Tenant Wins Refund of Option Fee and Exemplary Damages
📌 In brief
In a recent Tenancy Tribunal ruling, a tenant successfully claimed a refund of an option fee and was awarded $400 in exemplary damages for the landlord's unlawful act under the Residential Tenancies Act 1986.
⚖️ Legal holding
A landlord cannot require a tenant to pay money other than rent or bond for securing a tenancy agreement.
📖 What the law says
This rule generally prevents anyone from asking for 'key money' when setting up, continuing, changing, or renewing a tenancy agreement, or when a tenant assigns their interest or sublets. This is not allowed unless the Tenancy Tribunal has given its permission beforehand. The Tribunal will only give permission if there are special circumstances, considering things like the property itself and personal situations of the landlord or tenant.
Plain-English explanation — does not replace advice from a lawyer.
📖 Technical summary
The Tribunal ruled that the landlord's refusal to refund an option fee was unlawful and awarded damages.
📜 Headnote Official document
The Tenancy Tribunal ruled that the landlord's refusal to refund an option fee was unlawful and awarded the tenant $400 in exemplary damages under the Residential Tenancies Act 1986.
📚 Full judgment Official document
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[2025] NZTT 5135488, 5185892
TENANCY TRIBUNAL AT REMOTE LOCATION | TE TARAIPIUNARA RETIHANGA
APPLICANT: [redacted]
Tenant
RESPONDENT: [redacted]
Landlord
TENANCY ADDRESS: [ADDRESS], [POSTCODE]
ORDER
1. The landlord counter claim is dismissed.
2. [NAME] must pay [NAME] $907.00 immediately.
Description Tenant Refund of option fee $480.00 Exemplary damages $400.00 Filing fee reimbursement $27.00 Total award $907.00 Total payable by Landlord to Tenant $907.00
Reasons:
1. Both parties attended the hearing which took place by teleconference on 13 March 2025 with assistance from an interpreter.
2. The applicant [NAME] claims that [NAME] has requested ‘key money’ and refused to return $480.00 that he paid to secure the option of renting the premises. [NAME] seeks refund of the $480.00 and compensation and /or exemplary damages.
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3. The respondent, [NAME], has cross applied for compensation of $480.00 for holding the flat and stopping the advertising.
4. Both parties provided copies of messaging that took place between them in late December 2024 and January, February 2025 and gave verbal evidence at the hearing.
5. [NAME] responded to an advertisement on Facebook marketplace in late December 2024. He stated that the advertisement was for a self-contained flat. [NAME] claimed that the premises were a flat sharing arrangement for a granny flat which was part of a larger home. Neither party provided a copy of the advertisement.
6. [NAME] tenant paid [NAME] the sum of $480.00 and [NAME] stopped advertising the premises.
7. The parties entered into communication regarding the terms of the agreement and when it would commence. There was no agreement between the parties as to the terms of the tenancy. This was evident from the messages between the parties and the evidence given at the hearing. No agreement was signed by both parties.
Does the Tribunal have jurisdiction to hear this claim?
8. The Tribunal has jurisdiction to hear disputes between landlords and tenants in relation to a residential dispute that comes within the Residential Tenancies Act 1986 (“RTA”).
9. The definition of landlord includes a prospective landlord, and the definition of tenancy includes prospective tenant according to s. 2 (1) of the RTA.
10. Although the parties in this case had not entered into a tenancy agreement and had not agreed on terms, I am satisfied that they were in negotiation and were prospective landlord and tenant at the time that the $480.00 was paid to the landlord by the tenant. Therefore, the Tribunal has jurisdiction to hear this claim.
Did the prospective landlord require key money?
11. A landlord cannot, without the Tribunal’s consent, require a tenant to pay any money other than rent or bond for the grant, renewal, variation or assignment of a tenancy agreement. See section 17(1) Residential Tenancies Act 1986.
12. Breaching this obligation is an unlawful act, for which the Tribunal may award exemplary damages up to a maximum of $1,500.00. See section 17(3) and Schedule 1A Residential Tenancies Act 1986.
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13. Although in some communication the parties’ referred to the $480.00 as a bond payment the definition of a bond according to the RTA is “any sum of money payable or paid under a tenancy agreement as security for the observance and performance of the tenant’s obligations under the agreement and this Act” see section 2 (1) RTA. As there was no tenancy agreement entered into this amount was not paid under a tenancy agreement as either rent or bond.
14. I find that the $480.00 paid by the tenant to the landlord was for an option to hold the premises while the parties entered into discussion regarding the terms of the agreement.
15. The landlord’s initial requirement for the tenant to pay a week’s rent as an option for the tenant to enter into the tenancy agreement is not unlawful. Any sum required or received for an option to enter into a tenancy agreement if the sum does not exceed 1 week’s rent payable under the agreement, and, upon the option being exercised, the sum is refunded or is applied toward the rent. See section 17(4) RTA.
16. Therefore, [NAME]’s requirement and [NAME]’s payment of $480.00 to secure the option to enter into a tenancy agreement with the landlord is not on the face of it unlawful.
17. However, upon [NAME] communicating that he will not be proceeding with the tenancy, that sum must be refunded as recorded in section 17(4)(a) RTA.
18. [NAME] was intending to move cities if this tenancy commenced. On 15 January 2025 [NAME] advised that his intended move was delayed for personal reasons and road closures. The subsequent messaging records a breakdown in negotiations between the parties. The tenant had not signed a tenancy agreement. The parties were still in negotiation as to the terms of the tenancy. [NAME] was within his rights to exercise his option not to proceed and have his initial deposit refunded unconditionally.
19. [NAME] refused to refund the sum of $480.00 to [NAME] and claims it towards the cost of stopping advertising while discussions regarding the granting of the tenancy were taking place. This amounts to requiring key money which is an unlawful act.
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Counterclaim
20. When [NAME] sought a refund of the $480.00 on or about 16 January 2025, [NAME] disputed this and claimed the money due to cancelled advertising, time spent and lost opportunities to relet the premises. [NAME] states that there was an effect on her as a result of the time taken before [NAME] exercised his option not to proceed.
21. I find that the landlord’s counterclaim is not proved because the parties did not reach any concluded nor binding tenancy agreement.
Is [NAME] liable for compensation?
22. [NAME] seeks compensation for the cost of selling furniture in anticipation of the move and paying a bond for another premises of over $1300. No corroborating proof of the amounts claimed was provided to the Tribunal. As the Tribunal has found that the parties had not entered into a binding agreement [NAME] was entitled to exercise his option not to proceed with the tenancy. This was a choice that he was entitled to make but the prospective landlord is not liable for the consequence of this option being exercised. In either event there would have been a cost to the tenant in the form of a bond and moving costs. Therefore, no compensation will be ordered.
Is [NAME] liable to pay exemplary damages?
23. Where a party has committed an unlawful act intentionally, the Tribunal may award exemplary damages where it is satisfied it would be just to do so, having regard to the party’s intent, the effect of the unlawful act; the interests of the other party; and the public interest (s 109(3) RTA).
24. [NAME] requested refund of the $480.00 on 16 January 2025 and [NAME] refused to return it. I find that the refusal to refund the $480.00 when requested was intentional.
25. [NAME] seeks exemplary damages and asks the Tribunal to consider that he sold furniture in anticipation of the move, had to pay a bond for another premises of over $1300 and suffered the financial inconvenience and stress of the landlord failing to return his option fee.
26. [NAME] the tenant claimed that [NAME] has done this previously there was no proof provided of this or of previous awards of exemplary damages, therefore the Tribunal must consider this as a first breach.
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27. It is in the public interest that landlords and prospective landlords are careful to comply with the requirements of the RTA in respect of key money and option fees to ensure they are not holding on to money paid as options for prospective tenancies that do not proceed.
28. Considering all of the above factors, exemplary damages on the lower end of the scale is appropriate. I order payment of $400.00 in exemplary damages for the landlord’s unlawful act under section 17 RTA.
Filing fee/suppression
29. Because the [NAME] has substantially succeeded with the claim I have reimbursed the filing fee.
30. [NAME] applied for suppression of identifying details in any publication of this order in her cross application. If a party has wholly or substantially succeeded in the proceedings the Tribunal must make the order unless the Tribunal considers that publication is in the public interest or is justified because of the party’s conduct or any other circumstances of the case. Section 95A Residential Tenancies Act 1986. As [NAME] has not been successful with her cross application no order for suppression is made.
[NAME]
17 March 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:
⚖️ What tends to weigh in cases like this
✅ Tends to be accepted
- The tenant paid $480.00 as an option fee to secure the option of renting the premises.
- The landlord's refusal to refund the $480.00 when requested was intentional and unlawful.
- Exemplary damages are appropriate when a landlord unlawfully retains an option fee.
❌ Tends to be rejected
- The landlord claimed the $480.00 was towards the cost of stopping advertising while negotiations were ongoing.
- The tenant claimed compensation for the cost of selling furniture and paying a bond for another premises, but lacked corroborating proof.
- The landlord argued that the tenant's request for a refund was not valid since no binding agreement was reached.
Patterns observed in similar cases in this collection — every case is unique.
❓ Frequently asked questions
What did this decision decide?
The Tenancy Tribunal ruled that the landlord's refusal to refund an option fee was unlawful and awarded the tenant $400 in exemplary damages.
What was the dispute about?
The dispute was about whether the landlord could refuse to refund an option fee paid by the tenant to secure a tenancy agreement.
How did the court decide, and why?
The court decided that the landlord's refusal to refund the option fee was unlawful because it amounted to requiring key money, which is prohibited under the Residential Tenancies Act 1986.
Which laws or rules were applied?
The Residential Tenancies Act 1986, sections 17(1) and 17(3) were applied.
What was the argument that mattered most?
The argument that mattered most was that the landlord's refusal to refund the option fee was an unlawful act under the Residential Tenancies Act 1986.
Was the decision for or against the person who brought the case?
The decision was for the person who brought the case, the tenant.
What does this mean for someone in a similar situation?
Someone in a similar situation can seek a refund of an option fee and may be eligible for exemplary damages if the landlord unlawfully refuses to refund the fee.
What evidence or documents mattered?
Messages exchanged between the tenant and landlord, and verbal evidence given at the hearing mattered.