New Zealand Property Investors' Federation

The NZPIF is the umbrella body for 17 local Property Investors' Associations throughout New Zealand.

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Renting out unlawful premises

RTA Amendment Bill and granny flats

Building and Construction Minister, Nick Smith, recently introduced the Residential Tenancies Amendment Bill (no 2).

While the part seeking to address the situation of tenants not being responsible for accidental damage they cause has received a lot of attention, there is another significant part to the Bill. This relates to landlords renting out unlawful premises.

Unlawful premises could include commercial premises, garages, or premises that do not have building or resource consent. Many "granny flats" would fall under this criteria.

A High Court decision found that the Tenancy Tribunal has no jurisdiction on unlawful premises because the premises cannot lawfully be used as residential premises. This has meant that neither tenants nor landlords disputes can be determined by the Tribunal if the premises are unlawful.

While the Tribunal cannot make any decisions in these cases (such as rent owing needs to be paid by the tenant) the Tribunal can order a full rent refund to the tenant because the tenancy was a “prohibited transaction” under the RTA.

This is obviously a severe problem that needs to be addressed for both landlords and tenants.

However a key objective of the Bill is to "discourage landlords from offering tenancies for premises which are not lawfully able to be used for residential purposes".

Officials say that "it is not possible to quantify how many tenants may be living in residential premises which could be considered unlawful but the number is likely to be high". This is because of the potentially high number of situations it could apply to, including "illegally converted garages, unconsented dwellings and commercial properties".

Officials also state that "the issue could be more prevalent in Auckland where pressure for rental housing is higher than in other areas".

At a recent Property Investor Association meeting, Minister Smith said that he was not concerned about granny flats. While this was good to hear, the Bill clearly states that premises will be unlawful if they are deemed dangerous or unsanitary, if there are inadequate means of escape from fire or do not have appropriate physical separation for safety purposes.

Many granny flats will be incapable of being separated from other premises either physically or through installing a fire wall. It appears obvious that if taken to its logical conclusion, the Bill could see a high number of rental properties removed from the market. It is likely that houses that have been separated into flats for decades will be reverted back into single houses with a lower number of occupants, exacerbating housing shortages.

Government and other political parties will need to consider very carefully what they deem to be acceptable as safe premises. If the definition is too cautious then it could lead to a very severe restriction to the rental stock.

In addition to what is considered safe, there will also need to be a mechanism for reclassifying some premises as lawful if they are considered safe and sanitary as a rental but don't have a building or resource consent.

Another point to be considered is whether it should be an unlawful act for tenants to use a property in an unlawful manner. As an example, tenants could allow other households to use the garage of their rental property. This would be unlawful but potentially out of the landlords control.

It would be grossly unfair if the landlord was prosecuted and made to return all rent paid to them by tenants because of a decision made by the tenants themselves.

The Residential Tenancies Amendment Bill will be going before a parliamentary select committee at some point to hear public submissions.

The NZPIF will be preparing a submission on this and other parts of the Bill.





Tags: federation reports - rta