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Failure to lodge bond is no joke

Tuesday, December 12, 2017

CREDIT: Rent.com.au

54 Tribunal orders amounting to $38,713.76 in exemplary damages and costs against an Invercargill landlord are reasons enough for all of us refresh our understanding of landlords’ bond duties.
 
After an exhaustive investigation by the Tenancy Compliance and Investigations Team, the Chief Executive of the Ministry of Business Innovation and Employment brought 54 Tribunal applications against one Murray Baird, sole director of Strathvale Investments Limited for failure to lodge bond monies from 54 separate tenancies. In September, the Tribunal heard all 54 applications and found there to be a persistent breach of the Residential Tenancies Act (concerning bond lodgement) by Mr. Baird. The repetitive and persistent nature of the breach gave little to no mitigating consideration, and the Tribunal was unapologetic for the harsh order it handed down.
 
The law
The Residential Tenancies' Act outlines landlords' duties with respect to the handling of bond monies received:
A landlord must lodge the bond with the Bond Centre within 23 working days of payment (section 19). Failure to so was an unlawful act (section 19(2)) for which a penalty (i.e. exemplary damage) of up to $1,000.00 (schedule 1A) could be awarded to the tenant if the landlord did this intentionally, and it was fair to order exemplary damages, having regard to (a) the landlord’s intent in doing the unlawful act, (b) the effect of the unlawful act; (c) the interests of the tenant, and (d) the public interest (section 109(3)).
 
Note the two elements of breach and consequence. Establishing an s19 breach is fairly straightforward. A simple report from the Bond Centre will give an unequivocal account of whether the landlord lodged the bond within 23 days. There is not a lot of wiggle room to dispute otherwise.
 
Most s19 orders concern the how much exemplary damage is appropriate to award. As you can see above, there are four components to awarding exemplary damages the Tribunal must consider:
  1. the landlord’s intention to commit the unlawful act;
  2. the effect of the unlawful act;
  3. the impact the unlawful act on the tenant’s interest; and
  4. the impact the unlawful act has on the public’s interest.
 
Typically adjudicators rely on similar arguments to dispense with the final three so much so that they are almost procedural at this point:
  • The effect of the unlawful act - That by not lodging the bond the landlord deprives the Bond Centre of its income potential;
  • The interests of the tenant - That it is stress inducing for a tenant, during a tenancy dispute, to discover that the Bond Centre cannot be relied on as a safety net for it does not hold the tenant’s bond;
  • The public interest - The fact that in 2010, Parliament increased the maximum penalty for failure to lodge the bond from $750 to $1000 gives weight to the argument that there is a strong public interest for the Bond Centre to operate as a repository of funds to, at least partially, ensure the solvency of parties to the dispute.
 
That leaves the intention of the landlord which largely determines the quantum of penalty.
 
How recent cases are decided
Recent case history would suggest that the Tribunal is not prepared to entertain arguments of oversight, faulty memory, and general unsophistication/inexperience:
  • In Rolleston v Prime Rentals Limited [2017] NZTT Tauranga 4101072 the adjudicator considered ‘administrative oversight’ as a weak argument for a property management firm to make. Combined with a previous separate breach, in the same manner, the Tribunal awards $750 in exemplary damage for failure to lodge the bond.
  • In Innis v Matthews [2017] NZTT Dunedin 4094159 the landlord argued that he had simply forgotten to lodge the $290 bond received. The adjudicator is unimpressed by the evasive nature of his evidence and awarded $500 in exemplary damage (note quantum of damage against that of the bond). Similarly in Tomkinson-Winterburn v McKinney [2017] NZTT Dunedin 4093129, the landlord is unsuccessful with her faulty memory argument. She is fined $333.
  • In Chen v Tang [2017] NZTT North Shore 4079620 a $400 exemplary damage is awarded against the landlord for failure to lodge the bond. The adjudicator concludes the failure to be intentional as not only did Ms. Tang miss the 23-day lodgement deadline; she had still not lodged the bond by the time the tenant amended her original claim before the hearing.
  • There is also suggestion in Wolrich v Bhula [2017] NZTT Wellington 4098145 that the Tribunal will have little tolerance for a landlord to argue her inexperience for failure to lodge bond. “It can be easy for a landlord to claim that failure to lodge the bond was an oversight or that, in the case of an inexperienced landlord, he did not know of his obligations. However, as I have already noted ignorance of the law does not entirely mitigate the breach. In this case, payment of the bond into the landlord's bank account should have been noticed promptly and dealt with, just as payment of rent into that account was no doubt identified. “
 
As you can see from these recent cases, the Tribunal has little tolerance for tardy landlord practices concerning the handling of tenancy bonds. Post-Strathvale, there is no reason to assume that s19 is too inconsequential for the Tenancy Compliance and Investigations Team to investigate.

 

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