Published tribunal order
Tenancy Tribunal case 4898040 — Rent arrears at 250 Oxford Terrace, Avalon, Lower Hutt 5011
Decided 21 Nov 2024 · Published 21 Nov 2024 · Application 4898040
- Rent arrears
Order
- [The tenant/s] must pay Kāinga Ora–Homes And Communities $4,853.17 immediately, being rent arrears to 19 June 2023.
Reasons
- Both parties attended the hearing with Ms Smith and Ms Brown attending for the landlord.
- The landlord applied for termination of the tenancy and rent arrears. The tenancy was terminated by order of the Tribunal on 16 July 2024 (“the July order”) on the basis that Mr Tiaki had not been residing at the premises in breach of clause 26 of the Tenancy agreement. The July order should be read in conjunction with this order.
- The landlord provided a rent summary showing arrears of $12,104.60 as at 16 July 2024.
- The claim for rent arrears was adjourned because the tenant disputed that he should be liable for the full amount owed for the following reasons: a. He was on an income related rent of $78 per week. However, this was increased to market rent of $360/week from February 2024. He says that he should not be paying market rent as he has not been working since that date as he has been in Prison since January 2023, firstly on remand and subsequently pursuant to a term of imprisonment. b. The landlords knew that he was in Prison and was unable to live at the premises. They should have applied to terminate the tenancy so that the arrears were capped much sooner. He is raising an argument that the landlord has failed to mitigate their loss and should not be entitled to recover the full arrears owed.
- As discussed at the hearing and recorded in the July order, the income related rent (IRR) paid by the tenant is assessed by the Ministry of Social Development (MSD). The landlord does not set the rent nor assess the tenant’s eligibility for an IRR. The Tenancy Tribunal also has no power to determine or review an IRR set by MSD. Where an income related rent is payable, MSD requires tenants to complete an annual declaration regarding their income so that the IRR is reviewed. If a tenant does not complete the form, the rent reverts to market rent. That is what has happened in this case.
- The issue in this case is whether the landlord allowed the rent to accrue, knowing that the tenant was in prison and unable to live at the premises, and whether the landlord should have applied for termination of the tenancy much sooner to mitigate the arrears. Evidence
- Ms Brown is the Senior Housing Support Manager who was handling Mr Tiaki’s tenancy. She has also had communications with Mr Tiaki’s mother. She produced a copy of her diary notes recording her interactions with Mr Tiaki since 18 January 2023. Ms Brown’s direct evidence and supporting diary notes may be summarised as follows: a. 23 January 2023: The landlord was told by Mr Tiaki that he was handing himself in to Police; b. 12 March 2023: Mr Tiaki’s mother confirmed that he was in Prison with an upcoming court date and hoped to be released; c. 27 March 2023: Mr Tiaki rang Ms Brown advising that once he finished his sentence, he intended to vacate the premises; d. 6 April 2023: the landlord sent Mr Tiaki a notice for him to sign ending the tenancy. Mr Tiaki advised that he would not sign it until 13 April; e. 24 April 2024: Mr Tiaki’s mother advised that he did not want to give up the tenancy. There was a suggestion that he may be released and would require housing; f. 5 May 2023 – 7 August 2023: In several communications Mr Tiaki advised that he was applying for electronic monitoring on bail (“EM bail”) and later that he expected to be released on 7 August 2023; g. Subsequently, it became difficult to communicate with Mr Tiaki and the landlord was not aware as to whether he would be granted EM bail; whether he would be released; and whether he was being sentenced to a term of imprisonment; h. 6 December 2023: The landlord served a 14-day breach notice on Mr Tiaki requiring him to return to the property and if not to sign a notice ending the tenancy by 26 December 2023. The landlord advised in the notice that if Mr Tiaki did not return to the premises by 26 December 2023 and/or did not give notice to end the tenancy, the landlord would apply to the Tenancy Tribunal to end the tenancy; i. There was no response from Mr Tiaki to the 14-day notice by 26 December 2023; j. There were subsequent communications during January-March 2024 in which Mr Tiaki indicated that he was to be released but this did not happen. Throughout April-May 2024, Ms Brown was made aware of various court dates, but Mr Tiaki also advised that he was unwilling to sign papers to end the tenancy. k. The landlord made this application on 24 May 2024.
- Ms Brown explained that she tried to work with Mr Tiaki. She understood that if he was released on bail, he would still require a home. She received several messages indicating that he was to be released. In that regard, the landlord was very reliant on communications from Mr Tiaki and was unable to obtain information from the Prison or elsewhere regarding his case because of privacy constraints. The landlord could have brought an application to terminate the tenancy to the Tribunal sooner, but they were also concerned to ensure that Mr Tiaki’s home was available to him based on his advice of imminent release from time to time. It now transpires that he has been recently sentenced and he advised at today’s hearing that he will not be released until October 2025.
- Mr Tiaki says that he was unwilling to sign a notice to terminate the tenancy because of the high amount of rent arrears and his understanding that he would be liable to pay for it. He was concerned that he should not be liable for the amount, and he disputes liability for market rent. It appears that he did not appreciate that the rent would continue to accrue while the tenancy continued, and if he refused to sign a notice to end it.
- I note that the landlord sent two letters to the tenant on 22 November 2023 and 16 January 2024 warning him that his rent was about to increase to $360 and providing him with MSD contact details if he had any questions. The letters have been sent to the Tenancy address and there is no evidence as to whether they were passed on to Mr Tiaki. Likely MSD also sent him letters regarding his eligibility for an IRR that would have been sent to the premises and not received by him in Prison. Mitigation of loss law and principles
- Section 49 RTA provides that where any party to an agreement breaches any of the provisions of the agreement or the RTA, the other party shall take all reasonable steps to limit the damage or loss arising from that breach, in accordance with the rules of law relating to mitigation of loss or damage upon breach of contract.
- At common law, the duty to mitigate losses does not extend to a claim in debt. There is no corresponding duty to mitigate a debt owing. However, in the context of s49 RTA, the District Court has accepted that in circumstances where a tenant or landlord breaches the provisions of the tenancy agreement, the other party must take reasonable steps to minimise any loss arising from the breach—and accordingly where the tenant fails to pay rent owing, there is an obligation on the landlord to mitigate the loss. 1
- The District Court also accepted that Housing New Zealand (now known as Kainga Ora-Homes and Communities) has obligations to act according to good social conscience, and it should less readily be restricted in its ability to recover full rent arrears on the basis of failing to terminate a tenancy. 2
- Overall, the District Court has adopted a sensible, non-technical and economically efficient approach to the question of mitigating losses in the RTA context. 1 See for example, Huang v Ashworth [2024] NZDC 15726, which does not grapple with the distinction and did not award full arrears while the tenant remained in possession – instead reducing the total arrears by 1/3rd for failure to mitigate loss . 2 Housing New Zealand v Witika [1995] DCR 307.
- The Court of Appeal case of Hooker v Stewart is most often cited with approval for its summary on mitigation of loss: 3 It is common ground that in considering the question of mitigation and that of contributory negligence, the test is one of reasonableness and the position with regard to the former is succinctly stated in 12 Halsbury's Laws of England (4th ed) para 1194: "1194. Standard of conduct required of the plaintiff. The plaintiff is only required to act reasonably, and whether he has done so is a question of fact in the circumstances of each particular case, and not a question of law. He must act not only in his own interests but also in the interests of the defendant and keep down the damages, so far as it is reasonable and proper, by acting reasonably in the matter. One test of reasonableness is whether a prudent man would have acted in the same way if the original wrongful act had arisen through his own default. In cases of breach of contract the plaintiff is under no obligation to do anything other than in the ordinary course of business, and where he has been placed in a position of embarrassment the measures which he may be driven to adopt in order to extricate himself ought not to be weighed in nice scales at the instance of the defendant whose breach of contract has occasioned the difficulty. Similar principles apply in tort." Findings
- Bearing in mind s49 and the common law mitigation of loss principles which apply, I consider whether the landlord in this case is entitled to the full amount of rent owed when the tenancy terminated.
- After carefully considering all the evidence, I find that the landlord took a reasonable approach when first becoming aware that Mr Tiaki was in Prison. Given the uncertainty around a potential release date or granting of bail, they tried to work with him and ensure the home was available because he indicated that he would be released. The landlord was reliant on the information being provided by Mr Tiaki.
- However, while the landlord was working with the tenant, rent was not being paid and the landlord was aware that rent had not been paid since 7 February 2023.
- By December 2023, things came to a head with the landlord serving the 14-day notice and advising Mr Tiaki that if he failed to return to the premises or failed to sign a notice terminating the tenancy by 26 December 2023, they would apply to the Tribunal for termination. By this time the arrears were accumulating at the IRR rate of $78/week and exceeded $3,500 in total. The tenant did not comply with the 14-day notice, but the landlord did not apply to the Tribunal. 3 Hooker v Stewart [1989] 3 NZLR 543 (CA) at 547, cited in Burrows, Finn and Todd on the Law of Contract in New Zealand (7th ed, online, LexisNexis) at [21.2.4](a) or at p893.
- At this point, I find that any reasonable landlord would “draw a line in the sand” and proceed promptly with a Tribunal application. I consider that it was clear at this point that Mr Tiaki’s suggestion of being released appeared unlikely and the arrears were building to a large amount. However, the landlord waited a further 5 months before lodging their application.
- Coupled with Mr Tiaki’s failure to comply with the 14-day notice, the landlord then became aware from February 2024 that the tenant was being charged market rent for a property he was not occupying and in circumstances where they likely knew he was not earning income to support market rent. I also find it likely that the landlord would know that market rent was imposed because Mr Tiaki had failed to complete the required annual declaration for MSD who assess eligibility for an IRR each year. While it is not the landlord’s responsibility to assist Mr Tiaki with his IRR assessment, they are certainly aware of the system and processes that tenants mist complete in order to obtain a social housing tenancy and an IRR. The landlord sent Mr Tiaki a letter advising him of the significant rent increase but there is no evidence that they delivered this letter to him in prison as it is only addressed to the premises.
- Given that the property had been unoccupied for 12 months by January 2024 and that market rent would be charged from February 2024, I consider that it was incumbent on the landlord at this stage to act swiftly to curb the rent arrears by ending the tenancy. In other words, I consider they had a duty at that stage to mitigate any further loss, both in their own interests as a social housing provider to ensure that the premises are made available for others in need, and in the interests of Mr Tiaki to ensure that his liability for significant rent arrears is kept down.
- I find that it would have been reasonable in the circumstances for the landlord to lodge an application to the Tribunal in January 2024, after the 14-day notice expired. Had they done so, it is likely that a hearing could have been scheduled by the end of February 2024 and the tenancy terminated by that date.
- The landlord did not take reasonable steps to file an application with the Tribunal to terminate the tenancy and mitigate the accumulation of rent arrears after the 14-day breach notice expired. For that reason, I find that they have failed to discharge their duty in s49 RTA and mitigate the losses from that point onwards.
- Had the landlord acted reasonably and filed an application to terminate the tenancy in January 2024, it is likely that the matter would have been scheduled for hearing in February and the tenancy terminated by that date. Therefore, I only award the arrears owed as at 26 February 2024 in the sum of $4,853.17. This means that the rent is discounted by approximately 60%, i.e. a reduction of $7,251.83 for the landlord’s failure to mitigate loss.
- I accept that the award I have made includes 2 weeks of rent charged at the market rate. The landlord advised Mr Tiaki in the hearing that he should apply to MSD for a review of their decision to charge market rent. If successful, they will likely credit the overpayment so that he is only liable for an IRR not market rent. Mr Tiaki said that he was advised by MSD that he cannot apply for a review currently because he is not receiving a WINZ benefit while in prison. The landlord suggested that he should seek a review after he is released, and Ms Brown advised that she is happy for Mr Tiaki to contact her on his release for assistance with a review application.