Defence Housing

Dear Pitto,

Thank you for sharing your experience and your qualified comments. In reference to rent review I'd like to share with the forum our commitment with an owner:

The rental income of DHA properties is reviewed annually, according to market valuation, by a licensed 'independent' valuer appointed and paid for by DHA on behalf of the owner and tenant. Their analysis takes into account the property’s features and amenities, the weekly rental of comparable properties, and research of local market conditions.

DHA manages in excess of 11,000 properties on behalf of investors. While every effort is made to ensure the accuracy of rental valuations, due to the volume of transactions, it is likely that a small percentage of errors may occur (rental over valued and/or undervalued). Accordingly:

1.    Investors have the right to enter a formal review process whereby they appoint their own licensed valuer to determine the weekly rental and a compromise is reached (the terms and conditions of this process are stipulated in the property’s lease). Depending on the financial situation of the investor(s), this expense may be claimed as a tax deduction (professional taxation advice should be sought to confirm this);

2.    Some editions of the lease include a rental floor for the life of the lease, whereby rent is reviewed annually but never reduced below the starting rent in the event the market drops; and

3.    Other editions of the lease allow for the starting rental to be upheld until the second review date where the valuation is less than the starting rent at the first review.

As demonstrated in your case, DHA’s lease aims to ensure investors are suitably remunerated at market value (or higher in some instances). Further, provided the terms of a review process are met and evidence suggests an error has occurred, DHA strives to work with all parties to reach a mutually beneficial outcome.

We find that the majority of owners are happy with their rents. From the recent review exercise less than 1% of owners have sought review at this time. This is a favorable outcome as it means 99% are likely satisfied.

DHA has no interest or mandate to contain or restrict rent growth within the portfolio we manage. The rent valuation establishes the rent the tenant pays and is a pass through to the owner. DHA operates from the money we receive from fees on this transaction. Indeed if rents are higher DHA recieves more property management fees. DHA has an equal tension from the tenant and the owner in the establishment of rents. We want both parties to be happy.

The valuers we use are independent of DHA, selected by public tender, licenced, and do not recieve any guideance, reward or otherwise to do anything but provide an accurate rent assesment.

I am glad the review process worked for you. Thanks for being our customer!

Regards,

Defence Housing Australia

Pitto, there is usually a dispute resolution mechanism in the agreement eg a third independent valuer appointed to adjudicate or the two valuers come to some agreement as to which are the most appropriate/comparable premises, does such a clause exist in your management agreement?

Are the rents nominated by yourself the advertised rents or the deals which have been communicated to your valuer by their network?

Does the reported rent include any incentives to the lessee? eg rent free period

Have you taken into consideration the basis for valuation ie how the rent is to be determined (vacant possession, sitting tenant, comparable market rents etc)?

I looked into DHA investments in the past because the security appealed but once I did more reserach I moved away from it because (1) you do pay a substantial premium for the security and (2) rental yields appeared low compared to the market. Also, the properties are often not in places I would select for good capital growth or high yield.

If you do your due diligence and select you investment property well should be not need to pay a premium for a secure lease, because a well selected IP will rent out well and at good rates. And if you also select a good property manager then you should not have too much problems in managing the IP and the benefit that DHA pay the maintenance and do some refurbishment at the end of the lease is also limited.

I think if you're a serious investor you can do (much) better on your own, but if you want minimal involvement and high security and are willing to compromise your ROI for that comfort then it can be a good solution.

Just an update, our valuer came back with a rent of $525 per week,  that is $55 a week more than the DHA valuer.  

It will be interesting to hear from DHA, frankly I don't know how they don't get embrassed when they get caught out like this.   They say that 99% of people are happy with their valuation, make that either happy, ignornant of the correct price or not concerned enough to do anything about it.

Repeat word of caution, watch your rental valuations if you have a DHA property.

Cheers

Hi trustieone,

Yes they backdate rent to the start of the calender year when the rentals are varied.  No loss to you except the independant valuation fee and the time you take in the process.

Interesting question about nearby properties, I know the place next door is a DHA rental and am currently obtaining evidence from the owner regarding his rent.  If they don't increase other rentals in line with the new information it would add substantial weight to my argument that DHA are deliberately trying to minimise rents and not acting in good faith towards their owners.  

I have just written to the Managing Director of DHA re this and intend to follow-up with the Commonwealth Ombudsman if I don't get any satisfaction as I really don't want to have to go through this every year.
Cheers

Hi IP Freely,

Rent review time and premises are exactly the same, they have the same fixtures and fittings.  

Without getting into a lesson in contract law and specifically provisions relating to the treatment of all parties with "good faith", it is incumbent on all parties to this contract to treat each other with the utmost good faith.   This has been determined by numerous courts as to require more than what you think which is basically the law of "buyer beware".  The contract specially requires each other to act in this way and precedent would be best encapsulated as follows:

Another approach, referred to by Dr Peden and frequently cited, is that of Sir Anthony Mason in his Cambridge Lectures, 1993 (and see his article “Contract, Good Faith and Equitable Standards in Fair Dealing” (2000) 116 LQR 66).

Sir Anthony suggested that the concept of good faith includes the following elements:
(1) An obligation on the parties to co-operate in achieving the contractual objects (loyalty to the promise itself).
(2) Compliance with honest standards of conduct.
(3) Compliance with standards of conduct that are reasonable having regard to the interests of the parties.
That definition (perhaps more accurately, explanation) commended itself to me in Tomlin v Ford Credit Australia [2005] NSWSC 540 at 116.

Clearly having knowledge of the rental valuation for exactly the same type of property and then withholding this information from another owner would be held to be in breach of this duty.  That's not to mention that not doing so is in breach of DHA's customer service charter and morally debatable from a government agency .

So hope this helps you understand a little better DHA's obligations in this regard are somewhat higher than a normal rental contract, notwithstanding the fact that good faith is implied in every contract, specified or not.

Cheers

Thanks for your info IP freely, but what law are you relying on to contend this?  Sounds to me like opinion rather than the law, however, I am happy to stand corrected if you can tell me what binding courts have decided that the duty to act in good faith is overidden by a timing issue or acceptance of a rent under a mistaken belief in a state of things.   If you are going to enter into a discussion of this nature it does little to legitimise your argument by not quoting the relevant case law to support your contention.

As I said, I'm happy to discuss the basis of your legal argument when you support it with precedent as I have done to support mine, otherwise unfortunately you simply have an opinion without basis in law.  

Cheers   

Pitto, sorry to take so long in answering your last remark:

I will refer back to the principle provided by Griffith CJ in Spencer v Cmwlth (1907) 5 CLR 418 where he sets out the principle of market value.

Furthermore once MV is determined and accepted by the two parties, you cannot revisit it unless there has been some error leading to an inaccurate assessment. If the neighbours still have not settled but are relying on your rental assessment as part of their submission, you can not rely on their assessment when known to revise your own as it has been considered in the neighbour's case.

can anyone assist with advice on how to successfully market a 3 bedrooms unit in Chatswood market value $ 1 M plus with lease to DHA with 5 years remaining with option for further 3 years – currently $810.00 per week
Local Real Estate Agents usually required open inspection with Auction as prefered method of sale – my opinion is that this preorpty had to be targeted on specific investor (local and oversea -expartie )
DHA do not allow open inspection but inspection by Appointment
and also with a list of restrictions on what can be advertise
I am in a perdictament