Published tribunal order
Tenancy Tribunal case 5553476 — Rent arrears at 137 - 151 Cuba Street, Palmerston North 4400
Decided 10 Aug 2026 · Published 10 Aug 2026 · Application 5553476
- Rent arrears
- 14-day notice
- State of repair
- Smoke alarms
- Healthy homes
- Exemplary damages
- Harassment
- Mould & damp
- Leaks
Order
- The tenancy of [The tenant/s] tenant/s] at 137 – 151 Cuba Street, Palmerston North 4400 is terminated, and possession is granted to [The tenant/s] landlord/s] immediately.
- [The tenant/s] tenant/s] is to pay [The tenant/s] landlord/s] $5,725.00 immediately.
- The $8,575.00 awarded to [The tenant/s] tenant/s] on 21 July 2026 has been credited in full against the rent arrears and is, accordingly, satisfied by set-off and is not separately enforceable.
Reasons
- Both parties attended the hearing. The parties did have private discussions but were unable to reach a clear agreement.
- I have considered the Tenant’s evidence, the parties’ post-hearing communications, and made my determination. Background
- The tenancy concerns the rear unit at 137–151 Cuba Street, Palmerston North.
- Before the agreement was entered into, the Tenant made it clear to the letting agent that he intended to use the premises both as a residence and as a creative studio. The agent confirmed that residential use was permitted.
- On 22 July 2025 the parties entered into an agreement describing the premises as the “rear unit comprising of 80sqm workshop and residence”. The tenancy commenced on 1 August 2025 for a term of two years.
- The agreement recorded annual rent of $18,000 plus GST and permitted mixed creative-business and residential use.
- Difficulties subsequently arose concerning the condition and use of the premises. The Tenant complained principally about roof leaks and lack of hot water, and then, access by the landlord and contractors, interference with quiet enjoyment, and Healthy Homes compliance issues.
- On 27 March 2026, the Tribunal held a hearing limited to jurisdiction. By decision dated 7 April 2026, the Tribunal found that there was a residential tenancy agreement between the parties in respect of the residential part of the premises. The parties were directed to file substantive evidence, and the matter was allocated a substantive hearing.
- At the hearing the Tenant claimed, amongst other things, $6,125.00, which he termed a “100% rent abatement”, comprising compensation for: a. the leaking roof and loss of hot water; b. breach of quiet-enjoyment and access complaint; and c. exemplary damages for Healthy Homes breaches.
- The substantive hearing occurred in June 2026. A substantive decision was issued on 21 July 2026.
- The Tribunal ordered the Landlord to pay the tenant $8,575, comprising $375.00 compensation for the period without hot water, $1,000.00 exemplary damages for breach of quiet enjoyment, and 3 x $2,400 exemplary damages awards for each of the smoke-alarm, ventilation and heating breaches. 1
- In relation to the roof, the Tribunal found that: 2 a. the leaks in the residential area had been rectified in late October 2025; b. the tenant had received a 50 per cent rent reduction for October; c. the landlord had taken reasonable steps to repair and maintain the premises; and d. the extent of any continuing bedroom leak had not been established.
- The Tribunal declined compensation for leaking in the residential unit after October 2025. 3 The moisture-ingress claim was dismissed, 4 and the insulation 1 [2026] NZTT 5407988 21 July 2026. 2 Ibid. at [92] (a)-(h) [all-inclusive]. 3 Ibid. at [95]. 4 Ibid. at [147] to [149]. claim was dismissed because the evidence did not establish non-compliance on the balance of probabilities. 5
- Of particular importance to the present proceeding, the Tribunal noted that the Tenant had continued to occupy the premises and had not paid rent for some months. 6 There was then no landlord application for rent arrears. 7 The Tribunal expressly said that there might later be an offset of the parties’ respective claims, but that, without a rent claim before it, it could only determine the amount payable to the tenant. 8
- On 3 July 2026, the Landlord subsequently filed application 5538359 seeking termination for rent arrears. The Tenant accepts that the Landlord’s payment summary (Figure 1.0) accurately records when rent payments ceased, although he says that he had paid rent in advance until 1 December 2025. Figure 1.0 – Rent
- On 28 July 2026 the Tenant filed cross-application 5553476. The Tenant again seeks, amongst other remedies, a 100 percent rent abatement, compensation 5 Ibid. at [155] and [156]. 6 Ibid. at [32]. 7 Ibid. 8 Ibid. Healthy Homes breaches), and release from the fixed-term tenancy. He acknowledges that termination is now the only practical way forward.
- The Tenant relies on a Healthy Homes assessment dated 2 July 2026 and a roofing quotation obtained after the substantive hearing. He sought a rehearing of the 21 July decision based on that material. On 3 August 2026 the rehearing application was dismissed. Does the tenant have an equitable set-off which means that the rent was not at least 21 days in arrear when the landlord applied for termination?
- Section 55(1)(a) RTA provides that, subject to s 55(2), the Tribunal shall terminate a tenancy if satisfied that, when the landlord’s application was filed, the rent was at least 21 days in arrear.
- Further, under s 56(2), if at the time the matter is determined the Landlord could have made an application under s 55, the Tribunal must determine the matter as if such an application had been made.
- Section 55(1A) permits a conditional order instead where the Tribunal is satisfied both that the arrears will be paid within a specified period and that further qualifying breaches are unlikely.
- Under s 55(2), refusal of termination is available only where the statutory requirements concerning remedy of the breach, compensation of the landlord and likelihood of further breach are satisfied.
- Section 85 requires the Tribunal to determine disputes according to the general principles of law and the substantial merits and justice of the case, rather than strict legal forms or technicalities.
- In O’Shea v Brown, 9 the High Court held that the mandatory wording of s 55 does not exclude equitable set-off. 10 If a Tenant establishes an equitable set-off which reduces or extinguishes the unpaid rent, that must be taken into account before determining whether there are 21 days of “arrears”. The Landlord’s rent claim and a properly connected set-off therefore cannot artificially be separated.
- The governing equitable principle derives from Grant v NZMC Ltd. 11 A cross- claim may be set off where it so affects the plaintiff’s claim that it would be unjust to give judgment without bringing the cross-claim into account. The necessary connection is one of interdependence: the cross-claim must call into question or impeach the demand being enforced. 12 That principle was applied in the landlord-and-tenant context in Lawrence Riverside Ltd v CP Holdings Ltd. 13 Lawrence Riverside confirms that an unliquidated damages claim arising from a 9 O’Shea v Brown BC200163091 12, 14 December 2001 10 Ibid. at [16]-[17]; [12]. 11 Grant v NZMC Ltd [1989] 1 NZLR 8 (CA). 12 Ibid. at page 12, line 54. 13 Lawrence Riverside Ltd v CP Holdings Ltd (2006) 10 NZCPR 338 at [32] and [34]. sufficiently connected breach may constitute an equitable set-off against rent, even though its precise quantum has not yet been determined. 14
- However, the tenant must have an evidential basis for the loss said to found the set-off. In Ladstone Whangarei Ltd v Cottee, 15 an equitable set-off was theoretically available for problems with the premises but failed because the tenant had not proved what reduction of rent was warranted or what economic loss had resulted. 16 Equitable set-off against rent in residential tenancies
- The starting point under the RTA is that the respective obligations of landlord and tenant continue to operate notwithstanding a breach by the other party.
- Section 40(1)(a) provides that a tenant shall pay the rent as and when it is due and payable under the tenancy agreement. Correspondingly, s 45 requires a Landlord to provide and maintain the premises in a reasonable state of repair, comply with smoke alarm and Healthy Homes requirements, and comply with applicable building, health and safety requirements. A breach by the landlord may therefore give rise to compensation or other remedies, but it does not, merely by occurring, suspend the tenant's statutory obligation to pay rent.
- That conclusion is also consistent with the structure of the Act. The RTA itself provides particular mechanisms by which repair expenditure may affect rent.
- Section 45(1)(d) requires a landlord, in the circumstances specified there, to compensate a tenant for reasonable expenses incurred in carrying out serious and urgent repairs.
- Where the Tribunal makes an appropriate work order, s 78(2AAC)(b) expressly permits the tenant to set the cost of carrying out authorised work against rent, while s 78(2AAD) permits rent that would otherwise be payable to be paid to the chief executive to accumulate the necessary funds. Similar provisions apply on enforcement of work orders under s 108.
- These provisions demonstrate that the Act recognises circumstances in which rent and a Landlord's repairing obligation may be brought into account against each other, but they do not confer a general unilateral right on a tenant to cease paying rent whenever a breach by the landlord is alleged.
- In Lawrence Riverside, Venning J accepted as a general proposition that, even where a landlord is in breach of an obligation to repair, the tenant must continue to pay the rent and pursue the appropriate cross-claim; the tenant withholding rent is itself in breach of the obligation to pay rent. 17 14 Ibid. at [39]. 15 Ladstone Whangarei Ltd v Cottee (2002) 10 NZCPR 175. 16 Ibid. at [27] , [31] and [33]. 17 Lawrence Riverside Ltd v CP Holdings Ltd (2006) 10 NZCPR 338 at [29]–[30]
- Equitable set-off is therefore an exception to the ordinary obligation to pay rent, not a unilateral right to withhold it.
- The Court of Appeal further explained the limits of the doctrine in Hamilton Ice Arena Ltd v Perry Developments Ltd. 18 A set-off is a defence to a money claim – a shield, not a sword – distinct from an independent counterclaim, and equity intervenes only where the cross-claim undermines the claimant's right to payment and the two claims are so closely inter-related that it would be unconscionable to enforce one without bringing the other into account. 19
- In the particular context of rent, the Court held that rental obligations are not in a special category, but the required connection must still be established. It is insufficient that the claims are generally related, or that the tenant could say that, had the landlord paid money owing to the tenant, the tenant would have been able to pay the rent. Otherwise, the distinction between a set-off and an ordinary counterclaim would largely disappear. 20
- The practical enquiry under s 55 is therefore whether the Tenant has established a bona fide monetary cross-claim which satisfies the Grant requirement and, if so, the amount by which it impeaches the Landlord's rent demand.
- The Tribunal should determine the relevant breach, causation, mitigation and loss, and bring only the amount properly available by way of set-off against the rent owing at the date the application was filed.
- Section 49 requires a party suffering loss from a breach to take reasonable steps to limit that loss. Precise prior quantification is not essential, as Lawrence Riverside demonstrates, but there must be an evidential basis upon which the loss can be assessed.
- The set-off operates only to the extent established. In Hamilton Ice, the Court treated the fact that the available set-off was insufficient to extinguish the rental claim as an independent reason the defence failed. 21
- Accordingly, if after allowing every properly available set-off the rent remained at least 21 days in arrear at the filing date, the requirement in s 55(1)(a) remains satisfied. Application
- The 21 July decision expressly recorded that no rent-arrears claim was then before the Tribunal and that an offset of the parties’ respective claims might later be required. The present Landlord application is the occasion on which that exercise must occur. 18 Hamilton Ice Arena Ltd v Perry Developments Ltd [2002] 1 NZLR 309 (CA). 19 Ibid. at [3] and [6]. 20 Ibid. at [35]-[41]. 21 Ibid. at [42].
- That does not permit the Tenant to reopen matters finally determined on 21 July. The findings concerning the historical roof complaints, hot-water outage, quiet enjoyment and the Healthy Homes issues actually determined are binding. In particular, the Tenant cannot proceed on the basis that the roof remained substantially unrepaired throughout the earlier period when the Tribunal found otherwise, nor retrospectively convert the dismissed insulation claim into an established historical breach. The earlier proceeding also expressly included, but did not allow, the claimed 100 per cent rent abatement.
- The dividing point is the substantive hearing on 11 June 2026. The rehearing decision confirms that the 21 July decision determined the issues before the Tribunal at that hearing and that the later Healthy Homes assessment and roofing quotation could reasonably have been obtained earlier. They cannot therefore be used to reopen those historical findings.
- However, the tenancy continued after 11 June and the Landlord’s obligations under s 45 were continuing. Breach and resulting loss occurring after that date are fresh matters.
- I have therefore considered whether a further rent abatement is established for the period after 11 June. The 2 July Healthy Homes assessment is relevant to the later condition of the premises. It does not reopen the earlier roof or insulation findings but may establish continuing or subsequent non-compliance. Similarly, the heating and ventilation breaches already found may have continued. Non- compliance does not, however, itself establish a 100 per cent abatement. The Tenant must prove the resulting loss of use or amenity and an appropriate rental reduction.
- On the evidence, I allow a further abatement of $700 for the period from 11 June to the present hearing. That amount is brought into account with the other available set-offs. No future abatement is required because the tenancy is terminated by this order.
- The 21 July decision ordered the Landlord to pay the Tenant $8,575. A final monetary Tribunal award is a liquidated debt. In Hamilton Ice, the Court of Appeal explained that set-off permits a defendant facing a money claim to use its own money claim against the plaintiff to discharge that liability wholly or partly and noted that common-law set-off concerned mutual liquidated debts. 22
- Ordinarily, the debts must exist between the same parties in the same capacities. 23 That is consistent with O’Shea, where the High Court held that the Tribunal’s task under s 77(2)(k) is to determine the sum actually “found to be owing”, taking an available set-off into account. 24 22 Ibid. at [3]. 23 Ibid. at [7]-[10]. 24 O’Shea v Brown BC200163091 12, 14 December 2001 at [15].
- The $8,575 order was not made until 21 July, after the Landlord’s arrears application was filed. However, the underlying breaches and causes of action arose before that application: the hot-water breach occurred between February and April 2026; the harassment arose from earlier conduct; and the smoke-alarm, heating and ventilation breaches were also in existence before the rent-arrears application. The later quantification of those liabilities does not prevent an otherwise qualifying unliquidated claim from operating as equitable set-off.
- It is unnecessary to decide whether every component of the $8,575 award, particularly the exemplary-damages awards, individually satisfies the Grant test. I assume in the Tenant’s favour that the entire $8,575, if unpaid, may be brought into account. For the purposes of the s 55 arrears calculation, I also assume, more favourably to the Tenant, that the whole $700 further abatement had accrued and was available for set-off at the filing date.
- Even on assumptions most favourable to the Tenant, the s 55 threshold is met. I disregard GST and use only the base rent of $18,000 per annum recorded in the agreement. The Landlord’s statement records $9,739.14 in unpaid base rent by 27 May 2026. A further approximately $1,824.66 in base rent accrued between 27 May and the filing of the application on 3 July. After deducting the whole $8,575 award and, more favourably still, the whole $700 further abatement, approximately $2,288.80 remained unpaid. That exceeds 21 days’ rent even using the higher figure of $437.50 per week recorded in the Tenant’s cross- application, under which 21 days’ rent is $1,312.50.
- The position at the hearing is clearer still. The parties agreed that the rent arrears then stood at $15,000, and I adopt that agreed figure notwithstanding the absence of an updated ledger. After crediting the unpaid $8,575 award and the further $700 abatement, the net arrears are $5,725.
- Accordingly, the statutory threshold is satisfied on either basis. Even after allowing the Tenant every available set-off, the rent exceeded 21 days’ arrears when the Landlord applied. Further, at the hearing the net arrears were $5,725, substantially more than 21 days’ rent. I am satisfied that the tenancy must be terminated.