Rent increase after substantial work: not a case of $1-in-$1-out

From time to time, investors almost flippantly assume that any expenses incurred improving the property can be directly recouped from the tenant by way
of rent increase on a $1-in-$1-out basis. Monarch Realty Ltd v Alchin-Boller [2020] NZTT Hamilton 4277248 is a reminder that this is not the case. At least not quite. 

 

Facts

• The landlord sought the tenant’s consent to increase the rent from $255 to $320 (>25%) after spending $14,000 upgrading the property to provide:
  • replacement stove
  • new kitchen cabinets and larger splashback
  • replacement kitchen venting fan (original rangehood had no external vent)
  • repaint kitchen
  • install bathroom extractor fan (no existing fan)
  • install heat pump in living area (no existing heating)
• It is the landlord’s view that the work had increased the value and benefit to the tenant making it eligible for an s28(1)(a) increase; 
• The tenant consented to the work but did not consent to the increase; and
• The landlord applied to the Tribunal under s28(2) for an order to increase rent to $320 per week. 

 

The law

s28(1)(a) sets out the parameters within which parties
can agree to a rent increase after substantial improvements have been made to the property. The subsection states:

(1) The landlord and the tenant may agree to increase the rent if the landlord has, with the consent of the tenant,—

(a) made substantial improvements to the premises (not being general or necessary repairs) that increase the value of the premises and constitute a material benefit to the tenant

The adjudicator notes the following salient features: 

• substantial improvements are not the same as general or necessary repairs;
• the tenant must consent to the...