New Bond System Makes Renting Cheaper
Posted by Fleur Revell
New Bond System Makes Renting Cheaper, a novel insurance solution is set to help landlords and tenants alike.
Set to be launched on 1 July 2010, SmartBond is a new bond system that will make residential tenancies more affordable and accessible in New Zealand.
An alternative to the traditional Department of Building and Housing administered (DBH) bond system, SmartBond will appeal to tenants who do not see the financial sense in tying up large sums of cash in a traditional bond.
It will also benefit those who want to reduce the upfront costs of establishing a new tenancy, making it easier and quicker for people to secure a suitable place to live.
Under the old bond system, finding tenants who were capable of paying a full bond could be a real headache for landlords. Many landlords agreed to accept less than the full four weeks rent allowed under the DBH system, purely to avoid the delays associated with raising a full bond. The result was increased risk for landlords if the tenants then damaged their property or failed to pay the rent.
SmartBond avoids this scenario by offering landlords a full five weeks cover for unpaid rent or willful damage, in return for a small weekly premium. Premiums are calculated as a percentage of a tenancy’s weekly rent and at 2 per cent are un-noticeable for most tenants and landlords.
An option of rent protection insurance (premium 0.5 per cent) gives the parties the additional protection of knowing that the rent (up to a maximum of 12 weeks) will be paid if the tenant becomes redundant, bankrupt or disabled.
Barry Gordon Director of NZ Guarantee Limited says, “In the current financial market there are real issues with people raising and tying up substantial sums of money in tenancy bonds. For example, if you take a tenancy with a weekly rent of $300, then a tenant could be obliged to pay up to $1200 in bond. That’s dead money. With SmartBond you can choose instead to pay a $6 weekly premium instead, and the benefits are obvious. SmartBond offers a more flexible, financially savvy option for landlords and tenants, while providing increased cover for landlords if a tenancy ends badly.”
In fact, only a small percentage of residential tenancies in New Zealand end in a dispute. When they do, the process with SmartBond will be no different than it would be if the parties had lodged an old-style bond. The landlord would make an application to the Tenancy Tribunal for an order and, if an order is made in his or her favour, payment up to the value of five weeks rent is guaranteed within 5 days of notification to SmartBond.
Based on similar successful system already well-established in Switzerland, Belgium and the UK, SmartBond is compliant with the Residential Tenancies Act 1986. Using SmartBond is a purely optional arrangement, entered into by the parties because of the benefits it offers. SmartBond has a six month minimum term, but after that can be terminated by either party at any time.
If a tenant elects not to proceed with SmartBond then the landlord can require that they pay the standard four weeks rent as bond instead.
An added benefit of SmartBond for tenants is that they can apply for preapproval as a SmartBond tenant. Application is done online or through a SmartBond approved agent and, once accepted, the tenant is issued with a SmartBond Approval Certificate, which they can then show to potential landlords.
SmartBond approval lets landlords know that tenants have been checked and approved for cover, giving the landlord peace of mind and the tenant an edge in a competitive market.
Similarly, landlords and property agents may choose to advertise their rentals as SmartBond properties, attracting tenants who are smart about managing their money, without the deterrent of having to raise four weeks bond upfront.
Barry Gordon says, “The entire SmartBond system has been set up to make the process as simple and straightforward as possible for everyone. We’re establishing a network of SmartBond Approved Agents nationwide and, once the parties have agreed to use SmartBond, they can sign up online or through an agent. The entire application and approval process takes less than 5 minutes and, once approval is given, the tenancy can start straight away”.
“The cost is minimal and, provided the premiums continue to be paid, cover is guaranteed. It’s that simple. Nothing else has to be done until the tenancy ends. We’re confident that SmartBond is about to become the bond system of choice for New Zealand landlords and tenants, just as has happened overseas.”
“Landlords may choose to reward their current tenants and opt to include SmartBond in current rent allowing any existing Bond to be released back to the tenant…”
SmartBond is the offering of NZ Guarantee Ltd and is underwritten by Southsure Assurance Limited, a SBS Bank Group Company. Both Southsure Assurance and SBS Bank are long-established New Zealand owned and operated companies, with proven track records in providing insurance, loan protection and financial services to New Zealand communities.
More information about SmartBond is available from www.smartbond.co.nz