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COMMENT: Unlawful premises – moving past Anderson v FM Custodians

Curious about the law around the use of non-residential property for residential purposes? Auckland Property Investors Association member Kristine King* explains the situation now that there’s new legislation in place.

Tuesday, November 26th 2019, 10:32AM

A review of residential tenancies law led to the Residential Tenancies Amendment Bill (No 2) gaining Royal Assent in July this year. The Residential Tenancies Amendment Act 2019 then came into force on 27 August 2019.

The amendment Act greatly impacts on the rights and obligations of both landlords and tenants. But one of the many changes it contains is clarification of the law around the use of non-residential property for residential use in the wake of the High Court decision in Anderson v FM Custodians Ltd [2013].

In order to understand why these changes were necessary it is important to have some context as to the position of the law, mainly due to case law before the amendment Act was enacted.

In the Anderson case, the High Court found that where a property is not lawfully able to be used for residential purposes, the property is no longer a residential property as defined in the Residential Tenancies Act 1986 (RTA).

Essentially, the Court inferred lawfulness into the definition of residential property.

The effect of the Anderson decision was that such unconsented property was no longer within the scope of the RTA and consequently the jurisdiction of the Tenancy Tribunal.

Not only did this mean that tenants of unconsented property were left without the protections of the minimum standards for tenancies set out in the RTA, but it also meant that the Tribunal was left with very limited options when residing over an unlawful property case.

Upon the finding that a tenancy was unlawful, the Tribunal was no longer able to investigate and adjudicate on a case by case basis and instead could only order remedies contemplated by section 137(4) of the RTA and require full refunds of money paid for the tenancy.

A flood of applications to the Tribunal for rent refunds ensued. While the majority of Tribunal decisions followed the decision in Anderson, some decisions have attempted to distinguish, or not apply the Anderson decision.

An example of this is in Parbhu v Want [2018]. This case also dealt with the use of a building being outside the scope of its resource consent in that the living quarters were to be exclusive for an on-site caretaker. Despite this, the landlords entered into a tenancy with a tenant who was not employed by the landlord as a caretaker.

The case made its way to the High Court where the Court disagreed with the interpretation adopted in Anderson and found that the Tribunal had the jurisdiction to deal with the issue of an unlawful property.

However, the court in Parbhu did not have jurisdiction to overrule Anderson. As such, in the wake of Parbhu the Tribunal were left with two different High Court rulings on unlawful property to choose from. It was in this environment that the concept behind the amendment Act was conceived.

The amendment Act provides for a broader definition of “residential property” so that the focus is now on whether a property is used or intended to be used as a place of residence, rather than whether or not such residence is lawful to use for residential purposes.

So where does the amendment Act and this broader definition of residential property leave both landlords and tenants?

The onus is on the landlord to ensure that at the start of the tenancy they comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the property.

If they do not fulfil these obligations, and the property does not meet these requirements, then the property will be deemed an unlawful residential property.

Under the amendment Act, the Tribunal now has jurisdiction and authority over cases that deal with whether the property is unlawful for residential purposes. As a result, the remedies available to the Tribunal in these circumstances and now much wider than simply a rebate of rental.

Such specific remedies include the ability to make a work order requiring a landlord to remove or remedy the legal impediment to lawful occupation or to comply with the relevant building, health or safety requirements.

The orders available to the Tribunal are set out in section 78A of the Act.

The Act does give us some guidance as to the interpretation of the term “unlawful” and, potentially, its application in practice with the following:

78A Orders of Tribunal relating to unlawful residential premises:

(2)For the purposes of this Act, unlawful residential premises means residential premises that are used for occupation for a person as a place of residence but—

(a) that cannot lawfully be occupied for residential purposes by that person (whether generally or whether for the particular residential purposes for which that person is granted occupation); and

(b) where the landlord’s failure to comply with the landlord’s obligations under section 36 or 45(1)(c), or section 66H(2)(c) or 66I(1)(c), as relevant, has caused the occupation by that person to be unlawful or has contributed to that unlawful occupation.

36 Legal impediments to occupation:

The landlord shall take all reasonable steps to ensure that, at the commencement of the tenancy, there is no legal impediment to the occupation of the premises for residential purposes.

45 Landlord’s responsibilities:

(c) comply with all requirements in respect of buildings, health, and safety under any enactment so far as they apply to the premises;

These sections introduce a number of concepts that can assist with determining if a property is lawful or unlawful:

• “lawfully be occupied for residential purposes”
• “no legal impediment to the occupation of the property for residential purposes”
• “comply with all requirements in respect of buildings, health, and safety under any enactment”

It is worth noting that the circumstances in Parbhu have been considered and it is understood and accepted that some properties may be lawful or unlawful depending on the particular circumstances or residential purposes for which that person is granted occupation.

While the amendment Act does not give specific examples of what will breach will result in a property being unlawful, based on the broad language contained in the Act and the decisions in recent case law, the following would likely result in a residential property being deemed unlawful:

A property with a complete lack of resource consent for the use of the property is being put. Examples of this can include commercial properties being occupied used for residential purposes.

A property with a complete lack of building consent and /or building permit for the structures built on the site.

A property where there is resource consent but the use of a building outside the scope of its resource consent.

A property that does have building consent issued but the consent process was not completed and there is no code of compliance certificate (“CCC”) for the works nor a certificate of acceptance (“COA”).

A property that has consents such as building consent but the structure or area occupied is not approved for habitation within the consent documentation. Examples of this can include garages, rumpus rooms, and art studios.

A property that does not comply with the Building Act 2004. Examples of this could be where the property is not safe or sanitary or where there are inadequate means of escape from fire.

A property that does not comply with the Housing Improvement Regulations 1947. Examples of this could include not meeting the minimum room sizes and heights based on the nature of the property, not having at least one external window in each habitable room or that the property does not have all functional elements of a property such as a living room, kitchen, bedroom, and bathroom.

A property that does not comply with the Building Code such as where a property does not provide reasonable and adequate access to enable safe and easy movement of people.

A property that does not comply with the Residential Tenancies (Healthy Homes Standards) Regulations 2019 such as where a new tenancy does not meet the insulation requirements in regard to ceiling and underfloor insulation.

The amendment Act does not categorise or scale the level of “unlawfulness” of premises. However there will be a variety of circumstances where a property may be unlawful.

They will range from where the unlawfulness is administrative or technical in nature, say a property that lacks CCC to COA but in all other respects the quality of accommodation is high with no real detriment to the tenant to converted garages and containers that are not fit for human habitation.

The amendment Act responds to that by providing a number of options for enforcement action against the landlord that provides the unlawful premises.

The Tribunal will now be able to consider the particular facts of the case, how the unlawfulness has arisen and what detriment, if any, the tenant has suffered as a consequence when making orders.

Moving forward the amendment Act alleviates the issues created by the Anderson and Parbhu cases with those conflicting decisions in the High Court.

It gives the Tribunal full jurisdiction over cases concerning premises that are unlawful for residential purposes and means Tenancy Services will be able to take enforcement action against landlords who breach the Act.

Landlords should be relieved that the blanket approach to order full rent refunds for technical breaches is behind us.

However, we still recommend that landlords review each property in their portfolio and confirm that they comply with the requirements in the Act.

Please note that the content of this article is general in nature. It is not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.

This article was originally published on the APIA website and it is reproduced here with permission.

*Kristine King is a director of Duncan King Law. She specialises in the areas of property, commercial law and trusts and has a passion for working with property developers and property traders.

Tags: APIA Commentary compliance housing market landlords Lawyers minimum standards property investment property management real estate rental market tenancy reform Tenancy Services Tenancy Tribunal tenants

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