In late October last year, a Dunedin landlord was told by the Tenancy Tribunal that he needed to refund $10,000 in rent to a tenant, because part of the property she rented did not have building consent. The decision was a shock – and not only to the landlord affected, but also to tenants and property investors across New Zealand. For around six weeks, landlords discussed the possible implications: how much rent might need to be refunded and to how many tenants, for how much unconsented work? Tenants were busy requesting council files to find out whether they had an opportunity to claim back their rent – and several of those cases are still working their way through the Tribunal.

Then in mid-November, the decision was overturned by the District Court; the tenant was ordered to return the money and the Tenancy Tribunal was ruled to have incorrectly determined that the tenancy was unlawful. Even so, the case shone a spotlight on the fraught landlordtenant relations in New Zealand and on the risks of unconsented building work in rental properties.

It’s impossible to know how many rental properties in New Zealand include some unconsented building work, but former tenancy mediator Brian Kerr estimates it could be as high as 30%. He says the idea that 30% of landlords should have to hand tenants their money back is “patently stupid. It needs to be dealt with.” The question of whether a property is suitable to be rented doesn’t hinge on a piece of official paperwork, he asserts. Kerr sees a parallel with the situation in post-quake Christchurch, where tenants were still held accountable for 50% or 60% of rents on fixed-term tenancies even when the power and water was cut off.

Landlord Impact

So, if the property is perfectly suitable to live in, even without a Building Consent, why does a landlord need to sort out unconsented work? There are plenty of reasons. First, unconsented work may not fulfil your responsibilities under the Residential Tenancies Act (RTA). Second, it will severely impact your ability to sell your property, at least partly because both insurers and lenders may shy away from it. Third, your local council will require you to fix it if they find out. How would they find out? Your tenants might tell them.

The tenant in the case above had allegedly already been causing problems, and this is a common feature when it comes to complaints about building work, says Richard Middleton, director at The Property Law Centre: “Usually there’s been a dispute which has stemmed from something else and the tenant’s got the property file and investigated the property. They’ve found something not quite right and tried to hold the landlord to ransom. Often a tenant who doesn’t like the owner will report unconsented work to the council.”

Then you may find yourself having to deal with a tenancy dispute at the Tribunal at the same time as the council starts asking you serious questions. A landlord’s responsibilities under the RTA include making sure you comply with the Building Act and Building Code, as well as having any resource consents required, explains Steve Watson, National Manager, Tenancy Compliance and Investigations at MBIE. When a tenant discovers their rental doesn’t comply with the law, they should start by talking to their landlord. If that fails, the dispute resolution process can start, and the tenant can apply to the Tenancy Tribunal.

“Such an application could seek a ‘work order’, which requires the landlord to remedy the breach,” Watson says in a written statement. “The application could also seek an order for ‘exemplary damages’ – a monetary sum awarded to the tenant, should it be deemed the landlord has committed an unlawful act intentionally. The tenant could also request ‘compensation’ which can include seeking an order refunding part or all of the rent paid, if the tenant is able to demonstrate they have suffered a loss as a result of the breach. The tenant could seek an order terminating the tenancy agreement.”

Middleton says he’s worked with landlords who are in this situation – having to deal with both the council and a compensation claim through the Tenancy Tribunal – and it can be very stressful. He has seen several cases involving unconsented building work, and while none have resulted in a rent refund, they can cause serious problems at sale time: “In one case the owner received a notice from the council about unconsented work on the morning of an auction, which caused the auction to fall through.” He also points out that both lenders and insurers are hesitant about unconsented work, which can make buyers think twice. And you’re likely to strike problems making an insurance claim if the insurance company finds out that it involves unconsented building work that they didn’t know about.

What You Need To Know

Ideally, you want to deal with unconsented building work when you buy a property. Part of your due diligence should be looking at the LIM, but it’s also important to get legal advice to check that the property matches up to what the local council has on file. Robert Wright, Head of Building Consents at Christchurch City Council, says that without legal counsel it’s tricky to know what you’re looking for: “A LIM should tell you what a local authority knows about the property, but it doesn’t tell you what the authority doesn’t know - and the irony is that that’s the bit you’re trying to match up.”

You can use unconsented work as a negotiating tool when buying, but once you own a property with unconsented work you’re well-advised to get the issue sorted out. You’ll need to find out what the process is with the local council and usually that means applying for a Certificate of Acceptance, which is a way to reconcile what’s been done with what’s on file.

❝Landlords need to have it all nailed down. Get all the boxes checked❞ Brian Kerr

“It’s not a cheap process to go through and your success will depend on the type of work,” says Wright. He points out that the council needs to be satisfied that work is up to Code and the burden of proof is on the owner. Walls may need to be opened up, expert reports commissioned and a change of use may need to be submitted. Would the council force an owner to tear down unconsented work? He says councils have pursued that course of action before, but it generally only happens when the work is dangerous or unsanitary in some way. If you’re keen to get your unconsented work dealt with by the council, Wright says a cooperative attitude will go a long way:

❝In one case the owner received a notice from the council about unconsented work on the morning of an auction, which caused the auction to fall through ❞ Richard Middleton

“If the party [property owner] arrives ready and willing, the council generally won’t go down other avenues available to them, like an infringement notice or ultimately prosecution.”

The message here is that converting your garage to a rental unit without a building consent may seem like a great way to save time and money, but the risks far outweigh the savings. With all the pressure that’s coming to bear on landlords at the moment, this is the time to square any unconsented work with your council. Ensure there’s nothing in your property file that your tenant could use as leverage against you.

“I do know of a lot of landlords with properties that wouldn’t comply with all the codes,” says Kerr. “At the moment we are apparently safe because of the District Court decision – that judge got it bang on; the original decision was stupid. But there may be another one that pops up. Landlords need to have it all nailed down. Get all the boxes checked.”