Empire Global Developments Pty Ltd v Chalman (Residential Tenancies)
[2024] ACAT 15
•5 February 2024
ACT CIVIL & ADMINISTRATIVE TRIBUNAL
EMPIRE GLOBAL DEVELOPMENTS PTY LTD v CHALMAN (Residential Tenancies) [2024] ACAT 15
RT 923/2023
Catchwords: RESIDENTIAL TENANCIES – excessive rental rate increase – whether borrowings interest, rates paid to the ACT Government and costs of electricity are “outgoings or costs” in relation to the premises under s 68 (4) (c) – interest is not a cost relating to the premises – insufficient evidence on the relevancy of other costs – rental rates for comparable premises – state of repair of the premises – other matter the ACAT considers relevant
Legislation cited: Residential Tenancies Act 1997 ss 64A, 64B, 68
Subordinate
Legislation cited: Residential Tenancies Regulation 1998 s 5A
Cases cited:Richards v Chu & Anor [2016] ACAT 107
Tribunal:Senior Member S Lancken
Date of Orders: 5 February 2024
Date of Reasons for Decision: 5 February 2024
AUSTRALIAN CAPITAL TERRITORY )
CIVIL & ADMINISTRATIVE TRIBUNAL ) RT 923/2023
BETWEEN:
EMPIRE GLOBAL DEVELOPMENTS PTY LTD
Applicant
AND:
COURTNEY CHALMAN
Respondent
TRIBUNAL:Senior Member S Lancken
DATE:5 February 2024
ORDER
The Tribunal orders that:
A rental increase of $35.00 per week takes effect from 21 October 2023.
Leave is granted for the respondent to make an application under section 69(2) of the Residential Tenancies Act 1997 for an order for time to repay the rent owed under order 1, such application to be filed and served within 14 days of the date of this Order.
………… …………
Senior Member S Lancken
REASONS FOR DECISION
The applicant is the owner of premises known as 51/12 Pioneer Street, Amaroo (the premises). The premises is part of a complex that includes more than 100 residential units, some commercial businesses and parking spaces. The applicant owns the whole of the complex including all the residential units and the commercial business premises. The applicant developed the complex as a “build to rent” property.
The respondent rents the premises from the applicant. The parties entered into a fixed term residential lease agreement dated 10 June 2020 and despite attempts by the applicant to terminate that agreement, it continues as a periodic lease.
On 16 August 2023, the applicant served a notice on the respondent under section 64B of the Residential Tenancies Act 1997 (the notice) to increase the rent from $425.00 per week to $510.00 per week. That is an increase of $85.00 per week or 20%.
Sections 64A and 64B of the Residential Tenancies Act 1997 (the Act) are reproduced below.
64A Standard residential tenancy term—increase in rent
Under a fixed term agreement rent may not be increased during the currency of the fixed term unless the amount of the increase, or a method for working it out, is set out in the agreement.64B Limitation on rent increases
(1) A lessor may increase the rental rate under a residential tenancy agreement by an amount that is more than the amount prescribed by regulation only if—
(a)the residential tenancy agreement allows the lessor to increase the rental rate by the amount; or
(b)after the lessor gives notice under subsection (2), the tenant agrees, in writing, to the increase; or
(c)the lessor obtains the ACAT’s prior approval.
(2) For subsection (1) (b), the lessor must give the tenant a written notice stating—
(a)the day the proposed increase takes effect (being a day at least 8 weeks after the day the notice is given); and
(b)the amount of the proposed increase; and
(c)whether the amount of the proposed increase is more than the amount prescribed under subsection (1); and
(d)if the proposed increase is more than the amount prescribed under subsection (1)—that if the tenant does not agree to the increase, the lessor may only make the proposed increase with the prior approval of the ACAT.
The rental increase proposed by the notice is more than the amount prescribed under subsection (1) of section 64B of the Act.
The prescribed amount under subsection (1) of section 64B of the Act would result in a rental of $440.00 per week as weekly rental for the premises. The proposed increase in rent is therefore $70.00 above the prescribed amount, or about 20% of the rent at the time of the notice.
In these proceedings, the applicant seeks the approval of the ACAT pursuant to section 64B (2) (d) of the Act of its proposed rental increase.
Section 68 of the Act which is reproduced below (emphasis added) sets out guidelines prescribing the criteria that the ACAT must consider when considering a rental increase above the prescribed amount (described in the below section as “excessive”).
68 Guideline for orders
(1) This section applies if an application is made to the ACAT under section 64B (1) (c) or section 64C (1) in relation to a rental rate increase.
(2) The ACAT must allow a rental rate increase if the increase is allowed under the residential tenancy agreement and is not excessive.
(3) For subsection (2)—
(a)unless the tenant satisfies the ACAT otherwise, a rental rate increase is not excessive if it is equal to or less than the amount prescribed by regulation; and
(b)unless the lessor satisfies the ACAT otherwise, a rental rate increase is excessive if it is more than the amount prescribed by regulation.
(4) If a tenant or lessor proposes that a rental rate increase is or is not excessive, the ACAT, in considering whether it is satisfied about the proposal, must consider the following matters:
(a)the rental rate before the proposed increase;
(b)if the lessor previously increased the rental rate while the relevant tenant was tenant—
(i)the amount of the last increase before the proposed increase; and
(ii)the period since that increase;
(c)outgoings or costs of the lessor in relation to the premises;
(d)services provided by the lessor to the tenant;
(e)the value of fixtures and goods supplied by the lessor as part of the tenancy;
(f)the state of repair of the premises;
(g)rental rates for comparable premises;
(h)the value of any work performed or improvements carried out by the tenant with the lessor’s consent;
(i)any other matter the ACAT considers relevant.
(5) If the ACAT considers a proposed rental rate increase is excessive but a lesser increase would not be, it may disallow so much of the increase as is excessive.
The history of rent increases for the premises in the course of the tenancy is set out below.
30 July 2021. $410.00 per week.
17 October 2022 $425.00 per week
The current rental rate is therefore $425.00 per week.
In its evidence and submissions to the Tribunal, the applicant relied mostly on subsections 68 (4) (c) (outgoings) and 68 (4) (g) (comparable rents) to justify the rental rate increase in excess of the prescribed amount.
Increase in outgoings
The applicant argued that three of its costs have increased and that those increases were part of the justification for the excessive rental rate increase proposed. Those expenses were, interest on borrowing costs, rates paid to the ACT Government and electricity and power costs paid to ACTEW AGL.
Each of the expenses referred to in the previous paragraph relate to the whole of the complex, not the premises that is the subject of the application in this matter in that,
(a)the borrowings on which interest was paid are the borrowings to acquire and develop the whole complex.
(b)the rates were those applicable to the whole complex. Rates have not been levied on individual units in the complex.
(c)the electricity and power costs paid to ACTEW AGL were for the power consumed in the common property of the complex. The respondent paid the power costs of the premises that he occupies.
The applicant gave evidence of increases in each of the three expenses referred to in the previous paragraph.
If the ACAT is to consider such increases as a factor in determining whether to allow an excessive rental increase then the expenses must be an outgoing or costs of the lessor in relation to the premises (section 68 (4) (c)).
The first issue then is whether the outgoings or costs referenced by the applicant relates to the premises.
I accept as common knowledge that over the year or so since the last rental increase applied to the premises, interest rates have increased considerably.
Interest is a cost of the applicant.
Interest is not, however, a cost that relates to the premises. It is a finance cost of the applicant incurred in acquiring and developing the whole of the complex.
Should interest costs be a relevant matter when considering an excessive rental rate increase it would lead to the absurd outcome that a landlord who had a larger borrowing or paid a higher interest rate might be entitled to a greater increase than a landlord that did not have any borrowings.
In any event the applicant did not offer evidence of the actual increase in cost of the interest paid on its borrowings, Mr Daniel Thai Hoang the Director of Finance and Property of the applicant was asked the extent of the applicant’s borrowings on the complex. He declined to answer the question.
There is no evidence before the Tribunal:
(a)of the extent of the borrowings of the applicant.
(b)of the actual interest rates paid at the time of the notice or at the time of the last rental increase or,
(c)of the quantum of increase in the applicant’s costs because of the increase in interest rates over the period in question.
In relation to rates and the costs of electricity for the common property, these are costs or outgoings of the applicant.
Those costs are not however costs or outgoings relating to the premises. They are costs or outgoings relating to the complex.
The applicant provided some evidence of the increase in the cost of power and rates over the whole complex. It was not possible, however, for the Tribunal to determine how much of that increase in costs related to the premises, or what was the percentage increase in those costs that relates to the premises. It is therefore impossible for the Tribunal to determine if such increases justify an excessive rental increase.
The prescribed amount for a rental increase is determined by reference to an index number being the rents subgroup of the housing group of the Consumer Price Index for Canberra published from time to time by the Australian statistician.[1] That index number takes into account the increase in costs of owning residential tenancies including increases in rates and electricity costs.
[1] Residential Tenancies Regulation 1998 s 5A
For the ACAT to be satisfied that an increase in rates and electricity costs justifies an excessive increase in rent, it needs to be satisfied that these costs of the landlord have increased in an amount that exceeds the prescribed amount. In this case, they have failed to do so. The Tribunal simply does not know the increase in these costs relative to the premises.
There are more than 100 residential units in the complex.
There are several commercial business premises.
The applicant offered no evidence, such as the unit entitlement of the premises by reference to the whole complex, or the actual costs levied to the premises, by which the Tribunal could determine the amount of any increase in costs or expenses relative to the premises.
It follows then that even if the costs of electricity and rates increased, I am not satisfied:
(a)that such costs relate to the premises;
(b)about the amount of such increases that relates to the premises.
Even though I am satisfied that there was some increase in the costs of interest rates and electricity for the common property, I do not take such increases into account in determining whether the rental increase proposed by the applicant is or is not excessive.
Rental rates for comparable premises
The premises is a one bedroom with study apartment with two parking spaces.
The premises is not a two-bedroom apartment, even though the applicant suggested as much in the proceedings and advertised similar premises in the complex in that way.
The premises was approved as one bedroom with study. The plans indicate as much. The study room does not have access to natural light or ventilation. It does not have privacy nor a light switch in the room. It is not a bedroom and should not be advertised as such.
That being said, there are 17 units in the complex of similar, or identical layout to the premises that is the subject of the proceedings.
The applicant gave evidence that the rental rate achieved for those units in the complex with a similar layout, apart from the premises, is between $500.00 and $540.00 per week with an average of $507.47. Some of those units had one parking space, others had two.
Ms Larsen gave evidence that one bedroom, one bathroom, one car space units in the complex were achieving rents of between $440.00 and $470.00 per week.
I accept that as evidence of rental rates of comparable premises.
The respondent gave evidence of units outside the complex in a similar location. I accept that some of those units are comparable to the premises. There was not evidence of the precise size or layout of these properties.
As would be expected, the weekly rental costs of units outside the complex vary. I have only considered those properties that are one bedroom. The weekly rental rates of those premises vary between $400.00 per week and $475.00 per week.
Section 68 (4) of the Act does not require the ACAT, in determining what is an allowable increase in rent, to determine a market rental for the premises, only to consider “the rental rates for comparable premises”.
I have considered that rental rates for comparable premises are between $450 and $510.00 per week.
The state of repair of the premises
The respondent submitted that the ACAT should consider some maintenance and repair issues in the complex, including lifts not functioning properly, disrepair in the roof top garden and problems with the carpark that is used by residents and customers of the commercial business premises. Some of the allegations were contested.
I have considered those issues in making my determination, though most of the submissions point to what might be described as “normal” maintenance issues. No doubt the applicant should, as a responsible landlord, address those issues in a timely manner. The issues raised all relate to the common property and play only a small part in the overall rights of the respondent as a tenant and therefore play a relatively insignificant part in a determination of an appropriate rental rate.
There was no evidence that the premises itself is not well maintained.
Any other matter the ACAT considers relevant
The respondent submitted that a matter that the ACAT should take into account is the impact on him of what amounts to a rental increase of 20%.
The provisions of sections 64A, 64B and 68, in so far as they restrict the common law rights of a landlord to increase the rent for premises not subject to a fixed term lease, are intended to protect tenants from “excessive” rental increases.
The legislation requires that the ACAT must consider various matters. While it does not require the ACAT to consider the individual circumstances of a tenant, the catch all provision of section 68 (4) (i) might in appropriate circumstances allow the ACAT to consider the personal circumstances of tenants.
The evidence of the respondent in his statement of 8 December 2023 does not go to hardship or special need.
The evidence is, however, that the rental increase proposed if allowed would be a rental increase of 20%.
Section 68 (4) (b) requires the ACAT to consider the history of the rental costs of the premises to the tenant. A 20% increase in rent is a very large increase for a tenant to pay on an ongoing basis.
The respondent enjoyed a rental increase of a total of $25.00 per week or 6.25% in the two and a half years the respondent has occupied the premises.
In Richards v Chu & Anor[2], the Tribunal made the following observations:
15. … the policy intention of the Act must be borne in mind - that is, the particular nature of the market for rental accommodation means that there is some capacity for lessors to exploit tenants, and accordingly the tribunal has been expressly tasked with ensuring that rental increases are not so out of line as to be excessive.
16. I note in passing that in Commissioner of Housing v Key [2003] ACTSC 44 at [31], Crispin J stated that the tribunal is not obliged to explain what weight it gives to a particular factor set out in section 68(3), nor how each factor is taken into account in determining the extent to which a proposed rental rate increase should be allowed or disallowed.
[2] [2016] ACAT 107 at [15]-[16]
Notwithstanding this statement, I have offered my analysis of the factors relied on by the applicant in seeking an increase in rent payable that exceeds that prescribed by the Regulation, to explain my reasoning and how the various factors relied on by the applicant impact the final determination of what is, or is not an excessive increase in rent payable.
A further 20% increase is not just.
During the hearing, the applicant submitted on many occasions that the respondent could “move out” if they did not like the rent increase. That is not a submission that assisted me in deciding the just rent increase pursuant to section 68, even though it is obviously a choice that a tenant has. The other choice that tenants have is to reject the proposed increase requiring then that the landlords make application to the ACAT.
The intent of the legislation is to protect tenants from excessive rent increases and from the very threat that the submissions of the applicant, misguided as was, identified the “threat” of landlords that tenants either accept increases in rent or “move out”, highlights the power imbalance between landlords and tenants at times of high rental demand. It is that power imbalance that the Act seeks to remedy in the sections referred to in these reasons.
I have considered the comparable rentals identified by both parties and discussed in these reasons, the fact that it is about 15 months since the last rent increase, and the impact on any tenant of increases in rent, and determined that a rental increase to more than $460.00 per week is excessive.
An increase of rental rate of $35.00 per week is an increase of about 8%, meaning the applicant has had increases in rent of about 15% in two and a half years. Such an increase is just.
In summary, an increase in rental payable in relation to the premises of $35.00 per week or about 8% is just and is allowed and Orders will be made accordingly.
………………………………..
Senior Member S Lancken
| Date of hearing: | 17 January 2024 |
| Solicitor for the Applicant: | Mr B Stefaniak |
| Solicitor for the Respondent: | Ms Phan |
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