Mortgagees vs tenants

Cartoon picture of a house

Cartoon picture of a house, used under a Creative Commons licence


This article in The Age about NAB seeking to have tenants evicted without notice got me thinking. Here’s a quote from the article to give you an idea of what’s going on:

The mortgagor of the properties defaulted on repayments to NAB after letting them out without the bank’s knowledge, prompting it to seek repossession orders.

NAB wants the Supreme Court to force the Sheriff to evict the tenants without it needing to comply with the Residential Tenancies Act, which requires renters be given 28 days’ notice.

In court documents, NAB argues the Sheriff should enforce a warrant of possession on the homes without requiring the bank to go to VCAT and give the tenants notice.

But the Sheriff has refused to act on the warrant because the Tenancies Act obliges owners to give the tenants notice “to the exclusion of any other law”.

“At the very least, there is a right [of tenants] to receive notice to vacate,” says the Sheriff.

Basically, what is going on here is a conflict of property rights. There is no doubt that the bank ultimately has the right to evict the tenants – the question is whether the tenants have a legally enforceable right to receive notice of the coming eviction. (I would argue that they certainly have a moral right, and probably also some sort of right under international instruments such as the International Covenant on Economic, Social and Cultural Rights.)

A quick primer about the sources of the various property rights. For the purpose of this discussion, we are only talking about the situation where a landowner (Alex) has mortgaged hir property to a mortgagee (Bobby), and also leased the premises to a tenant (Casey), and where Alex has defaulted on hir mortgage payments.

In this situation, Bobby generally has a right to possession of the property, and a right to sell the property. Bobby has these rights by virtue of the contract between hir and Alex, supported by common law and statute. Under common law, mortgagees have traditionally had powerful rights, and traditionally, mortgagees have also had greater power to negotiate (read insist on) contractual clauses which give them even stronger rights. This has been modified to some extent by statute to protect people in Alex’s position (this differs from state to state, and can get quite complex). However, the contract is generally still the main source of rights, even if only to define how those rights may be exercised. In other words, if I was looking at a dispute between Alex and Bobby, I would look at the contract first, and then look to the statutes and common law to find out if there were any other rights I should be aware of, and also to understand how the rights in the contract would be interpreted.

Now, let’s consider Casey. Under the tenancy agreement, Casey also has a right to possession of the property, as long as sie acts in accordance with the lease, and unless and until sie is given a termination notice. Casey has these rights by virtue of the contract between hir and Alex, supported by common law and statute. However, because traditionally, landlords have had stronger rights than tenants under common law and also by virtue of their greater bargaining power, statute has stepped in to ensure that people in Casey’s position are protected (although they do not always know how to access that protection). Once again, this differs from state to state, and can get quite complex, but certainly in New South Wales and Victoria, there is a significant statutory protection of tenants even if there is no proper rental agreement. In other words, the main source of rights between Alex and Casey is statute. The contract between them might give some details of those rights (for example, the term of any lease), or may provide for additional rights, but for most residential tenancy agreements, a tenant cannot contract out of hir rights.

Alex’s rights are fairly non-existent at this stage, at least in relation to possession of the property. If the proceeds of sale are greater than the amount Alex still owes to Bobby plus Bobby’s costs, Alex will get the rest, but unless Alex can come up with the cash (or some other security), at this point, Alex is not getting back into the property.

So. Once Alex defaults on the mortgage and Bobby steps in to take possession of the property in order to sell it, the main conflict in rights is between Bobby (and hir right to possession and sale) and Casey (and hir right to possession).

According to The Age article, NAB (ie Bobby) has a warrant for possession which sie has asked the Sheriff to execute. This means that NAB has gone to the court to have its rights as against the relevant Alex enforced, and the result is that the court has confirmed that NAB has a right to possession.

It also seems that NAB has interpreted the warrant for possession – being an actual court order declaring a right in a specific case, rather than an abstract statement of general rights in general situations – as trumping the relevant Casey’s right to possession.

This is arguable.

However, the Sheriff has apparently interpreted the situation differently. Sie plainly considers that the warrant for possession can only be executed subject to Casey’s statutory rights, which provide that 28 days notice must be given.

I agree with this interpretation. I actually think Victorian property law is pretty clear on this. I also think it is likely to be supported by the Victorian Charter of Human Rights and Responsibilities (although not directly, and maybe only to the extent that the Sheriff is being careful to carry out hir duty according to law – the Sheriff is probably a public authority, and so subject to the Charter, but NAB is not).

To some extent, I’m surprised that NAB is running the case. I would be even more surprised if it were not for one thing: this decision will affect many mortgages. If NAB wins on this, it will be able to save a significant amount in relation to the costs of getting tenants out.

Because of the significant impact on costs, and the fact that NAB is fighting it at all, I would not be surprised to see this go on appeal, perhaps up to the High Court (you heard it here first!). This is especially likely if NAB loses in the case at first instance (ie what is going on now) and also in the Victorian Court of Appeal. It may be slightly less likely if NAB wins.

That’s because it is not the tenant fighting, but the Sheriff. The Sheriff has less of a vested interest in getting the “right” outcome, and more of an interest in ensuring that hir job is done properly, ie legally. So if the court at first instance decides in NAB’s favour, the Sheriff may decide that sie must, legally, evict tenants immediately on the basis of NAB’s warrant for possession, whether or not sie thinks it is the moral thing to do.

If that is the outcome, then there will be good cause to lobby the Victorian government to change the legislation.

(The tenants could conceivably bring some sort of legal action, but this assumes they have the ability to do so, and it is very possible they do not.)

For those of you who are wondering: in my view, under New South Wales law, a warrant for possesesion would not entitle NAB to immediate possession, but rather, it (or the Sheriff) would be required to give the relevant period of notice. I think the position would actually be much more clearly in favour of the tenants. (Interestingly, under NSW law, once the Sheriff gives notice to a tenant to move out so that the mortgagee can take possession, the tenant does not have to pay rent.) Given the apparently stronger protection given to tenants in NSW, I suspect that NAB is using Victoria as a test arena. If it wins there, my guess is that we can expect to see them bring on the same fight here. If the state courts reach different conclusions, then the prospect of finding it in the High Court becomes even more likely. Either that or, if NAB is given legal advice that a similar action in NSW would be bound to fail, it might lobby the State government to wind back tenants’ rights once a mortgagee has a warrant for possession. So keep your eyes peeled.

ETA: I should make it clear that the landlord had apparently leased the properties in question to the relevant tenants without NAB’s knowledge or consent. However, while this may be a breach of the contractual agreement between the landlord and NAB, in my view, it does not affect the tenants’ rights under the legislation – although it may mean that NAB is less likely to act in this way where it has knowledge of a tenancy.



Categories: law & order

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13 replies

  1. My question is this: why?
    The NAB is, and has been for a while, running a campaign to make themselves look like they’re ethically superior to the other banks. While this is disproven easily if you read their fine print, not many people get that far. So why would they, in the name of saving no more than a handful in the grander scheme, completely ruin that PR in one stupefying stunt? On the other hand, I may be naive here, I don’t see that keeping a house on the books for 28 days (which you can in Victoria run open-for-inspections through with only one day’s notice) would cost much more than keeping it on the books for even the speediest of sales. I really can’t see the benefit to the NAB here, and the risk is so bloody high.
    So in summary: why?

    • Medivh, all very good points. I can think of only one rational reason: it’s a test case, and NAB wants to know the answer. That suggests there’s an awful lot out money riding on it (and they may have advice that it’s likely to be applicable in other areas, ie with other types of debt, although I would have thought the point was fairly specific).
      Another very real possibility is that a particular person at the bank got a bee in their bonnet about this loan, for some reason. Not rational, but it can happen. The tenants shouldn’t suffer, though.

  2. Investors are advised that in Victoria
    Rent. If you have a fixed-term agreement with your tenant, you can’t increase the rent before the end date. You also can’t increase the rent more than once in any six-month period and you must give your tenant 60 days’ notice. Tenants can complain to Consumer Affairs Victoria if they think the increased rent is excessive.
    ….
    Evictions. Landlords can give tenants instant and immediate notice to vacate if there’s malicious damage to a property or if the property has been partly or completely destroyed. You can also evict a tenant if they’ve been violent or threaten the safety of another person or premises nearby. If you own share accommodation and evict one person, that particular tenant must leave immediately and can’t return to the house for two business days.
    If the tenant owes at least 14 days’ rent you can send them a breach of duty notice. If you’ve already sent them three such notices, you can order them to vacate after the third one expires. A landlord can issue a 60-day eviction notice, if, after 60 days, the property is to be sold, demolished, repaired or renovated. But to evict your tenant for no specific reason and if the tenant is on a fixed-term lease, you need to give them a massive 120 days.
    Published in Eureka Report on October 5
    That sounds like 60 days to evict a tenant on a lease, which isn’t excessive when you remember that Victorian property sales normally have 60 day contracts

  3. billie, a mortgagee doesn’t just step into the shoes of the landlord – they actually have stronger rights in relation to a tenant than the landlord did. The legislation only requires 28 days notice. It’s 30 days for a mortgagee – as compared to 90 for a landlord – in NSW.
    (It does seem a bit unfair, but it’s the balance of rights that the legislature has struck.)

  4. Surely the court could not find in favour of NAB in this case? Expecting someone who has had NOTHING to do with the mortgage-defaulter’s defaulting on their loan to move out immediately, is outrageous.
    Surely 28 days is a bare minimum – the tenant would need to findg a new place to rent, pack their stuff, organise a removalist or round up a bunch of friends with big cars… 28 days is surely at the lowest end of possible for that sort of activity…

  5. Great post, Jo, I was reading about this yesterday and boggling at the cynicism of the NAB’s property managers. That’s property managers for you.
    I used to work with quite a few of the people in NSW who’d be responsible for writing any of the legislative change coming out of a decision–I think you’re right, a legislative response is the most likely thing if NAB win, but I’d be confident even a conservative State Government here wouldn’t be interested in winding back tenants’ rights in the matter of eviction notices. That’d just be… perverse.

  6. This is morally reprehensible. May the fleas of 1000 camels infest the armpits of the dudes at NAB who commenced this litigation against the sheriff.

  7. Well I think a key point as mentioned in the post is the NAB was not informed that the property was being rented out. You generally get different loans for investment versus owner occupied and loans perhaps made under different criteria. So in a way the NAB is also basically an innocent party here.
    The landlord is surely the one primarily at fault here – not only have they reneged on their mortgage payments but also they had not informed the bank that the property had been rented out which they may have not been given permission to do (and keep the loan). They should be liable for compensating the tenant for being evicted. Or in practice since the NAB has much larger resources than the tenant perhaps it should be able to go after the landlord for money lost because of the extra delay waiting for the tenant to leave.
    On the other hand if the NAB had consented to the property being rented out then they should have no more rights than the landlord.

  8. Thanks for the update, Mindy.
    From the link – the case was only intended to clarify legal process – yep, they wanted to know exactly what they could legally do and planned to do it. The”we luv tenants!” is PR smokescreen, IMHO.

  9. @Jo
    I think they just realised the public isn’t as switched off as they thought.

  10. Yes, I agree that would be why they’ve decided to pull the plug; I was referring to the rather whiny reason they gave for starting it in the first place (I should have been more clear).

  11. Sorry, my misreading. Yes they tried it on and it backfired rather spectacularly on them. Couldn’t happen to a nicer bunch (unless of course it happened to another bunch of bankers).

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