearings can easily be cancelled if the tenant catches up.
Williams says private landlords are compassionate and often wait, only to find themselves weeks down the line still hearing excuses.
Property managers cannot afford to face that liability. As a result, their average for rent arrears is less than half the average for landlords.
Williams says the highest debt recovery rates are in cases where landlords have managed to maintain a high level of professionalism.
Letting emotion get the upper hand, especially in a Tenancy Tribunal hearing, often works against the landlord. Getting grumpy helps no one.
"You need to see it as a business, and it's one of the risks that comes with being in business, and deal with it accordingly."