Published tribunal order
Tenancy Tribunal case 4734222 — Exemplary damages
Decided 8 May 2024 · Published 8 May 2024 · Application 4734222
- Exemplary damages
Party names are redacted in the official published order.
Order
- The Tribunal finds the rent payable for the tenancy exceeds the market rent by a substantial amount. The rent payable for the tenancy is reduced to $630.00 per week. This rent takes effect from 10 January 2024.
- The landlord is to refund the tenants any overpaid rent from 10 January 2024.
- The landlord must pay the tenants $20.44 immediately, being reimbursement of the filing fee.
Reasons
- Both parties attended the hearing. The landlord was represented by Ms Sharma. The first hearing was held in person, and was adjourned part-heard and reconvened by teleconference. Background
- As noted in the earlier order, this is a fixed term tenancy which began on 24 December 2022 and is due to end on 21 December 2024. The rent was $620.00 per week and a bond of $2,480.00 was paid. The owner of the premises placed the property on the market for sale. The tenants and the landlord negotiated the possibility of the tenants moving out before the end of the fixed term. However, no agreement was reached.
- On 3 October 2023 the tenants were informed by the lawyers acting for the new owner that the property had been sold.
- On 7 November 2023 the tenants received notice from the landlord, now acting for the new owners, that the rent was to increase to $700.00 per week. This was to take effect from 10 January 2024. The letter advised that the minimum 60 days notice of the rent increase had been given. The tenancy agreement allowed for the review of rent, after 12 months of the commencement of the tenancy or the last rent increase.
- The tenants have applied to the Tribunal claiming the rent increase was unfair, and the new rent was too high. The tenants state the landlord was motivated to end the tenancy early and for this reason, has increased the rent to get them to vacate the premises. They are also concerned about the lack of notice from the landlord regarding the sale of the property.
- At the hearing, the parties gave evidence on the issue of the market rent for the premises. Additional evidence was produced by both parties. The landlord denied that they had wanted the tenants to move out. The landlord required further time to provide evidence relating to the issue of when the tenants were informed about the sale of the premises. The landlord also agreed to provide further information concerning the listings discussed at the hearing.
- Both parties filed further evidence. At the second hearing, conducted by teleconference, the parties provided submissions on the additional evidence concerning market rent, and the events surrounding the sale of the premises. Market rent Legal framework
- Where an application is made by the tenant for an order determining the market rent, the Tribunal may make an order reducing the rent where it is satisfied that the rent payable or to become payable for the tenancy exceeds the market rent by a substantial amount: Section 25 of the Residential Tenancies Act 1986 (the RTA).
- In the case of a fixed term tenancy, the application must be filed within 3 months of the start of the tenancy or the date of the last rent review.
- In this jurisdiction the onus is on the applicant, in this case the tenants, to prove their claim, on the balance of probabilities.
- In Fisken & Associates Limited v Lecole and Lecole [2023] NZDC 17698, the District Court stated that the Tribunal must first determine what the market rent is, and then decide if the current rent would substantially exceed it.
- Market rent for any tenancy is, under section 25(3): the rent that, without regard to the personal circumstances of the landlord or the tenant, a willing landlord might reasonably expect to receive and a willing tenant might reasonably expect to pay for the tenancy, taking into consideration the general level of rents .... for comparable tenancies of comparable premises in the locality or in similar localities and such other matters as the Tribunal considers relevant.
- When determining what the market rent is, the test is essentially an objective one. In the decision of Thai v Mahmood 1 the Court stated: When considering claims that a rental being charged is too high, the first consideration is to assess the general level of rents for comparable tenants of comparable premises in similar locations. It is not open to the Tribunal to make a determination as to market rents having regard only to such matters as the Tribunal considers relevant.
- Therefore, the type of evidence required to the establish market rent must be based on an assessment of the general level of rents for comparable tenancies of comparable premises in similar locations.
- In Fisken & Associates Limited v Lecole and Lecole (above) the Court discussed the required evidence, observing that: I recognise that truly independent evidence may not be available in a smaller district like Queenstown because the likely source of expertise is from real estate agents and property managers involved in the residential rental market who will generally act for landlords. However, rentals paid for comparative properties are objective facts which can be proven. It is only once a market rent is established that the Tribunal can decide whether the rent paid or payable exceeds it by a substantial amount. If it cannot be established an application under s 25 must fail
- A rent assessment completed by a registered valuer would be the type of independent evidence referred to in Fisken & Associates Limited v Lecole and Lecole. A valuation usually has significant weight, 2 but even so, this depends on the quality of the evidence used in the report. 3
- The term 'substantial' is not defined in the RTA. Some earlier rulings of the Tribunal have suggested a ‘rule of thumb” of 10% over market rent. However, this 1 DC Christchurch CIV-2003-009-2542 2 Housing New Zealand (Manurewa Neighbourhood Unit) v Abel TT Otahuhu TT401/94 3 See for example in West v Housing New Zealand TT Wellington TT685/96, where the tenant’s evidence was preferred to the landlord’s “flimsy valuation.” must be treated with caution, since other factors, such as the effect of inflation, will also be relevant. Analysis
- The tenants’ application was filed within 3 months of the last rent review, as required under section 25(2) of the RTA for fixed term tenancies, and therefore, the Tribunal is able to consider the application.
- In this case the premises is a 1970’s brick and tile two bedroom 1 bathroom property, with a lounge, kitchen, sunroom and garage, on a cross-lease title. There is also a rumpus area, which has been converted into further bedrooms and bathroom, but this work is unconsented. There is off-street parking for one car.
- The tenants state the premises is one of three units, theirs being the front unit, and that the unconsented rumpus area was not included in the tenancy. The landlord notes that the floor area is large, although the parties disagree on the actual floor area that can be included. The landlord, in reliance on the information from [(a website available to the landlord)], states the area is 119 square metres. The tenants submit that the unconsented area cannot be included in this calculation.
- The tenants consider the market rent ought to be $620.00, being the rent they were originally paying, and would regard $650.00 to be the maximum payable for this premises. The landlord considers the current rent of $700.00 is the market rent for this property.
- Both parties have provided evidence in support. This has included advertisements for similar premises in the area. The tenants refer to a number of current listings for 2 bedroom 1 bathroom properties in [Suburb]. In the evidence submitted with the application, the advertised rent ranges from $570.00 to $650.00 per week. They have also provided, for comparison, listings for 3 bedroom 1 bathroom properties. Additional listings have been produced. A few of the listed properties are from neighbouring suburbs. Their evidence also includes information about the floor area of some of the listed properties.
- The landlord’s evidence includes [Website] property listings for two bedroom 1 bathroom homes in [Suburb], in support of the current rent of $700.00 per week. The landlord’s listings are for $660.00, $680.00 and $700.00 per week.
- Advertised rental listings, while relevant, have some limitations. Although advertisements usually list the essential features of the property advertised, there is often limited qualitative information available for comparison. Furthermore, the advertisements reflect proposed rent, rather than realised rent.
- The landlord also relies on a rental appraisal completed by [Real Estate Company], indicating the market rent is $700.00 - $720.00 per week for this property. It is noted that the [Real Estate Company] rental appraisal is brief, and does not provide clear reasoning or details of the evidence to support the conclusion. The landlord has also provided article from The Post about rising rents in [City] due to demand.
- Another relevant source is the Tenancy Services statistics of market rent, available on its website. These statistics cover the rents charged for tenancies where bonds have been lodged, over a 6 month period. There are some limitations to this evidence also, as it does not include reference to amenities for properties, other than the number of bedrooms. The website cautions against using it as the only source to determine the market rent of any property. However, it does provide useful information on rent actually paid within a specific location at the relevant time.
- The Tenancy Services website lists weekly rent figures in the lower, median and upper quartile for each dwelling type. The explanation for what constitutes a house, as opposed to a flat, may be found in the ‘Dwelling type definitions,’ and states that a house/townhouse is “a self-contained property, usually a building with land.” The current premises would appear to align more closely to this category, rather than the descriptions for an apartment or bedsit/flat. While the landlord notes that the property has additional features, the unconsented work in the rumpus area cannot be factored in to add, for example, an additional bedroom. So, the comparable properties would be those under the two bedroom house category.
- According to the Tenancy Services website, the relevant statistics for a two- bedroom house in [Suburb], based on 879 active bonds, for the period 1 September 2023 to 29 February 2024, are as follows: • lower quartile: $544.00 • median rent: $580.00 • upper quartile: $620.00
- In this case, neither party has produced a rent assessment from a registered valuer, therefore I must reach my findings on the basis of the information provided. I note the key features of this property and have taken into account the submissions of both parties. While noting the landlord’s submissions regarding the additional features, I also agree with the tenants that any unconsented amenities cannot be included. However, I also regard the total floor area of the premises to be a relevant factor.
- On the evidence provided, in view of the overall condition, age and features, and noting the evidence of comparable rents, and the statistical tables from Tenancy Services, I consider that the premises would fall within the upper quartile of comparable two bedroom houses in [Suburb]. Based on the overall evidence, I find the market rent for this tenancy to be $630.00 per week.
- Having established that the market rent for this property is $630.00 per week, I must then consider whether a weekly rent of $700.00 is substantially higher. As the rent of $700.00 is $70.00 per week above this amount, around 11% above market rent, I consider this substantially exceeds the market rent.
- Accordingly, the rent for this premises is set to the market rent of $630.00 per week from the date of the increase. Consequently, the tenants are to be reimbursed the overpaid rent from 10 January 2024. Sale of the premises
- [The tenant/s] claim that the landlord has breached their obligations under section 47 of the RTA. Under section 47, if the premises are placed on the market for sale, a landlord must, as soon as practicable, give written notice of that fact to the tenants. A landlord must also advise any prospective tenants if the house is on the market. Breaching any of these obligations without a reasonable excuse is an unlawful act for which exemplary damages may be awarded.
- The tenants have given detailed evidence concerning the relevant events, noting that the first time they were informed that the property was on the market for sale was when contacted by the real estate agent about possible viewings. They spoke to an agent from [Real Estate Company] on 15 June 2023. They state that despite being in touch with the landlord, this information was not conveyed to them by the landlord. They also note they were first informed that the property had been sold by the lawyers acting for the new owners, rather than by the landlord. The tenants have also given evidence about negotiations to move out of the property, which did not eventuate, since they decided to stay on until the end of the fixed term.
- The landlord states the property was listed on 20 June 2023 (as confirmed in the Real Estate Agency Agreement) and therefore, was not put on the market until then. The landlord then notified the tenants once it was actually listed with the agent, and refers to an email from the landlord to the tenant dated 19 June 2023 stating that the owners were advertising the property with the agent from [Real Estate Company]. The landlord has produced further documentary evidence, including an email from the listing agent setting out the chronology of events. There is also a sale and purchase agreement, dated 27 June 2023, which shows a settlement date of 31 October 2023.
- In reply, the tenants dispute the timeline given by the listing agent, and do not accept that the first viewing was for a rental appraisal. They feel this viewing was with potential buyers, and refer to the email from the landlord on 15 June 2023. They feel they ought to have been informed before potential buyers were brought to the property. They also deny receiving the email of 19 June 2023 from the landlord. Analysis
- Overall, I find the communication from the landlord to the tenants regarding the sale of the premises was not ideal. The tenants ought to have received clearer written communication from the landlord. It was unfortunate that they became aware that the owner was looking to sell the property via the real estate agent. However, I do accept that there may have been factors outside the landlord’s control that led to the tenants finding out in the way they did.
- In this case it seems the agency agreement between the owner and the real estate agent was not signed until 20 June 2023, and therefore, this is the likely date when the property was formally placed on the market for sale. The landlord states that when the property was actually listed for sale with the agent, the tenants were notified. I note there is an email from the landlord to the tenant dated 19 June 2023 about the owners advertising the property with the agent. However, it seems this email was never received by the tenants.
- Some of the evidence in this case is conflicting and based on the current evidence, I find that the tenants have been unable to establish that the landlord has been in breach of section 47.
- In terms of being informed about the sale being finalised and the change of ownership, it was disappointing, from the tenants’ perspective, to receive this information via the lawyers, rather than directly from the landlord. However, there is no separate requirement for the landlord to inform the tenants when the sale was finalised, or the change of ownership took place.
- Therefore, as it has not been established that the landlord has been in breach of its obligations arising from the sale of the premises, this claim is dismissed. Filing fee
- As the tenants have been mostly successful with their application, the landlord is to pay the tenants’ filing fee. Name suppression
- Both parties seek name suppression. In this case, the Tribunal, having had regard to the interests of the parties and to the public interest, orders suppression of the tenants’ names and identifying details only, in view of the tenants being the most successful party in these proceedings.