Tenant Entitled to Rent Refund for Unlawful Residential Premises

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[2025] NZTT 5210712

TENANCY TRIBUNAL AT QUEENSTOWN | TE TARAIPIUNARA RETIHANGA KI TĀHUNA

APPLICANT: [redacted]

Tenant

RESPONDENT: [redacted]

Landlord

TENANCY ADDRESS: Unit/Flat C, [ADDRESS], [POSTCODE]

ORDER

1. The above premises were unlawful residential premises for the duration of the above applicant’s tenancy.

2. [COMPANY] must pay [NAME] $3,201.00 immediately as set out in the table below.

Description Landlord Tenant Rent refund: Unlawful premises $3,174.00 Filing fee reimbursement $27.00 Total award $3,201.00 Total payable by Landlord to Tenant $3,201.00

Reasons:

1. Both parties attended the hearing. [NAME] attended and was represented by [NAME]. [NAME] and [NAME] attended for the landlord.

2. The tenant claims the premises he rented from the landlord were unlawful residential premises. [NAME] confirmed that no other claims were being pursued as part of this application.

3. The tenant seeks refund of the rent paid, and reimbursement of the filing fee.

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4. The landlord on the tenancy agreement is “[COMPANY]”. A search of the Companies Register discloses that the two directors of [COMPANY] are [NAME] and [NAME], the attendees for the landlord today.

5. [NAME] stated that she has been a director of [COMPANY] from when it was incorporated (on 03 May 2016). The two other directors from that time have since been removed from the company. [NAME] stated that he became a director of the company in July 2024.

6. [NAME] believed [COMPANY] bought the property in 2015, but given the incorporation date of the company, it is likely the property was bought by the company in 2016 at the earliest.

7. There is no tenant listed on the tenancy agreement. However, there was no dispute that a tenancy had been established between the two parties with the premises in question. [NAME] stated that the tenancy began on 31 October 2022 and ended by [NAME] giving notice to end the tenancy on 08 April 2024. [NAME] did not dispute these dates.

8. [NAME] stated that when [COMPANY] bought the property, she knew the two downstairs units did not have a certificate of compliance from by the Queenstown Lakes District Council (the “[NAME]”). She stated that following the purchase of the property she spent a period of time travelling, during which she was inactive in the directorship of [COMPANY]. She took over an active role in [COMPANY] in 2024 when the shareholding changed.

9. [NAME] stated that they had no dealings with [NAME] during his tenancy. The first dealings [NAME] had with [NAME] was when he contacted them after the end of the tenancy about the premises having been unlawful.

Are the premises unlawful residential premises?

10. The property has a building on two levels, with the upper level being the main house and the downstairs having been divided into two residential units. [NAME] was living in one of the downstairs units.

11. Despite the [NAME]’s concession that the premises is unlawful, I will set out briefly the relevant statutory framework.

12. “Residential Premises” is defined in section 2 of the Residential Tenancies Act, 1986 (the “RTA”) as “any premises used or intended for occupation by any person as a place of residence, whether or not the occupation or intended occupation for residential purposes is or would be unlawful”.

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13. There is no dispute that the premises in question were occupied by [NAME], and that this was intended by the parties as demonstrated by the existence of a residential tenancy agreement. These were therefore being used as residential premises.

14. The relevant parts of section 78A of [NAME] are as follows:

78A Orders of Tribunal relating to unlawful residential premises (1) This section applies in any matter where the Tribunal, on application by a

party or otherwise on the evidence before the Tribunal in respect of any claim within its jurisdiction, determines or declares that the premises are, or were at any material time, unlawful residential premises.

(2) For the purposes of this Act, unlawful residential premises means residential premises that are used for occupation for a person as a place of residence but— (a) that cannot lawfully be occupied for residential purposes by that person

(whether generally or whether for the particular residential purposes for which that person is granted occupation); and

(b) where the landlord’s failure to comply with the landlord’s obligations under section 36 or 45(1)(c), or section 66H(2)(c) or 66I(1)(c), as relevant, has caused the occupation by that person to be unlawful or has contributed to that unlawful occupation.

…

15. Subsections (3), (4) and (5) of section 78A set out remedies for landlord breaches of this section.

16. Section 36 of [NAME] states:

36 Legal impediments to occupation The landlord shall take all reasonable steps to ensure that, at the commencement of the tenancy, there is no legal impediment to the occupation of the premises for residential purposes.

17. [NAME] therefore makes it clear that a landlord has an obligation to take all reasonable steps to ensure there is no legal impediment to a tenant living in a residential premises. Where this is not done the premises may be found to be unlawful and remedies awarded against the landlord.

18. The Building Act, 2004 (the “BA”) includes what is required for a building to be a lawful residential premises. There are other enactments that may also apply. Change of use of a premises is covered under sections 114 and 115 of the BA, and Regulations 5 and 6 of the Buildings (Specified Systems, Change the Use and Earthquake Prone Buildings) Regulations 2005.

19. Section 115 of the BA is as follows.

https://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM95079 https://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM95099 https://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM3283909 https://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM3283910

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115 Code compliance requirements: change of use An owner of a building must not change the use of the building,— (a) in a case where the change involves the incorporation in the building of 1 or

more household units where household units did not exist before, unless the territorial authority gives the owner written notice that the territorial authority is satisfied, on reasonable grounds, that the building, in its new use, will comply, as nearly as is reasonably practicable, with the building code in all respects; and

(b) in any other case, unless the territorial authority gives the owner written notice that the territorial authority is satisfied, on reasonable grounds, that the building, in its new use,— (i) will comply, as nearly as is reasonably practicable, with every provision

of the building code that relates to the following: (A) means of escape from fire, protection of other property, sanitary

facilities, structural performance, and fire-rating performance: (B) access and facilities for persons with disabilities (if this is a

requirement under section 118); and (ii) will,—

(A) if it complied with the other provisions of the building code immediately before the change of use, continue to comply with those provisions; or

(B) if it did not comply with the other provisions of the building code immediately before the change of use, continue to comply at least to the same extent as it did then comply.

20. The use as recorded by [NAME] for the building at [ADDRESS] was not produced in the hearing, but the fact that there has been a change of use was.

21. A letter from [NAME] at [NAME] to [NAME] at [NAME] who was acting for the landlords’ regarding a renovation after the end of the tenancy, includes the following:

“It is noted from the property file that an alteration BC (Building Consent) and CoA (Certificate of Acceptance) application have not be (sic) completed. It is noted from the CoA rejection email of 14/01/2014 that if in the future the owners(s) decided to turn the lower floor into additional flats, then a change of use would need to be advised to council. “

22. The landlord accepts this was not at any stage done, either prior to the tenancy, or during or after it. Because of this the downstairs areas as flats or residential units, were unlawful residential premises.

https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576 https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576 https://www.legislation.govt.nz/act/public/2004/0072/latest/whole.html#DLM306890 https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576 https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576 https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576 https://www.legislation.govt.nz/act/public/2004/0072/latest/link.aspx?id=DLM162576#DLM162576

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Remedy

23. Section 78A(4) of [NAME] covers the remedy that [NAME] stated [NAME] is seeking.

(4) Without limiting the generality of section 77 or the nature or extent of orders that the Tribunal may make in accordance with this Act in relation to the matter,— (a) the Tribunal may order the landlord to pay to the tenant—

(i) the whole of the sum found to have been paid by way of rent for the period for which the Tribunal is satisfied that the premises are or were unlawful residential premises; or

(ii) an amount that is the sum referred to in subparagraph (i) less any amount that the Tribunal is satisfied, having regard to the special circumstances of the matter, including the nature of the premises, it is fair to deduct:

24. In addressing breaches of section 78A, the District Court has addressed the impact that breaches have had on tenants as well as the need to incentivise landlords to comply with legislation which sets standards for residential premises.

25. [NAME] stated the shortcomings of the premises included fire rating levels as was referred to in [NAME]’s letter. [NAME] also referred briefly to the breaches having an impact on [NAME]’s mental illness, and the danger that [NAME] was exposed to living in a premises that didn’t meet council fire ratings. [NAME] stated that when [NAME]’s daughter stayed, (one occasion for two weeks and three or four occasions for one week) his daughter was also exposed to the same danger. [NAME] also raised that there was no extractor fan in the kitchen area.

26. [NAME] stated that [NAME]’s assessment was in response to inquiries he and [NAME] have made in the course of renovating the whole of the premises so their own family can move into it. [NAME] stated that in the course of the current renovation he has removed fire-rated gib-board which shows that the premises would have been compliant with the earlier Building Code. There is no corroborating information to support this claim.

27. [NAME] stated that the reason the premises had not been brought up to current Building Code standards was not because it was difficult to meet fire rating requirements, but because it was difficult to meet noise rating requirements.

28. [NAME] also stated that the current issues with the premises include the weather-proofing flashings, and the cladding which is the same cladding that

https://www.legislation.govt.nz/act/public/1986/0120/latest/whole.html#DLM95578

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was applied when the premises were built in the 1990’s and is the same as has caused many weathertight issues across the country since.

29. Ultimately there is no clear evidence now as to what standard the premises met when [NAME] lived in them partly because neither a BC nor a CoA were applied for to turn them into consented residential premises, and if they were, the result of any inspection has not been provided as part of this application.

30. I take on board [NAME]’s claim that he has removed fire rate gib board from the premises, but this is not enough to persuade me that the premises were therefore compliant with previous Building Code requirements.

31. [NAME] are of the opinion that [NAME] did not have any complaints about the premises during his tenancy, and his complaint regarding the premises now is motivated by money. However, I note that money is probably the same motivation that was behind the [COMPANY] renting out the premises and not complying with section 36 of [NAME]. Again I note the submission.

32. What is not in contention is that the premises were unlawful.

33. When I consider the impact the unlawfulness of the premises had on [NAME] and his daughter, I determine it was minimal. It may have been zero. There is no information to suggest that [NAME] knew the premises were unlawful while he was living there. Had a fire broken out however, the impact could have been calamitous.

34. In my view, the need for a strict approach to compliance with legislation is obvious. To allow one party with a vested interest in the relationship to regulate their own actions would not work. I noted in this application for instance, that when [NAME] stated there was no extractor fan in the kitchen, [NAME]’s response was first that there was an extractor fan, and then that there no kitchen had been supplied in the first place. (This claim was disputed by [NAME].) Penalties imposed against landlord breaches is one way of incentivising landlords to comply with their requirements.

35. Despite suggestions to the contrary by the landlord, I consider this breach far exceeds a “technical” breach. I would consider a technical breach to be one where the property was compliant with council regulations but had not been “signed off”. That was not the case here. Here, there was clear argument between the parties as to what the state of the premises was during the tenancy. [NAME] claims there was fire rated gib board downstairs, but there is no corroborating evidence of this. The landlords believe an extractor fan had been installed during the tenancy; [NAME] is adamant there never was. There was disagreement over what kitchen facilities had been provided.

36. [NAME] made submissions based on the District Court case of Harding v Caroto [2023] NZDC 5981, (“Caroto”). In that case his Honour J

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David J Clark reviewed previous cases he had presided over with regard to unlawful premises. His Honour found that calculating the amount of rent refund that is appropriate cannot always be done based on percentage; sometimes, such as where the tenancy in question was long and the breach was technical, a percentage refund would place an unreasonable burden on the landlord [45]. In these situations, His Honour preferred to measure the nature of the breach against the benefit of the utility considered against all the relevant circumstances, including the length of the tenancy.

37. In the case of Exclusive Estates Limited v Hoffman [2022] NZDC 25495 where the premises were unlawful premises but otherwise safe and compliant and the benefit of the utility to the tenant significant, His Honour fixed the refund at $2,000.00.

38. In the case of Makele v Presland and Co [2022] NZTT Auckland 4290197, Adjudicator D Milne canvassed awards for a range of cases dealing with different unlawful premises conversions. Her findings included the following three cases, similar to the case at hand:

a. Haldane and Liu [2019] NZTT Auckland 4202359, 4212111, in which a full refund of rent was awarded for a premises whose basement had been converted into two separate household units.

b. [NAME] v [NAME] [2020 NZTT North Shore 4257512, 4264964, in which the tenant occupied the lower level of a two-storey house. The change of use was not consented by council and the premises did not have a consented kitchen: $7,100.00 was refunded to the tenant.

c. [Tenant] v Kranenberg [2021] NZTT 4298196, 4294929 in which the landlord’s property comprised two properties but was only consented to be used as one residential dwelling: two thirds of the overall rent was refunded to the tenant.

Rent reduction

39. In assessing the amount of rent reduction to award, I must assess the special circumstances of the case, including the landlord’s and the tenant’s motivations for renting the property, the respective benefits received by each of the parties, the detriment suffered by the tenant as a result of the breach, the purpose of section 78A of [NAME] in ensuring landlords do not unfairly profit from skirting their regulatory obligations, and the public interest in discouraging unlawful tenancies.

40. Having considered the facts and circumstances of this case against the relevant regulatory framework and relevant current New Zealand case law, I arrive at the conclusion that in this case 15% of the rental paid should be refunded. I take into account that this is more than a technical breach, and I am not wholly

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persuaded that the relevant fire ratings requirements were met during the tenancy. Because of this I consider that more than a “flat-rate” amount is appropriate. The tenancy of 18 months was of moderate duration. However, I am satisfied that the tenant was himself largely satisfied with the conditions of the tenancy and the conduct of the landlords for the duration of the tenancy.

41. According to my calculations the tenancy lasted 75 weeks and 4 days. At $280.00 per week rent, the total paid would have been $21,160.00. A twenty percent refund is calculated against this amount.

42. I have stood back and reconsidered the amount I have arrived at against the factors discussed above. In doing so I am satisfied the outcome is fair.

43. Because the tenant has substantially succeeded with his claim I order reimbursement of the filing fee.

[NAME]

02 May 2025

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Please read carefully: Visit justice.govt.nz/tribunals/tenancy/rehearings-appeals for more information on rehearings and appeals.

Rehearings You can apply for a rehearing if you believe that a substantial wrong or miscarriage of justice has happened. For example: • you did not get the letter telling you the date of the hearing, or • the adjudicator improperly admitted or rejected evidence, or • new evidence, relating to the original application, has become available.

You must give reasons and evidence to support your application for a rehearing. A rehearing will not be granted just because you disagree with the decision. You must apply within five working days of the decision using the Application for Rehearing form: justice.govt.nz/assets/Documents/Forms/TT-Application-for-rehearing.pdf

Right of Appeal Both the landlord and the tenant can file an appeal. You should file your appeal at the District Court where the original hearing took place. The cost for an appeal is $260. You must apply within 10 working days after the decision is issued using this Appeal to the District Court form: justice.govt.nz/tribunals/tenancy/rehearings-appeals

Grounds for an appeal You can appeal if you think the decision was wrong, but not because you don’t like the decision. For some cases, there’ll be no right to appeal. For example, you can’t appeal: • against an interim order • a final order for the payment of less than $1000 • a final order to undertake work worth less than $1000.

Enforcement Where the Tribunal made an order about money or property this is called a civil debt. The Ministry of Justice Collections Team can assist with enforcing civil debt. You can contact the collections team on [PHONE] or go to justice.govt.nz/fines/civil-debt for forms and information.

Notice to a party ordered to pay money or vacate premises, etc. Failure to comply with any order may result in substantial additional costs for enforcement. It may also involve being ordered to appear in the District Court for an examination of your means or seizure of your property.

If you require further help or information regarding this matter, visit tenancy.govt.nz/disputes/enforcing- decisions or phone Tenancy Services on [PHONE].

Mēna ka hiahia koe ki ētahi atu awhina, kōrero ranei mo tēnei take, haere ki tenei ipurangi tenancy.govt.nz/disputes/enforcing-decisions, waea atu ki Ratonga Takirua ma runga [PHONE] ranei.

https://www.justice.govt.nz/tribunals/tenancy/rehearings-appeals https://www.justice.govt.nz/assets/Documents/Forms/TT-Application-for-rehearing.pdf https://www.justice.govt.nz/tribunals/tenancy/rehearings-appeals/ https://www.justice.govt.nz/fines/about-civil-debt/ https://www.tenancy.govt.nz/disputes/enforcing-decisions https://www.tenancy.govt.nz/disputes/enforcing-decisions http://www.tenancy.govt.nz/disputes/enforcing-decisions/

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A manaomia nisi faamatalaga poo se fesoasoani, e uiga i lau mataupu, asiasi ifo le matou aupega tafailagi: tenancy.govt.nz/disputes/enforcing-decisions, pe fesootai mai le Tenancy Services i le numera [PHONE].

Reasons: