What was Tenancy Tribunal case 4928794 about?

The tribunal order states: The landlords’ application is dismissed.

How much money was awarded in case 4928794?

Verified claim lines are listed on this page.

What type of tenancy dispute was case 4928794?

The primary dispute was Cleanliness. Related themes: Exemplary damages.

Where can I read the official tribunal order for case 4928794?

The official Ministry of Justice published order is available at https://forms.justice.govt.nz/search/Documents/TTV2/PDF/11003298-Tribunal_Order_Redacted.pdf.

What was Tenancy Tribunal case 4928794 about?

The tribunal order states: The landlords’ application is dismissed.

How much money was awarded in case 4928794?

Verified claim lines are listed on this page.

What type of tenancy dispute was case 4928794?

The primary dispute was Cleanliness. Related themes: Exemplary damages.

Where can I read the official tribunal order for case 4928794?

The official Ministry of Justice published order is available at https://forms.justice.govt.nz/search/Documents/TTV2/PDF/11003298-Tribunal_Order_Redacted.pdf.

New Zealand Tenancy Tribunal Case 4928794 — Cleanliness

Tenantcheck Insights

Reasons

The landlords’ representatives and both tenants (“[Tenant 1]” and “[Tenant 2]”) attended the video hearing on 9 September 2024.

The tenancy had ended by the date of the hearing and the bond been refunded to the tenants, with the consent of both parties.

This decision is about whether the tenants breached the terms of this tenancy by renting out part of the premises to short-term guests (Airbnb or similar).

The landlord has applied for any profits to be paid to them and for exemplary damages (like a fine). 1 It estimates the Airbnb profits as at least $8,340.00. Background

The tenancy started on 8 August 2023 and ended on 11 August 2024 with the consent of both parties. 1 The landlord withdrew a claim for the costs of methamphetamine testing of the premises.

The property consists of a main house and an outside room with its own ensuite.

The landlord says that the tenants were given permission to have one flatmate but that they instead rented the outside room to short-term guests through Airbnb (or similar).

The landlord’s view is that this was clearly prohibited in the tenancy agreement and that the tenants should have realised it was not allowed.

The tenants agree that they rented out the room on Airbnb. They say they could not find a suitable flatmate and genuinely did not think that short-term rental through Airbnb would be a problem as the landlord did not require vetting of a flatmate.

In any event, the tenants say they did not make a profit from renting out the outside room and that the purpose of doing so was only to help them pay the rent.

What are the issues?

The issues are:- a. Did the landlords’ consent to a flatmate mean that the tenants were allowed to rent the outside room to short-term guests? b. Did the tenants intentionally breach the tenancy agreement? c. Did the tenants make a profit from renting out part of the premises and is this the sort of situation where any profits should be paid to the landlord? Did the landlords’ consent to a flatmate mean that the tenants were allowed to rent the outside room to short-term guests?

Prior to signing the tenancy agreement, the tenants asked the landlords’ agent: [All underlining is my emphasis] ([Tenant 2]): Double check, we are okay to find another flatmate after we moved in right? (Landlord): Yes I made provision for three people to reside there in the contract :) ([Tenant 2]): Amazing! Cuz in the term 6 says: The Tenants agree that only occupants named on the tenancy agreement are to reside at the property. If any persons want to reside at the property they must submit applications and go through the full vetting process. It is only with the consent of the Landlord that any new applicants will be added to the tenancy agreement as a Tenant and be allowed to reside at the property If we can get it in writing from you that we are allowed to have a flatmate without landlords approval. I can sent the contract through right away. We will be responsible for the tenant. Sorry if I have too many questions :)

The landlord sent the following email: On Mon, 24 Jul 2023 at 6:00pm, [The landlord’s agent] wrote: Hi [Tenant 2], I talked to the landlord and she is happy for you to get a third person as a flatmate and they will not need to go through the vetting process ( that you we have done on you and your partner today) If the flatmate wanted to be added on the contract then we would require them to be vetted. You and your partner will be the named leaseholders and so will be responsible for the tenancy and of course when selecting a flatmate we would expect that you either know them or do your own checking. I hope that clears it up for you. Regards

The tenants then signed the tenancy agreement.

The tenancy agreement includes the following relevant clauses:-

MAXIMUM RESIDENTS

Number of residents and tenants (combined) to reside at the property must not exceed 3 (Three) TERMS & CONDITIONS FOR AGREEMENT

Maximum Numbers – The Tenant is responsible to restrict the number of occupants residing at the Tenanted Property to the maximum number of occupants specified in the tenancy agreement.

Subletting - The Tenant shall not, without prior written consent from the Landlord or Property Manager: 1. Sublet or part with possession of the Property belonging to the Landlord. 2. Rent out the Property, or part thereof, on a short-term or daily basis or for the third parties' holiday purposes for financial reward. 3. Fail to continue to use Tenancy Property during the tenancy as a "principal" place of residence of the Tenant and authorised occupants. 4.Cause or permit the Landlord’s insurance policy to be vitiated or to cause an increase in premium, or excess. 5. Conduct business where council consent is required without council consent. 6. Permit any person to holiday in the Tenancy Property for financial reward when that person has not been approved by the Property Manager or Landlord. 7. Rent out the Tenancy Property or any portion of the Tenancy Property when the Tenant is not personally present to supervise the security of the Property and behaviour of the occupants. ADDITIONAL TERMS & CONDITIONS

Further Tenants – The Tenants agree that only occupants named on the tenancy agreement are to reside at the Property. If any persons want to reside at the Property they must submit applications and go through the full vetting process. It is only with the consent of the Landlord that any new applicant will be added to the tenancy agreement as a Tenant and be allowed to reside at the Property.

The tenants and the landlord used the word “flatmate” in their communication about allowing an additional person.

The word “flatmate” is not used or defined in the tenancy agreement or in the Residential Tenancies Act 1986 (RTA). It is, however, a word often used in New Zealand. A flatmate is described by Tenancy Services (on their website) as someone who a tenant agrees may live in tenancy premises with them and share the facilities. 2

The landlord says it discovered the Airbnb activity in June 2024. It then emailed the tenants stating that they had breached the tenancy agreement and asking them to immediately stop advertising on Airbnb and to cancel any upcoming bookings.

The landlords’ view is that it should have been clear to the tenants that the approval for one flatmate did not mean the tenants could rent out the outside room on Airbnb.

The tenants do not dispute that they rented out the premises to short-term guests through Airbnb for a period of about 40 weeks. They explained in their submissions that they had been unable to find a suitable longer-term flatmate to live in the outside room and with whom they would be comfortable sharing the kitchen facilities in the main house.

They said that they believed that, if they took full responsibility for additional occupants, that the method of finding and vetting those persons was up to them so there was no logical reason why they could not use Airbnb to do so.

I agree with the landlord that the consent it gave to one flatmate who did not have to be approved, or vetted, by the landlord did not equate to consent to rent out part of the premises on a short-term or daily basis. The latter was prohibited by clause 30.2 of the agreement, except with prior consent.

The reasons for my decision are:- a. That the tenants referred to clause 6 in their enquiry to the landlord and my view is that the agent’s response was a variation to that clause only. b. That a flatmate means someone who lives at tenancy premises and shares facilities with the legal tenants. The Airbnb guests did not share facilities with the tenants. They had no right to enter the main house. c. A flatmate usually also lives with a tenant on a longer-term basis than an Airbnb-type guest, although this is not a defining aspect. It is possible that a flatmate could move in and then almost immediately move out (for 2 See Flatting » Tenancy Services. Also, Musson v Dobrisek and others DC Lower Hutt, CIV 2006- 032-36, 5 May 2006. “By ‘flatmates’ I understand a co-operative arrangement whereby, in a functional sense, all occupants are on [the] same footing in that they have exclusive occupation of their own rooms and shared use and occupation of common areas such as kitchens.”; at paragraph 22. example, if there was a sudden change in circumstances). Equally, an Airbnb or short-stay guest may book to stay for a lengthy period of time, if this is made available by the host. d. The landlords’ consent was for one additional person, and this was clear in the words used. (“I made provision for three people to reside there in the contract” and “a third person as a flatmate”). The Airbnb advertisements made the outside room available for up to two guests which would result in a total of four occupants (two tenants and two Airbnb guests) which would exceed the maximum occupancy limit. This is a breach of the maximum residents clause and clause 22 of the agreement.

The renting out of part of the premises on a short-term or daily basis is a breach of clause 30.2 of the tenancy agreement.

It is also a breach of section 44 of the Residential Tenancies Act 1986 (RTA).

Section 44 provides that a tenant may only “sublet or otherwise part with possession of the premises” during a tenancy with the prior written consent of the landlord and in accordance with any conditions attached by the landlord.

Clause 30.1 of the tenancy agreement mirrors the wording of s44 RTA.

Subletting is when a tenant transfers part of their interest in the tenancy to a sub-tenant but the tenant’s own liability to the landlord continues. 3

Parting with possession means giving someone else the right to occupy the premises, or part of the premises, to the exclusion of you.

It has been accepted by the Tribunal and District Court that renting out all or part of tenancy premises on a short-term or daily basis through Airbnb or other similar rental methods is a form of subletting. 4

Did the tenants intentionally breach the tenancy agreement?

The tenants did breach the tenancy agreement and s44 RTA.

A breach of s44 is specified as an unlawful act and the landlord has applied for exemplary damages which are like a fine, or penalty, which the Tribunal may award if satisfied that an unlawful act has been committed intentionally; s44(2A)(b) RTA and s109 RTA.

The tenants say that they genuinely did not realise that the landlords’ consent to a flatmate did not allow them to rent out the outside room on Airbnb. 3 Subletting » Tenancy Services 4 Nice Place Property Management Ltd v Ogbourne [2017] NZTT 4046775, Nice Place Property Management Ltd v Paterson [2018] NZDC 20936.

The landlord says that it is not credible that the tenants did not know that Airbnb rentals were different from a flatmate. It says that as one of the tenants is a real estate agent, they should have a good understanding of tenancy contracts, and of the possible insurance and council rates implications of Airbnb activity for the owners of the property.

The landlord also points to an email in which one of the tenants refers to the Airbnb as a “test-run for us as we consider buying our own investment property”.

I don’t find these submissions to be conclusive. My finding is that the tenants did not intentionally breach s44 RTA.

My reasons for this are:- a. I consider that the use of the word “flatmate” in the landlords’ consent caused ambiguity because this word was not used in the tenancy agreement itself. The problem was not in understanding the contract clauses but in what was meant by a “flatmate”; b. The communication between [Tenant 1] and [Tenant 2] before the tenancy. [Tenant 2] was managing the contact with the landlords’ agent. [Tenant 1] asked that [Tenant 2] confirm with the agent that there was nothing preventing them “renting the separate unit” and for confirmation in writing that they were “allowed to have a flatmate without landlord’s approval”. There is no indication of an intent to deceive the landlord; c. There is no indication the tenants tried to hide the Airbnb activity. They were not home when inspections were conducted, and the landlords’ agent had free access to the outside room during these and may have even met Airbnb guests on occasion; d. The tenants’ responses of surprise and upset to the landlords’ assertions that they had breached the tenancy agreement. These are obvious and repeated in the emails they sent to the landlord and were again expressed in the hearing; e. That the tenants stopped the Airbnb activity as soon as the landlord advised them that it was not permitted; f. In my view, referring to the Airbnb renting as a “test run” does not necessarily mean that the main object in this context was to make a profit. It makes sense to learn from an activity for the future. g. In this scenario, the weekly rent was high, the tenants wanted additional rental income to assist them in paying this and had asked for permission in advance, but they wrongly assumed that there was no effective difference between Airbnb guests and an unvetted “flatmate”.

I have found that the breach was not intentional therefore the application for exemplary damages is dismissed. Did the tenants make a profit from the subletting and is this the sort of situation where any profits should be paid to the landlord?

The landlord says that if the tenants have made a profit from unauthorised subletting, then this should be paid to the landlord.

This type of claim (an “account of profits”) is a remedy that may be available in breach of contract cases, in exceptional circumstances; see Attorney- General v Blake [2001] 1 AC 268 HL. [my underlining]

I underline the above words to show that the Tribunal should consider carefully whether this type of remedy is appropriate.

The tenants rightly pointed out that it is not provided for in the Residential Tenancies Act 1986.

Usually, compensation or exemplary damages will be sufficient remedies. Compensation allows a landlord to recover any loss or damage from a breach. If the Airbnb guests had damaged the room, the tenants would be liable to the landlord. Exemplary damages are a penalty where subletting is intentional.

I have already found that the subletting in this case was not intentional. This is enough for me to find that neither is it appropriate that the tenants be required to account for any “profit” from renting out the outside room on Airbnb.

It is different from the District Court case the landlords’ referred to in their submission which upheld a Tribunal award of the net profits earned by a tenant who had sublet tenancy premises on Airbnb; Nice Place Property Management Ltd v Paterson [2018] NZDC 20936.

The Judge in the above decision agreed that the remedy was appropriate because the tenant had intentionally (“cynically”) breached a clear term in the agreement, had vacated the premises to make the whole of the premises available for Air BnB guests, and had done so at a nightly rental rate that would have quickly exceeded any exemplary damages awarded.

In the circumstances of this case, the tenants thought they had asked the landlord for permission, continued to live in the main house and only rented out the outside room, advertised this at a relatively modest rate ($105.00 per night), and the purpose of the subletting was to assist with payment of their rent, which was $900.00 per week, rather than to make a profit.

In any event, I am not convinced that the tenants could be said to have made a “profit”. They paid a total of approximately $47,500.00 to the landlord in rent over the tenancy 5 and received Airbnb rental income (after Airbnb management fees) of $17,409.85. 6

On even this simple analysis, the rent cost to the tenants for the property was $30,000.00 over the 53-week tenancy which is $566.00 per week. This is not a profit, it is a cost to them.

On a more detailed analysis, by my calculation the tenants could be said to have earned about $2,650.00 more than what it cost them to rent out the outside room on Airbnb.

Previous cases make it clear that it is any net profit that is relevant so reasonable or actual expenses should be deducted.

My assessment of the Airbnb income and expenses for the outside room is as follows: a. The rental “cost” (paid to the landlord) for the outside room. The tenants calculated this based on the square meterage of the outside room (18sqm) relative to the whole house (64 sqm) which is 28.13%. They allocated 28% of the weekly rent of $900.00 to the room which is $253.13 per week. I consider this to be a reasonable allocation. 7 b. The outside room was available on Airbnb for 40 weeks. 8 The rental cost is calculated for this period. 40 weeks x $253.13 = total rent cost of$10,125.00 c. Cleaning costs (gst exclusive) = $ 4,100.00 d. Airbnb management fees = $ 0.00 9 e. Power = $ 352.54 f. Internet = $ 0.00 10 g. Consumables = $ 175.00 11

My calculation of the net profit/ loss is: Income from Airbnb$17,409.85 Less total expenses$14,752.54 Net “profit” from outside room$ 2,657.31 5 The tenancy was 52 weeks and 6 days in duration and weekly rental $900.00. 6 Verified by the tenants’ bank statements. 7 The landlord submitted that rent paid by the tenants should not be deducted because they remained living in the main house. However, they did not have the use of the outside room when it was rented to Airbnb guests so it is fair to deduct a share of the rent to reflect this. 8 From 11 September 2023 to 10 June 2024. Rent is not deducted for weeks when the outside room was not available for Airbnb guests. 9 The gross rental amount already has the Airbnb fees deducted from it. 10 Internet is usually charged for unlimited use so there is no additional cost for additional usage. 11 Coffee pods, teas, toiletries

Overall, the activity of renting out the outside room on Airbnb may have returned a net profit of $2,657.31 which had the result of reducing the rent the tenants had to pay for the main house. This is not a “profit” overall.

The claim for an account of profits is dismissed. Filing fee and suppression of name

The landlord has not been substantially successful in the claim, so I do not award the filing fee.

The tenants did breach the tenancy agreement but considering my finding that this was not intentional, I suppress their names.

I accept that the landlords’ motives for bringing the claim were genuine and also suppress the landlords’ names.