North end article - unlawful tenancies
Tuesday 19 Nov 2019
The recently ratified Residential Tenancies Amendment Act 2019 has introduced some clarifications in the current laws. However, there are some warnings for landlords in the Dunedin student quarter where compliance has been relaxed in past decades, to the point where hidden issues in investment property may come back to bite due to this new law.
The new Amendment covers three main areas, namely (1) placing limited liability onto tenants for damage within a property, (2) providing clarification around testing for methamphetamine; and (3) strengthening the rules around unlawful tenancies or premises.
While the first two points above have been widely reported by the media, it is the third that is of particular concern to the Dunedin student market. The ‘unlawful tenancy’ rule is not new but now it has come to the surface, the public and tenants are more aware and further under this new amendment, MBIE inspectors now have the legal ability to approach properties to investigate any issues they believe may exist. Previously, a tenant had to make a complaint for the issue to be raised, which was rare and sporadic at best.
An unlawful premises is a dwelling that does not comply with the relevant building rules or may breach conditions set out in a Resource Consent or the District Plan. Any unconsented work completed in the property could be deemed unlawful, like adding in a bathroom, kitchenette or extra bedrooms by moving structural walls.
The most obvious and prolific culprit in the Dunedin student sector are illegal sleepouts. These may come in the form of old converted garages, or as we see often, old external laundries that were never issued a consent or permit by the Council to be used as bedrooms. A sleepout, garage, or simply extra bedroom internally can get caught up in two ways:
- Most properties in the campus area of North Dunedin have a residential zone under both the older District Plan and the newer Second Generation Plan that fundamentally allows only for one habitable room (or a bedroom) per 45m2 of land. A 228m2 section for example can only have five bedrooms. A sixth room would be deemed a breach of the District Plan and you could be seen as letting out the property unlawfully.
- Alternatively, it may be within the allowable room limit, but the sleepout or unconsented bedrooms may not be fit for purpose and fail to meet the test for a Safe and Sanitary property.
Now, we often get told by landlords that their property is fine because ‘it was this way when they bought it’ or ‘it’s been that way for decades’, but that will not protect you in the eyes of the law. These rules are not new, simply strengthened, and while there are some existing use rights if some rules are breached under today’s standards, it was still required that the work done at that time 30 years ago, was in fact lawful at the time that it was done. Just because a landlord may have let the property out this way for the past 10 years doesn’t mean the law does not apply.
The penalties for letting out an unlawful premises can be severe. The Tenancy Tribunal has a range of orders it can now impose, including repaying some or all of the rent to the tenants and allowing tenants almost immediate termination rights of the tenancy. These penalties are severe and have already had effect.
In one North Dunedin case recently, a large property was discovered to have two unconsented rooms added that were also having leaking issues causing mould. After it was clear there was a breach, the landlord settled out of the Tenancy Services hearing for a confidential sum. In a situation like this, it may not be unexpected to have all the rent awarded back and, due to the timing of the Tribunal hearing, this property could not be let for the following year either until the remediation work was completed. Potentially two years rent was lost plus costs to fix.
In general, some think that selling the property will make the problem go away, but an agent will pick this up to bring to your attention, and if they don’t, a former owner can still get sued by the Purchaser years after the sale under the Vendor Warranties of the Sale and Purchase Agreement for selling them an illegal dwelling. With that warning in mind, purchasers must ensure they check the LIM when purchasing a property and have a solicitor look over it carefully.
If you suspect you may have an issue now, contact us in the first instance for an initial clarification of the rules. We can point you in the direction of either a consultant building inspector or planner that can act for you and help you to correct the issue by consenting the property lawfully. This issue will affect the price of your asset when you come to sell one day and addressing it now will take the immediate risk away with your tenants and restore the true value in your property.
Matt Morton is a specialist residential investment broker for Colliers International.