Exclusive Estates Limited v Hoffman

[2023] NZHC 1878

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2023-404-000326

[2023] NZHC 1878

IN THE MATTER

Of the Residential Tenancies Act 1986

AND

IN THE MATTER OF

an appeal against a decision of the District Court pursuant to s 119 of the Residential Tenancies Act 1986

BETWEEN

EXCLUSIVE ESTATES LIMITED

Appellant

AND

SONIA MCKELLER HOFFMAN

Respondent

Hearing:	28 June 2023 and 5 July 2023
Appearances:	J Mackie for Appellant Respondent in person
Judgment:	19 July 2023

JUDGMENT OF LANG J

[on appeal on a question of law]

This judgment was delivered by Justice Lang On 19 July 2023 at 11.00 am

Pursuant to r 11.5 of the High Court Rules Registrar/Deputy Registrar

Date:…………………………

Solicitor/counsel:

Urlich Milne Lawyers/J Mackie, Barrister, Auckland

Copy to:
The Respondent, S M Hoffman

EXCLUSIVE ESTATES LTD v HOFFMAN [2023] NZHC 1878 [19 July 2023]

[1]    The present appeal is the latest chapter in a long running dispute between the owner and former tenant of a residential property in Orewa. The dispute has taken many forms, but for present purposes it relates to a finding by the Tenancy Tribunal (the Tribunal) that the owner of the property, Exclusive Estates Ltd (EEL), breached s 78A of the Residential Tenancies Act 1986 (RTA) when it rented the property to the respondent, Ms Hoffman, in circumstances where it was unlawful for Ms Hoffman (or any other person) to live in the property.1     The Tribunal ordered EEL to refund     25 per cent of the rental it had received from Ms Hoffman.

[2]    EEL did not appeal against the Tribunal’s decision. Rather, it applied to the Tribunal for a re-hearing under s 105(1) of the RTA. This provides the Tribunal with the power to order a re-hearing where a substantial wrong or miscarriage of justice has or may have occurred or is likely to occur. The Tribunal dismissed the application in a decision delivered on 20 October 2021.2

[3]    EEL appealed to the District Court against the Tribunal’s decision refusing to grant it a re-hearing.3 In a decision delivered on 19 January 2023, Judge D J Clark upheld the Tribunal’s conclusion that EEL had breached s 78A of the RTA by permitting Ms Hoffman to reside in the property.4 However, he allowed the appeal in part by reducing the amount of rental that should be refunded to Ms Hoffman to the sum of $1,500.5

[4]    EEL now appeals against the Judge’s decision on a question of law.6 Therefore, this appeal is limited to whether the Judge misinterpreted and/or misapplied s 78A of the RTA.7 Ms Hoffman opposes the appeal.

1      Hoffman v Exclusive Estates Ltd [2021] NZTT North Shore 4301149, 4306243.

2      Hoffman v Exclusive estates Ltd [2021] NZTT North Shore 4301149, 4306243.

3      Pursuant to Residential Tenancies Act 1986, s 117.

4      Exclusive Estates Ltd v Hoffman [2022] NZDC 25495.

5 At [79].

6      Pursuant to Residential Tenancies Act, s 119.

7      See Anderson v FM Custodians Ltd [2013] NZHC 2423, (2013) 15 NZCPR 123 at [32], citing Vodafone New Zealand Ltd v Telecom New Zealand Ltd [2011] NZSC 138, [2012] 3 NZLR 153 at [50].

Background

[5]    The property that forms the subject of the dispute is a two-storey dwelling. EEL rented the ground floor of the building to Ms Hoffman and rented the upstairs unit to five other persons unconnected either with EEL or Ms Hoffman.

[6]    Issues arose between EEL and Ms Hoffman regarding a variety of matters. One of these related to the fact that there was no separate electricity meter for the two areas that had been rented to separate tenants. This meant it was necessary for EEL to apportion the amount payable by the occupants of each unit. Ms Hoffman considered this to be unfair because there were only two occupants in her address whereas five persons were living in the floor above. She did not consider EEL’s approach, which was to require Ms Hoffman to pay two-sevenths of the electricity bills, to be just and equitable. Many  other  issues  also  arose,  including  difficulties  encountered  by Ms Hoffman in obtaining access to the internet and issues arising out of the fact that the two units did not have separate postal addresses.

[7]    Ms Hoffman eventually filed a claim for compensation with the Tribunal. Her claim encompassed numerous grievances. The only issue of relevance for present purposes is Ms Hoffman’s claim that EEL breached s 78A of the RTA by renting the unit to her in circumstances where it was unlawful for her to live in the unit. She contended that it was not lawful for EEL to rent the lower unit out when it also rented out the upper unit to persons unconnected with EEL.

The Tribunal’s decisions

[8]The Tribunal dealt with this issue in its substantive decision as follows:8

73.It is important to note that in terms of s.78A, the question is not the use of the premises for residential purposes per se that is relevant, but whether they can “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)”.

74.Here, there is no doubt that the premises can lawfully be occupied for residential purposes but the question is whether they can lawfully be occupied [as they were here] by a household unit independent of

8      Hoffman v Exclusive Estates Ltd, above n 1.

occupation of the principal residence by another quite separate household unit.

75.My finding is they cannot.

76.The landlord’s acknowledgement that there is no separate address for the premises is a key indicator that it is not intended, or suitably able to be used, as the residence for a separate household. That applies as well to the lack of some separate council services.

77.The Council Plan makes provision for the conversion of a principal dwelling, existing as at 30 September 2013, into a maximum of 2 dwellings. Other than that, and minor dwellings, more than one dwelling per site is not permitted.

78.It follows that in the Plan there is a fundamental distinction between a “dwelling” and a “minor dwelling”. That distinction must be that a minor dwelling is limited in size and to be “secondary” to the “primary” dwelling.

79.The context of the premises being occupied in conjunction with the primary dwelling would make the premises suitable for residential occupation without a separate address and with some shared services

– which would be unsuitable for a household entirely separate from the household occupying the primary dwelling.

80.I find that in creating separate residential tenancies, for what the consented use only allows as principal and secondary occupation, the landlord has created a tenancy of unlawful residential premises in terms of s.78A.

81.I find that the landlord was of the genuine and perhaps understandable belief that having a code compliance certificate issued for the premises it was entitled to rent them out. I therefore find no intentional breach by the landlord of its obligations under s.45(1)(c) and no exemplary damages are awarded to that breach.

[9]    The Tribunal also noted that the present situation did not involve the renting of unconsented, non-compliant and unsafe premises to Ms Hoffman. Section 78A had been introduced to deal with issues of that type. Ms Hoffman acknowledged that, for the most part, the premises were perfectly adequate for use as residential accommodation. Her problems arose out of the unsuitability of the address for rental to two separate households. The Tribunal therefore directed that Ms Hoffman was to receive a refund of 25 per cent of the rental she had paid to EEL.

[10]   EEL applied for a rehearing on numerous grounds, including alleged error on the part of the Tribunal in determining the s 78A issue. The Tribunal declined to grant a rehearing on any of the grounds advanced by EEL. It relied on the reasoning contained in its substantive decision to reject EEL’s assertion that it had erroneously upheld Ms Hoffman’s claim under s 78A.

The appeal to the District Court

[11]   EEL’s appeal to the District Court involved a wide variety of issues, including the findings made by the Tribunal in relation to the alleged breach of s 78A. The Judge accepted that EEL had obtained the appropriate resource and building consents to enable it to build two separate units in the same dwelling at the address. EEL had also obtained the appropriate code compliance certificate once the two units had been completed.

[12]   The unit occupied by Ms Hoffman was built and consented as a “Minor Household Unit” (MHU) under the then operative Auckland Council District Plan (Rodney Section) (ACDP). The ACDP defined MHU and “Household Unit” as follows:

Minor Household Unit means a HOUSEHOLD Unit with a maximum GROSS FLOOR AREA OF 65m² that is secondary to a PRINCIPAL HOUSEHOLD UNIT already established on the same certificate of title:

The MINOR HOUSEHOLD UNIT shall be subject to the same rules as a HOUSEHOLD UNIT unless otherwise specified.

Household Unit means a room or rooms used or intended for habitation by one independent HOUSEHOLD, and which in each one contains one set of dishwashing facilities (including a combination of a kitchen sink [including double sinks] and dishwasher including pairs of dish drawer type dishwashers) in the same kitchen, and includes any dwelling house, flat, home unit or townhouse. (See also SINGLE HOUSEHOLD UNIT and Multiple HOUSEHOLD UNIT.)…

[13]   The Judge noted that, although EEL had obtained the appropriate building and resource consents, it still needed to comply with the statutory and regulatory regime governing the “use” of residential properties.9 By the time the matter came before the

9 At [59].

Tribunal and the District Court, the Auckland Unitary Plan (AUP) had been promulgated but it had not been operative when the two units were built. This was why EEL had been required to obtain a resource consent to construct the two units.

[14]The essence of the Judge’s decision is contained in the following paragraphs:

[63] It is common ground a code compliance certificate was granted for the premises. Accordingly, there is no breach [of] s 40 of the Building Act. What the Tribunal determined however was because only one dwelling per site was allowed under H3.6.4 of the AUP (which included the minor dwelling), a minor dwelling could not be used as a separate premise to be rented independently of the primary (upstairs dwelling).

[64]      H3.6.4 of the AUP provides the construction of a minor dwelling is a permitted activity. However, H3 of the AUP relates to residential homes in a Single House Zone. Within this zone minor dwellings are permitted as of right to allow “the opportunity for additional “secondary” housing of a smaller scale in zones which are otherwise not anticipating more than one dwelling per site. This is provided for through the minor dwelling provisions.” What the AUP is attempting to prevent are second dwellings (which are not minor dwellings) being developed as opposed to secondary dwellings (minor dwellings) which will be a controlled development on an incremental basis.

[65] For EEL to separately rent out the minor dwelling as a second dwelling it needed to obtain permission from Council changing the use from what is known as a “SH” (Sleeping Single Home) to a “SR” (Sleeping Residential). A change of use is required by ss 114 and 115 of the Building Act, the relevant parts of both sections stating:

114 Owner must give notice of change of use, extension of life, or subdivision of buildings

(1)In this section and section 115, change the use, in relation to a building, means to change the use of the building in a manner described in the regulations.

(2)An owner of a building must give written notice to the territorial authority if the owner proposes—

(a)to change the use of a building; or

(b)to extend the life of a building that has a specified intended life; or

(c)to subdivide land in a manner that affects a building.

[…]

115      Code compliance requirements: change of use

An owner of a building must not change the use of the building,—

(a)in a case where the change involves the incorporation in the building of [1] or more household units where household units did not exist before, unless the territorial authority gives the owner written notice that the territorial authority is satisfied, on reasonable grounds, that the building, in its new use, will comply, as nearly as is reasonably practicable, with the building code in all respects...

[66]      Regulations 5 and 6 of the Buildings (Specified Systems, Change the Use, and Earthquake-prone Buildings) Regulations 2005 state as follows:

(a)Change the use: what it means

For the purposes of sections 114 and 115 of the Act, change the use, in relation to a building, means to change the use (determined in accordance with regulation 6) of all or a part of the building from one use (the old use) to another (the new use) and with the result that the requirements for compliance with the building code in relation to the new use are additional to, or more onerous than, the requirements for compliance with the building code in relation to the old use.

(b)Uses of buildings for purposes of regulation 5

(1)For the purposes of regulation 5, every building or part of a building has a use specified in the table in Schedule 2.

(2)A building or part of a building has a use in column 1 of the table if (taking into account the primary group for whom it was constructed, and no other users of the building or part) the building or part is only or mainly a space, or it is a dwelling, of the kind described opposite that use in column 2 of the table.

Schedule 2 [to the Regulations] provides the definitions and examples for both SH and SR as follows:

SR (Sleeping Residential)	[a]ttached and multi-unit residential dwellings, including household units attached to spaces or dwellings with the same or other uses, such as caretakers’ flats, and residential accommodation above a shop	[m]ulti- unit dwellings, flats       or apartments
SH (Sleeping Single Home)	[d]etached dwellings where people live as a single household or family, including attached self- contained spaces such as granny flats when occupied by a member of the same family, and garages (whether detached or part of the same building) if primarily for storage of the occupants’ vehicles, tools, and garden implements.	[d]wellings or houses separated from each other by distance

[68] Finally, as to what constitutes a “household unit” the definition is found in the Building Act which states:

Household unit—

(a)means a building or group of buildings, or part of a building or group of buildings, that is—

(i)used, or intended to be used, only or mainly for residential purposes; and

(ii)occupied, or intended to be occupied, exclusively as the home or residence of not more than 1 household; but

(b)does not include a hostel, boarding house, or other specialised accommodation

[69]      In summary then, the premises were unlawful premises because they could not be “lawfully occupied” under s78A(2)(a) and (b). This is because as a “household unit” in a single house zone the premises needed to be exclusively occupied as the home or residence of one household. In this instance there were two independent tenancies.

[70] It was open for EEL to request a change of use under ss 114 and 115 of the Building Act. It failed to do this, assuming it was entitled to rent the minor dwelling as an independent residence because it had complied with the resource and building consent regime to construct the premises. It needed however to comply with the [remaining] statutory and regulatory obligations

regarding use of the premises imposed by the AUP, the Building Act and the Buildings (Specified Systems, Change the Use, and Earthquake-prone Buildings Regulations).

[71] EEL’s arguments which attempted to establish the minor dwelling was an independent household unit (based on the separate utilities) were misconstrued from the outset. Even if it was able to establish the premises were totally independent on a physical basis, it never complied with its remaining statutory and regulatory obligations under the Building Act, regulations and AUP.

(Footnotes omitted and emphasis added)

[15]   The Judge differed from the Tribunal on the level of rent refund Ms Hoffman should receive to reflect the fact that she had been forced to reside in a unit that EEL allowed her to occupy unlawfully. The Judge reduced the rebate from 25 per cent of rental paid to the sum of $1,500. In monetary terms the present appeal relates to that award.

The appeal

[16] On EEL’s behalf Mr Mackie contends the Judge erred in law in the way he approached the issues referred to at [69] to [71] of his decision. He points out that there has been no change in use of the dwelling since the upper and lower units were constructed. EEL always intended to construct two separate dwellings and the consents and code compliance certificate reflect this fact. Mr Mackie therefore contends there has never been any change of use and ss 114 and 115 of the Building Act were never engaged. Further, Mr Mackie submits that the building and resource consents necessarily reflect the Council’s acceptance of the lawfulness of the dwelling from a zoning and planning perspective. He submits there was no evidential basis for the Judge to conclude that EEL permitted Ms Hoffman to reside in the lower unit unlawfully.

Decision

[17] As the Judge found, the construction of the two units did not breach s 40 of the Building Act 2004. It follows that the units were constructed in accordance with the building code and the building and resource consents granted by the Council. The code compliance certificate provides confirmation that this occurred. This means that

the only way in which it could be unlawful for EEL to permit Ms Hoffman to live in the unit would be for her occupation of the unit to breach some other form of regulatory restriction.

[18]   As the Judge observed, the dwelling was situated in the Single House Zone. This meant it was not lawful for more than one household unit to be located on a section. However, MHU’s were an exception to this restriction. Such units were a permitted activity but could not exceed 65 square metres in size. They were also to be secondary to a principal household unit on the same section. In the present case the lower unit must obviously have been no more than 65 square meters in size or the Council would not have permitted it to be built. The existence of the larger upper unit meant that the requirement for a primary household unit on the same site was also satisfied. There can be no challenge to the Council’s conclusion that EEL was entitled to construct two self-contained units within the dwelling.

[19] Ms Hoffman relies on advice she says was given to her in an email from the Council for her claim that EEL needed to occupy the upper level itself and that it was not lawful for it to rent the two units to separate tenants. However, this advice is not supported by any legislative or regulatory authority. Apart from the requirement as to size the only other criterion for an MHU was that it be “secondary” to a principal household unit. There is nothing in the Building Act or in any regulations to require the occupants of an MHU to be linked or connected in any way with those of the principal household unit. Rather, the definition of “household unit” in the ACDP (Rodney Region)10 confirms that it comprises a room or set of rooms intended for habitation by an independent household.

[20]   I therefore consider there was no  lawful  impediment  to  EEL  permitting Ms Hoffman to reside in the lower unit.

[21] I also accept Mr Mackie’s submission that ss 114 and 115 of the Building Act were never engaged. The dwelling was always to be used as two separate units, and this was known to the Council from the time it issued building and resource consents. EEL effectively gave the Council notice of the proposed use of the dwelling for this

10 Set out above at [12].

purpose when it applied for and obtained those consents. Thereafter the use of the dwelling never changed. Furthermore, the dwelling already fell within the definition of an SR in the schedule to the Regulations because it was a multi-unit dwelling.

[22]   It follows that I am satisfied the Judge erred in law in concluding that EEL breached s 78A of the RTA. This means that Ms Hoffman was not entitled to any refund of the rental that she paid whilst occupying the lower unit.

Result

[23]   The appeal is allowed. The order directing that Ms Hoffman be refunded rental in the sum of $1,500 is set aside.

Costs

[24]   EEL is entitled to costs as the successful party. If these cannot be agreed the parties have leave to file concise memoranda and I will fix costs on the papers.

Lang J