Paddi & Co Limited t/a Feilding Property Services v Sneddon [2018] NZDC 16369 (24 August 2018)

Last Updated: 12 June 2019

EDITORIAL NOTE: CHANGES MADE TO THIS JUDGMENT APPEAR IN [SQUARE BRACKETS]

IN THE DISTRICT COURT AT PALMERSTON NORTH

CIV-2017-054-000604

[2018] NZDC 16369

BETWEEN	PADDI & CO LIMITED (trading as) FEILDING PROPERTY SERVICES Appellant
AND	GRACE SNEDDON Respondent

Hearing:	23 April 2018
Appearances:	Astley Paddison and Belinda Paddison, Directors of the Appellant Respondent appears in Person
Judgment:	24 August 2018

RESERVED DECISION OF JUDGE L C ROWE

[Against Tenancy Tribunal Decision]

[1] Astley and Belinda Paddison, in 2012, purchased a building, formerly used as a [Hall], in [location deleted], on the outskirts of Palmerston North. Either then or later, the building came to be owned by their company, Paddi & Co Ltd, the appellant in these proceedings.

[2] Grace Sneddon resided in the building, with her infant son, between 19 August 2016 and 26 January 2018, pursuant to a residential tenancy agreement entered with the Paddisons’ company.

[3] At all times, the Palmerston North City Council’s (PNCC) consented use for this building was for communal or non-residential and therefore limited to use as a church, cinema or hall. The PNCC had not approved a change of use for the building as required by s 115 of the Building Act 2004 to allow it to be used for residential purposes.

PADDI & CO LIMITED (trading as) FEILDING PROPERTY SERVICES v GRACE SNEDDON [2018] NZDC 16369 [24 August 2018]

[4] As the building was not approved for residential use, the Tenancy Tribunal has ruled that the tenancy agreement constitutes a prohibited transaction in terms of s 137 of the Residential Tenancies Act 19861 with the effect that the Paddisons’ company is obliged to refund to Ms Sneddon the entire sum paid by her as rent during her occupation of the premises, amounting to $17,977.13.

[5] The Tenancy Tribunal relies upon the decision of Duffy J in Anderson v FM Custodians Limited in coming to this conclusion. 2

Issues

[6] The Paddisons say the tribunal was wrong to regard Ms Sneddon’s tenancy as a prohibited transaction, and that Anderson does not apply to the present circumstances.

[7] This appeal raises issues about the extent to which the Residential Tenancies Act, and the Tribunal’s remedial powers apply to premises that are not approved for residential use by a territorial authority.

[8] The questions which need to be answered are:

• (a) Does Anderson v FM Custodians Limited apply to this case?
  
• (b) Was the contract between the Paddison’s company and Ms Sneddon a residential tenancy in terms of the Act?
  
• (c) Was the contract a prohibited transaction in terms of s 137 of the Act?
  
• (d) Depending on the answer to (c), what are the appropriate remedies available in this case?
  

1 Reproduced at [41] below.

2 Anderson v FM Custodians Limited [2013] NZHC 2423.

How did it come to this?

[9] Mr and Mrs Paddison say that, after purchasing the building, they set about converting it into a dwelling, including installing plumbing, a kitchen, a bathroom, a log burner and carrying out various repairs.

[10] The Paddisons lived in the building while carrying out some of the renovations, Mr Paddison’s elderly parents lived in the premises for a while and they also rented the premises to other tenants prior to Ms Sneddon’s tenancy.

[11] The Paddisons say that officers and building inspectors from PNCC were aware the building was being used as a dwelling from 2013 onwards, but the only issue they brought to the Paddisons’ attention was that the log burner required a building consent. In particular, PNCC did not advise them that the building was being used for an unconsented purpose until February 2017. They had not been aware of the limited permitted use of the building prior to this or of the need to seek approval for a change of use under the Building Act.

[12] Ms Sneddon says she took up the tenancy at a time of some personal vulnerability. She had recently separated from her partner and was in straitened financial circumstances. Her options for finding affordable accommodation for herself and her, then six month old, son were limited.

[13] After moving into the building, Ms Sneddon became concerned about the habitability or suitability of the premises in relation to the security of doors and window, whether gas and electrical works had been properly carried out, that some renovations had been left uncompleted, causing severe drafts or, in one area, exposed asbestos. She also raises issues on this appeal about the suitability of the water supply and that heating was by way of a log burner that she was not permitted to use. She says the alternative electric heater, supplied by the Paddisons, caused her to incur unaffordable electricity bills.

[14] Ms Sneddon discovered that PNCC had not permitted the premises to be used as a dwelling in about June 2017.

[15] Ms Sneddon presented a list of the issues she had with the property to the Paddisons in early September 2017.

[16] Mr Paddison responded to the effect that any health and safety issues would be attended to immediately and others would be attended to over time, as the building was a “work in progress”.

[17] Ms Sneddon remained unhappy about the state of the premises and applied to the Tenancy Tribunal in early October 2017 for:

• (a) Cancellation of the tenancy.
  
• (b) A full refund of rent on the basis that the tenancy was a prohibited transaction.
  
• (c) Exemplary damages for the unremedied defects, as well as the premises being let contrary to their permitted use, on the basis these were “unlawful acts”.3
  

[18] The Paddisons deny that the building has the defects complained of by Ms Sneddon, or that they are as bad as she claims. They discovered however, that further renovations were required before the PNCC would approve the premises for residential use. Accordingly, they served Ms Sneddon with a 90 day notice to vacate the premises to allow them to carry out the work required.

[19] The Tenancy Tribunal hearing took place on 9 November 2017 and the Tribunal’s decision was delivered on 16 November 2017.

[20] While the Tribunal granted Ms Sneddon’s application for a refund of her rent, it declined her application for exemplary damages.

[21] In relation to the lack of permission from the PNCC to change the use of the building, the Tribunal found that the Paddisons were not aware at the start of the

3 See s 45(1)b), (c), and (1A) reproduced at [32] below, and s109 of the RT Act.

tenancy that such permission was required and therefore lacked the required intent to breach the Act in this way to give rise to a claim for exemplary damages.4

[22] As for the other alleged deficiencies, the Tribunal held that, as the contract fell outside of the Act, except for s 137, the Tribunal lacked jurisdiction to make any other orders and therefore dismissed the balance of Ms Sneddon’s claims.

[23] Ms Sneddon remained in the premises until the expiry of the 90 day notice, but stopped paying rent from 9 November 2017.

Does Anderson v FM Custodians Limited apply?

[24] Anderson v FM Custodians Limited was a case where the appellants occupied a unit in what had previously been a retirement village. The mortgagee of the retirement village had obtained an order for possession of the premises and sought an order from the Tenancy Tribunal evicting Mr and Mrs Anderson as squatters under s 65 of the Residential Tenancies Act.

[25] The Andersons claimed however, that they had a right to occupy their unit under a life tenancy which, whilst unregistered, was effective against third parties. They accordingly submitted that the Residential Tenancies Act did not apply and the Tribunal had no jurisdiction to evict them under s 65.

[26] The High Court agreed with Mr and Mrs Anderson because, amongst other things, the premises were subject to a resource consent that required occupants of the premises to be over the age of 55. Such a requirement is lawful if the premises are registered as a retirement village but otherwise offends the Human Rights Act prohibition of discrimination on the grounds of age. As the premises were no longer a retirement village, the resource consent requirement was unlawful, but any occupation in breach of the resource consent was also unlawful. The High Court concluded that neither the Andersons’ unit nor any other unit in the village could be lawfully used as residential premises and meet the requirements of the resource consent. That being the case, the premises did not qualify as “residential premises” as

4 See s109(3)

that term was defined in the Residential Tenancies Act, and the Act, including the s 65 eviction procedure, did not apply.

[27] The High Court went further and suggested that the Act therefore did not apply where buildings could not lawfully be used for residential accommodation. The Court suggested that such tenancies were likely to be viewed as an arrangement that either directly or indirectly had the effect of defeating, evading or preventing the operation of the Act, and therefore be prohibited by s 137, giving rise to the full range of penalties and powers in s 137 to stop such arrangements.5

[28] The High Court however, did not undertake an analysis of other legislation or circumstances outside of those that particularly applied to the resource consent at issue or the proposed eviction under s 65 of the Act for persons who claimed to have an unregistered life interest. The High Court’s comments about the effects of illegality generally under other legislation or other circumstances are therefore obiter and not binding on this Court.6

[29] For the reasons that follow, I consider Anderson is distinguishable from the present case with the effect that the Residential Tenancies Act does apply to the present circumstances.

Was this a residential tenancy?

[30] A tenancy in relation to any residential premises means the right to occupy the premises in consideration for rent.7

[31] Residential premises are defined in s 2 as meaning:

Any premises used or intended for occupation by any person as a place of residence. (my emphasis)

[32] A landlord’s obligations in relation to premises used or intended to be used for residential purposes are at s 36, which provides:

5 At [68].

6 The same conclusion was reached in Inglis v Parry [2017] NZDC 26036.

7 Section 2.

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. (my emphasis)

And at s 45, the relevant parts of which provide:

45 Landlord’s responsibilities

(1) The landlord shall—

• (a) provide the premises in a reasonable state of cleanliness; and
  
• (b) provide and maintain the premises in a reasonable state of repair having regard to the age and character of the premises and the period during which the premises are likely to remain habitable and available for residential purposes; and
  

....

(bc) if the tenancy is not an income-related rent tenancy, comply with any requirement imposed on the landlord by regulations made under section 138B that provides (generally or in specified circumstances)—

....

(ii) that any work, or other activity, of a specified description that is carried out during the tenancy must be carried out in accordance with a specified New Zealand Standard or a specified provision of a New Zealand Standard; or

....

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

(ca) if the premises do not have a reticulated water supply, provide adequate means for the collection and storage of water; and

(d) compensate the tenant for any reasonable expenses incurred by the tenant in repairing the premises where—

• (i) the state of disrepair has arisen otherwise than as a result of a breach of the tenancy agreement by the tenant and is likely to cause injury to persons or property or is otherwise serious and urgent; and
  
• (ii) the tenant has given the landlord notice of the state of disrepair or made a reasonable attempt to do so; and

....

(1A) Failure by the landlord to comply with any of paragraphs (a) to (ca) of subsection (1) is declared to be an unlawful act.

(1B) The landlord in relation to an income-related rent tenancy that commences on or after 1 July 2016 but before 1 July 2019 is not required to comply with the requirements imposed on the landlord as referred to in subsection (1)(bb) until the 90th day after the date of commencement of the tenancy.

....

(3) The provisions of subsection (1) shall apply notwithstanding that the tenant has notice of the state of the premises at the time at which the tenancy agreement is entered into.

(4) Nothing in subsection (1) shall impose upon the landlord any obligation to repair any damage, or compensate the tenant for any want of repair, arising out of any breach by the tenant of any obligation imposed on tenants by section 40.

(5) In this section premises includes facilities.

[33] The Tenancy Tribunal has specific jurisdiction to compensate a tenant where a landlord breaches their obligations under ss 36 or 45, including to:

• (a) Order the landlord to do anything necessary to remedy a breach of the Act.8
  
• (b) Order the landlord to pay damages or compensation to the tenant for breach of the Act.9
  
• (c) Determine whether the landlord’s breach of the Act is an “unlawful act”, such that exemplary damages ought to be paid by the landlord under s 109.10
  

[34] It is worth pointing out at this stage that s 36 of the Act requires the landlord to take “all reasonable steps” at the start of the tenancy to ensure the premises may be lawfully occupied as a residence. This imposes a positive obligation on a landlord. It does not render premises unlawful for residential occupation when the landlord

8 Section 77(2)(l).

9 Section 77(2)(n).

10 Section 77(2)(o).

breaches that obligation. A landlord’s failure to take all reasonable steps is a breach of the Act for which the Tribunal may grant s 77(2) remedies. It would be possible for a landlord to comply with s 36, for example by obtaining appropriate but incorrect professional advice, but the premises not be lawfully permitted for residential use. It would be incongruous to suggest the landlord ought to be penalised when they were not in breach of what the Act requires of them, namely, to take all reasonable steps.

[35] Applying these provisions to the present case, the Paddisons’ company let the premises to Ms Sneddon for Ms Sneddon to use the building as a residence. They entered a residential tenancy agreement. Ms Sneddon paid a bond, which the Paddisons’ company paid to the Ministry of Business Innovation and Employment as required by s 19 of the Act.

[36] The Paddisons’ company and Ms Sneddon plainly intended for the premises to be used as a place of residence and the premises were actually used by Ms Sneddon as a place of residence. The parties plainly intended to be bound by the provisions of the Residential Tenancies Act, including their respective obligations as landlord and tenant. This is an important distinction with Anderson v FM Custodians Limited where the Andersons occupied their unit under a so-called life tenancy, for which rent was not payable, where the parties plainly did not intend for the Residential Tenancies Act to apply.

[37] The Paddisons’ company therefore assumed obligations that Ms Sneddon was entitled to insist upon, including to take all reasonable steps, at the commencement of the tenancy, to ensure there was no legal impediment to the occupation of the building for residential purposes, as required by s 36, and to provide premises that complied with s 45 of the Act, including that the building comply with all requirements in respect of buildings, health and safety under any enactment as far as they applied to the premises.

[38] The tenancy, and the premises, were not of any of the kinds described in s 5 of the Act, which specifically exclude the Act from applying, and therefore the Act applied to this tenancy by virtue of s 4 of the Act.

[39] The Tribunal had specific jurisdiction to address any breach by the Paddisons’ company of its obligations as a landlord under s 77 of the Act.

[40] There is accordingly no reason why the Residential Tenancies Act does not apply to this tenancy, these premises, and any breaches of the Act or the tenancy agreement. The agreement between the Paddisons’ company and Ms Sneddon was, in all respects, a residential tenancy.

Was the contract a prohibited transaction under s 137 of the Act?

[41] Section 137 of the Act provides as follows:

137 Prohibited transactions

(1) No person shall—

• (a) enter into any transaction, or make any contract or

arrangement, purporting to do, whether presently or at some future time or upon the happening of any event or

contingency, anything that contravenes or will contravene any of the provisions of this Act; or

(b) enter into any transaction or make any contract or

arrangement, whether orally or in writing, or do anything, for the purpose of or having the effect of, in any way, whether directly or indirectly, defeating, evading, or preventing the operation of any of the provisions of this Act.

(2) Requiring any person to enter into any transaction, or to make any contract or arrangement, in contravention of subsection (1) is hereby declared to be an unlawful act.

(3) Subject to subsection (4), any provision of any transaction, contract, or arrangement entered into in contravention of subsection (1) that would have the effect of, in any way, whether directly or indirectly, defeating, evading, or preventing the operation of any of the provisions of this Act shall be of no effect.

(4) All money paid and the value of any other consideration for the tenancy provided by the tenant (not being rent lawfully recoverable by the landlord) or, where the transaction takes the form of an option to purchase the premises to which the transaction relates, by the person on whom the option to purchase is conferred, shall be recoverable as a debt due to the tenant or prospective purchaser by the landlord.

[42] In terms of s 137(1)(a), the tenancy agreement does not contravene any of the provisions of the Act. Rather, it binds the parties to comply with the Act.

[43] In terms of s 137(1)(b), the agreement does not directly or indirectly defeat, evade or prevent the operation of any of the provisions of the Act. The agreement does the exact opposite. It requires the provisions of the Act to be adhered to, including that the landlord comply with its obligations under ss 36 and 45.

[44] In terms of s 137(2), the landlord did not require Ms Sneddon to enter a contract in contravention of subs 1.

[45] In terms of s 137(3), no part of the agreement directly or indirectly defeated, evaded or prevented the operation of any of the provisions of the Act. All of the provisions of the Act remain effective pursuant to this tenancy agreement.

[46] Accordingly, s 137(4) does not apply to this tenancy agreement.

[47] The tenancy agreement is therefore not a prohibited transaction in terms of s 137 of the Act. Instead, the tenancy agreement requires the Act to be given full effect, including that there be remedies available for both landlord and tenant should they breach their respective obligations under the Act.

What are the appropriate remedies available in this case?

[48] First and foremost, a refund of the rent was not a remedy available to the Tenancy Tribunal. Section 137 of the Act does not apply.

[49] The remedies available to the Tribunal in the present case include:

• (a) During the tenancy, to make an order under s 77(2)(l) that the landlord obtain approval from the PNCC for change of use of the building to residential use under s 115 of the Building Act.
  
• (b) To order the landlord to pay compensation or damages, if damage or loss was suffered, in the event the landlord breached s 36 of the Act by failing to take all reasonable steps, at the commencement of the tenancy, to ensure that the building was approved for residential use. On this point, The Tribunal was in error to conclude s 36 was breached

merely because the PNCC had not approved the premises for residential use. The Tribunal is required to go further and assess whether the landlord failed to take all reasonable steps at the commencement of the tenancy to ensure there was no legal impediment to use of the premises as a residence.

(c) To order the landlord to pay compensation or damages to the tenant, in the event the tenant suffered damage or loss, for any breach by the landlord of its obligations under s 45 of the Act, including obligations to provide premises in a reasonable state of repair, that complied with all requirements in terms of buildings, health and safety, that had a reticulated water supply and to compensate the tenant for any expenses she incurred in repairing the premises.

(d) Where the Tribunal finds that any breaches by the landlord were unlawful acts and were committed intentionally, the Tribunal may make an award of exemplary damages against the landlord.11

[50] As the Tribunal has already found that the landlord did not intentionally breach the requirement to obtain the PNCC’s consent for change of use, exemplary damages are not now an available remedy for this breach.

[51] The Paddisons claim that Ms Sneddon caused damage in various ways to the premises while she occupied them. I do not need to go into the details, other than to say that any such claims are properly the province of the Tenancy Tribunal under the relevant provisions of the Act.

[52] It follows from the above analysis however, that Ms Sneddon was not entitled to withhold paying rent for the last two and a half months of her occupation of the premises.

11 If the other requirements of s109(3) are also satisfied.

Outcome

[53] Given the above analysis, I grant the appeal. In terms of s 118(1)(a) of the Act, I quash the order of the Tribunal requiring the landlord to refund the rent paid by Ms Sneddon.

[54] I also order a re-hearing of Ms Sneddon’s claim, and the appellant’s counterclaim (assuming it has been brought within applicable timeframes).

[55] The purpose of a re-hearing will be to assess whether there have been breaches by the landlord of its obligations under ss 36 and 45 of the Act and, if so, what, if any, compensation or damages are payable to Ms Sneddon under s 77(2)(n) or (o), and s 109 of the Act. Assuming the claims have been brought in time, the Tribunal ought also to assess whether Ms Sneddon has breached any of her obligations under the Act, including as to any damage to the premises or non-payment of rent.12

Costs

[56] While the appellant has been successful, I make no order as to costs or disbursements. Ms Sneddon relied on the Tribunal’s interpretation of Anderson v FM Custodians Limited and s 137. As an unrepresented litigant, it is understandable that she did so. The appellant was also unrepresented so no solicitor’s costs arise for this reason as well.

Judge L C Rowe

District Court Judge

Date of authentication: 28/08/2018

In an electronic form, authenticated pursuant to Rule 2.2(2)(b) Criminal Procedure Rules 2012.

12 Section 40.