By Ben King, Senior Solicitor, Aspiring Law
When it comes to legal developments, landlords have had their fair share of information to keep up with recently.
Changes to the Residential Tenancies Act, which included new rules around insulation and smoke alarms for rentals, came into force partway through 2016, with further amendments in the pipeline.
Late last year, Parliament passed the Healthy Homes Guarantee Act. Under it, by next July all rental properties will need to meet minimum standards – the details of which we’re awaiting – but it looks like there will be further rules around ventilation, insulation, heating and moisture control. The writing was on the wall, though; cold, damp rental housing had been a political hot potato for quite some time.
What came as a greater shock on the legal landscape was a decision out of the Tenancy Tribunal last year, which centred on a property that had been let, but, unbeknownst to the landlords, hadn’t been constructed to the plans as approved by Council.
Throughout New Zealand, there are reportedly some 617,000 rental properties – a third of the nation’s housing stock – collectively valued at around $300 billion. So, when the Tribunal ordered the husband-and-wife Dunedin landlords to refund their former tenant all of the rent she had paid during her seven-month tenancy – nearly $11,000 in total – it sent shockwaves through the property investment community.
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The backstory goes: the landlords had bought the property at auction, but didn’t check the Land Information Memorandum (LIM) report. Had they done so, they may have discovered the house’s actual layout didn’t match the plans held by Council. As it transpired, a previous owner had made improvements to the home, but had deviated during the build from the plans that had been submitted, and had never had those deviations approved, or signed off, by Council.
On realising the problem, the Dunedin landlords sought a certificate of acceptance from Council, which it granted. But that was not enough in the eyes of the Tenancy Tribunal. Unconsented alterations made for an unlawful tenancy; therefore, all rent paid should be refunded, it ruled.
The Tribunal’s decision sparked fears among landlords that a wave of rent refund claims was heading their way from tenants who discovered the homes in which they were living, or had lived, did not have the appropriate building consents.
The Dunedin landlords sought a rehearing, but the Tribunal refused their request, prompting an appeal to the District Court. Late last year, the Court overturned the Tribunal’s decision, ordering the rent refund be reversed, and that the landlords be repaid by the tenant in full. The Court found the breach was a technical one, the alterations had been ultimately assessed to be of a high standard, and that the tenant had not suffered any detrimental impact as a result of the non-complying work.
Risk remains
What landlords need to understand about the District Court decision is that the Judge’s finding pertained to a specific set of circumstances. Unlike the situation at hand, if a landlord knew about unconsented work and had done nothing about it, the outcome could be very different, and the reasoning applied by the Judge in this appeal might not apply.
This case still very much serves as a warning to landlords to get their house(s) in order in terms of compliance. They are by no means off the hook when it comes to homes without the requisite consents.
Non-complying houses, particularly older dwellings, are more common than people realise. (Newer homes are unlikely to have been so substantially modified as to require a building consent, but it’s still worth checking.) Remember, too, any builder doing work for a client has an obligation to advise of consenting issues, and to make sure the appropriate consents have been obtained before they begin. So, if you are buying a rental that has been renovated, check who did the work and ask plenty of questions about consents that were obtained.
While the Dunedin landlords were, in the end, reimbursed the money they were initially ordered to pay their former tenant, that relief came after months of undoubted stress and likely significant financial outlay to fight their corner. It does, however, highlight that one, relatively small step could have saved a whole lot of grief: due diligence during the sales process.
If you are investing in a rental – or any property for that matter – I can’t stress enough the importance of expending just a little energy and time in properly checking it out before you sign on the dotted line. Obtain the Council’s building file – or have your lawyer get it – and make sure the plans match what has been built. If the landlords in this case had studied the property’s LIM – which, reportedly, they acknowledge they didn’t – it may have been clear before they signed up for the property they were buying into potential problems.
Better late than never
If you already own a rental, and you didn’t do your dues when buying, I strongly advise you conduct your checks and balances as soon as possible. Source your property’s building file from Council, and satisfy yourself either no work has been done, or that any alterations have been properly consented and signed off.
Like the landlords in this case, where work’s been done to a high standard, you might be able to square everything away with Council proactively, albeit retrospectively – without going via the Tenancy Tribunal and District Court. If the work’s not up to scratch, you could be looking at a repair bill.
Don’t forget, the final sting in the tail: the Tenancy Tribunal can award rent refunds of up to $50,000.