Impacts of Queensland’s reforms to rent increase caps
From 1 July 2023, reforms will commence which cap rental increases under residential tenancy agreements and rooming agreements to once every 12 months. The cap applies to all tenancies, including social housing provided by community housing providers (CHPs), and may have a disproportionate impact on these organisations, where rent is calculated based on a proportion of tenants’ income.
On 18 April 2023, the Queensland government passed the Local Government Electoral and Other Legislation (Expenditure Caps) Amendment Act 2023 (Qld). Somewhat surprisingly given the name of that Act, it amends the Residential Tenancies and Rooming Accommodation Act 2008 (Qld) (RTRA Act) to change the way rental increases can occur.
In this alert, we set out what is changing (and what is not) and some practical examples to explain the law and challenges that it brings. We also explore the potential impacts, including for CHPs.
What is changing?
From 1 July 2023, the time frame between rent increases under a residential tenancy agreement will be increased from the existing six monthly cap under section 93, to 12 months from the date of the last increase or the first day the tenant was required to pay rent (if no previous increase).
The cap is also being expanded to rooming accommodation agreements (which previously were not captured), under a new section 105B.
These changes apply on and from 1 July 2023 to any agreement in effect, regardless of when it was made (section 575).
What is not changing?
The existing cap still applies regardless of whether the increase occurs under an existing agreement or between a previous and new agreement (provided at least one tenant is the same under each). Although the wording has been revised slightly, the effect of this concept is unchanged.
It is also still irrelevant whether there has been a change of landlord between the rent reviews.
Other aspects remaining the same are the requirements for notice and agreement provisions dealing with rent increases. For residential tenancy agreements, a rent increase can only take effect from a date at least 2 months after notice is given by the landlord (section 91(4)). For fixed term agreements, section 91(7) only permits rent increases during the term if the agreement provides for that (including how the increase is calculated). For rooming accommodation agreements, section 105 provides similar requirements, except that the notice period is at least 4 weeks.
While a rent increase can only take effect 12 months from last, a landlord can give a notice of an upcoming rent increase within that time frame. For example, a tenant can be notified 10 months into the term that the rent will be increased at the 12 month mark.
As always, a provision in an agreement which is inconsistent with the RTRA Act is not enforceable (section 53), meaning parties cannot agree on different arrangements.
How might this work in practice?
These arrangements are difficult to understand out of context. Seven examples are set out below, which show when rent increases will (and will not) be acceptable, highlighting some potential issues.
|Example 1 (standard annual agreements)|
|A landlord enters into a 1 year agreement with a tenant on 20 September 2021 at a rent of $500 per week. On 20 September 2022, a further 1 year agreement is entered into with the tenant at a rent of $550 per week, requiring the first payment on 20 September 2022. The landlord can increase the rent again after 20 September 2023 (another 12 months).|
|Example 2 (fixed term agreement with annual increases)|
|A landlord enters into a 3 year agreement with a tenant on 20 September 2021 at a rent of $500 per week. The agreement provides for rent increases of 5% every 12 months. Rent was increased accordingly on 20 September 2022. It can be increased again 12 months later on 20 September 2023 (ensuring two months’ notice is given).|
|Example 3 (new agreement with new tenants)|
|A tenancy agreement comes to an end and all original tenants leave. Regardless of when the last rental increase occurred under the former agreement, the landlord can set the rent under a new tenancy agreement at any amount it wishes, as there are no continuing tenants.|
|Example 4 (periodic tenancy with 6 monthly increases)|
|A periodic tenancy has continued for many years. The landlord increased the rent by a small amount every 6 months over the last 3 years, most recently on 20 January 2023. The landlord had given notice on 20 May 2023 that the rent would increase again on 20 July 2023. This increase is not permitted (despite notice having been given before 30 June 2023). The landlord can next increase the rent on 20 January 2024. Alternatively, if the rent increase took effect on 30 June 2023, it would have been permitted and the landlord would have been able to increase the rent next on 30 June 2024.|
|Example 5 (fixed term agreement with six monthly increases)|
|A landlord enters into a residential tenancy agreement on 20 September 2022 for 2 years, with a clause providing that rent increases by CPI every 6 months. The rent was increased accordingly on 20 March 2023. The landlord cannot increase the rent again on 20 September 2023, despite the CPI increase provision of the agreement, and rent can only increase on or after 20 March 2024.|
|Example 6 (fixed term agreement with intervening sale)|
|Tenants move into a rental property on 1 February 2023 under a 12 month agreement. On 15 July 2023, the property is sold (subject to the tenancy) and the buyer promptly gives notice of an increase rent from 1 October 2023. As the agreement and the tenants remain the same, the notice is not valid and rent cannot be increased until 1 February 2024.|
|Example 7 (broken lease arrangements with continuing tenant)|
|A landlord enters into a residential tenancy agreement with four tenants on 1 January 2023, which ends early by agreement on 30 September 2023 after a falling out between the tenants. One tenant stays, and along with two new tenants sign a fresh fixed lease for a term of 1 year, expiring 30 September 2024. The landlord cannot increase the rent payable upon commencement of the new lease (1 October 2023) as there is at least one continuing tenant, and less than 12 months has passed since they commenced paying rent. Unless a rent review clause is included in the new agreement (which provides for rent to be reviewed after 1 January 2024 – being 12 months since the continuing tenant started paying rent), the landlord would not be able to increase the rent under the new agreement, and the rent review could only occur on 1 October 2024 – a total period of 21 months at the original rent.|
One potential consequence of these changes is that landlords may increase rent by a higher amount to offset the longer period between permitted increases. It remains the case that there is no cap in Queensland to the amount by which rent can increase – though there are calls for this (including as part of the Housing Australia Future Fund).
Recently, there have also been calls for the cap to be expanded to also capture rent increases between two separate agreements where no tenant is the same (see example 3). This unique step (not seen in other jurisdictions) should be very carefully considered before being introduced, as it may result in landlords increasing rent more frequently than they otherwise would, to avoid losing the right to do so between tenancies. It would also have significant impacts on CHPs delivering social housing.
A potential issue for CHPs
For social housing delivered by CHPs, rent is determined based on a proportion of tenants’ income. At present, some CHPs review rent every six months in line with the existing regime. This enables them to increase the rent in accordance with the households’ income and Commonwealth Rent Assistance (where that has increased), ensuring the proportion of tenants’ income is maintained.
CHPs will now only be able to undertake this process every 12 months, potentially missing up to six months of additional rent where a households’ income has increased. Unlike private market landlords, CHPs cannot ‘offset’ this by increasing the amount of each increase, and the policy framework driving the rent increase caps – namely ensuring a ‘fair go to pay rent [tenants] can afford’ – has less weight where rent is set based on income.
While the Queensland Community Housing Rent Policy requires CHPs to review rent ‘at least annually, or when they become aware of a change in household circumstances’, from 1 July 2023 a change in household circumstances which gives rise to a rent increase will now only be actionable on an annual basis.
Community housing (whether social or affordable) is not excluded from the operation of the rent increase provisions. Section 93(6) provides some limited exceptions as follows:
- where the landlord is the Chief Executive of the Department of Housing (administering the Housing Act 2003 (Qld)), acting on behalf of the State – this does not include CHPs;
- where the landlord is the State and the tenant is an officer or employee of the State – this is a limited exception; and
- where the landlord is a ‘replacement lessor’ under a ‘community housing provider tenancy agreement’.
While the last exception may appear to apply to CHPs, a ‘replacement lessor’ is narrowly defined (section 527A), only capturing funded providers who have a funding agreement under the Housing Act 2003 (Qld) that provides for the CHP to enter into a lease with the State for residential premises, under which the State is party to an existing agreement as landlord. Introduced in 2013, this concept was designed for the Logan Renewal Initiative, where approximately 4,700 department owned properties were subject to tenancy agreements (from the State as landlord), which were to be transferred to CHPs to manage. The definition and associated provisions were included to ensure CHPs could take those tenancies over on the same terms as the State enjoyed. The exception does not apply to CHPs generally.
It would be a simple fix to ensure social housing provided by CHPs are not captured, by amending section 93(6) to include a new limb (d) – ‘the lessor is a community housing provider’. A similar provision would also need to be included at proposed section 105B.
What should you do?
Landlords (including CHPs) and agents should consider the terms of their agreements, including any rent review clauses in fixed term agreements, to ensure that they comply. Ideally, moving forward, these should be drafted so that they have a fall back provision to allow for a review at the earliest time permitted by the RTRA Act, to avoid circumstances where the provision may be void entirely resulting in an extended duration between reviews (see example 7).
When calculating dates, if there have been no previous rental increases, it is important to consider what date the tenant was first required to pay rent under the agreement. If the agreement does not provide for rent to be paid in advance, this may be later than 12 months after the commencement date, and an incorrect calculation may result in an increase being void.
When buying a property, it will be important to make enquiries to understand the last time the rent was increased under any agreement which may be captured by these rules, to ensure that any subsequent increase is in accordance with the RTRA Act.
For CHPs, in the absence of legislative amendments, those who currently review rent every 6 months may unfortunately see reduced rent collections. Hopefully, amendments to sections 93(6) and 105B may be introduced to address this impact.
If you require any assistance in navigating the changes to the RTRA Act or any issues raised in this article, please contact us.
This publication covers legal and technical issues in a general way. It is not designed to express opinions on specific cases. It is intended for information purposes only and should not be regarded as legal advice. Further advice should be obtained before taking action on any issue dealt with in this publication.