Online Services

If you want us to collect a debt click on the button below

Newsletters

Bi-monthly Debt Collection newsletter with changes and trends effecting the industry. Subscribe by emailing Register Here

Monthly newsletter covering the rental industry. Subscribe by emailing newsletter@tinz.net.nz

Ph: 0800 111 007

 

Adding Collection Costs

Adding Collection Costs to tenants

updated 1.2.12

We have received any number of calls from property managers and landlords in regard to adding the costs of our collection to Tenancy Tribunal ordered debt. Section 32 of the Residential Tenancies Act was amended in October 2010. It now states that you can incorporate a provision within your written tenancy agreement, stating that tenant can agree to reimbursing you for any reasonable expenses or commissions paid or incurred by the creditor in recovering, or attempting to recover, any overdue payment that the debtor owes to the creditor under an order of the Tribunal. You can download a tenancy agreement with that clause in it from Tenancy Information N Z website here if you one of their members.

The common practise is that you must instruct a collection agency, such as ourselves, who should tell you what costs they will be adding to a debt and then you can go back and make an application to the Tenancy Tribunal for reasonable costs of collection to be added to your current Tenancy Tribunal order

The adjudicators will apparently know what is reasonable costs even though they haven't had any experience of the costs of collection of these types of debts.

As was explained to the Dept for Building & Housing we offer many options to our landlord and property manager clients so what is reasonable to a landlord won't necessarily be reasonable to a tenant.

Here's an example of a Tenancy Tribunal order with our collection costs added to order. See here.

For example look at these two options and the difference it makes to a $1000 debt to be collected.

 Our Option 2

 Registration cost of $250 + GST ($287.50) billed upfront to landlord

+ 20% + GST (23%) commission on debt as collected - $1000 now equals $1672.08

Our Option 5

No upfront cost to landlord

50% + GST (57.5%) on debt collected - $1000 now equals $2352.94.

Option 5 is reasonable (viz. good) for a landlord, as there is no investment at all whereas option 2 adds less to the debt for tenant so that is more reasonable to tenant.

Both options we pay enforcement fees which start at $569 which will also be added to a debt.

It is going to be very expensive for tenants not to pay a debt. 

Now you have to ask yourself, if you are a letting agent/property manager, how are you going to quantify your costs to a Tenancy Tribunal adjudicator for your time debt collecting and taking out an enforcement and appearing at hearings?

If you want to see an example how debt collection charges are added to a debt under our option 2 see as follows.

To ensure that a creditor (landlord/property manager) recovers the full amount of their debt we simply can not add $240 + GST and then 20% +GST as the following basic maths shows

 Incorrect Calculations

 $1000 + $287.50 = $1287.50 + (20% + GST of original = $200 + $30 GST) = $1517.50

 Now if we were to show what happens as we recover the money.

C.I.A. retains the 20% plus GST from all payments recovered which should total $349.02 (of $1517.50 as above) leaving a balance of $1168.48 as being paid to the landlord. You say that’s good but don’t forget you paid $287.50 to register the debt so you have only got $880.98 out of the $1000 original debt to collect.

 The correct calculations are as follows

 Add reg fee to Debt and then divide by (100 – (20%+GST))

 Your debt was, therefore, $1000 + 287.50 (reg fee) divided by .77  = $1672.08

 And you thought it was easy to simply add our costs to the debt!

If you want to try using our calculation spreadsheet for your particular debt you can select the option on this spreadsheet and it will give the added costs which are relevant to your debt. Make sure you select the right option from the tabs at the foot of the spreadsheet - click here to open spreadsheet