Publications

Rent Entitlement - Unit Controlled by Mortgagee
Author: Kirsty Thomas
Date: November,2009

RENT ENTITLEMENT – OWNER’S UNIT CONTROLLED BY MORTGAGEE

Have you ever been in this situation?
You manage a building and you let out a unit on behalf of Mr Owner pursuant to a management agency agreement. You receive a call from a Big Bank saying that they are the mortgagee of Mr Owner’s lot and Mr Owner has defaulted in making payments under the mortgage and Big Bank demands future rent cheques. You feel pressured into paying the rent to Big Bank and subsequently receive a call from Mr Owner threatening to sue you for redirecting the rental payments to the Big Bank.
Schedule 1 of the Property, Stock and Business Agents Regulation 2003 (Regulations) contains the general rules of conduct applying to all licensees and registered persons and relevantly provides that an agent must:
• Act in the owner’s best interests at all times
• Act in accordance with the owner’s instructions
unless it would be contrary to law
In addition, your appointment to let with the owner specifies that the rent is to be paid to the owner. Clearly you don’t want to breach your fiduciary obligations to the owner or commit an offence under the Regulations, so it is important to establish that Big Bank is lawfully entitled to be paid the rent before doing so.
Before acting on Big Bank’s request, you should ask the Big Bank to provide the following information to you in writing:
1. Confirmation that the loan is one which is regulated by the Consumer Credit Code (the borrower must be a natural person and the loan is provided wholly or predominantly for personal, domestic or household purposes). If so, ask Big Bank for evidence that it has a court order for possession of the property.
2. If it not a Consumer Credit Code loan, have Big Bank confirm that there has been a default under the mortgage in the payment of principal or interest.
3. If Big Bank does not supply you with either 1 or 2, obtain a written authority from the owner to pay the rent to Big Bank.
4. It is also handy (but not imperative) that you obtain from Big Bank an indemnity for any rent paid by you to Big Bank if it is later found by a court that the Big Bank incorrectly entered into possession of the property.
Unless you have the above written evidence, you are better off continuing to pay the rent to the owner and not to Big Bank, otherwise you risk being sued by the owner for breach of the appointment to let and/or action being taken against you under the Regulations, which may result in monetary penalties and cancellation of your licence.