Reasonable compensation for early termination

Concerning Hood, Angela Julie vs First National Marlborough Limited [2019] NZTT Blenheim 4180394

The issue

What can a landlord reasonably recover from a tenant for terminating a fixed-term tenancy early?

The facts

– The fixed-term tenancy between the two parties was reduced and terminated early at an earlier hearing by an interim order (presumably under s66(1) of
the RTA).

– The landlord submitted final rent arrears ($114.29) and actual costs incurred by the early termination including the following:

– costs relating to vacating procedures

– new tenancy costs covering advertising, open home and showing costs as well as costs relating to new tenant processing

– administrative cost ($115)

– cost for keeping the landlord client informed ($57.50)

– methamphetamine testing

The law

When the Tribunal exercises its s66(1) power by ordering a fixed-term tenancy to terminate early, it may also order the original applicant for the termination
to pay a ‘reasonable compensation’ to the other party to make right ‘any loss or damage’ as a result of the reduction of the original tenancy term
(see section 66(2)).

Outcome

The adjudicator considers what is ‘reasonable’ under s66(2) and grants the following:

– The full amount of rent arrears incurred (and properly documented)

– The full amount claimed for vacating procedures, advertising, open home and showing costs and new tenant processing

– Half of the claimed cost for administration given that the above compensation covers necessary administrative components

and declines to award the following ‘unreasonable’ costs:

– Cost for keeping the landlord client informed (That even if the claim is ‘reasonable’, the work would have been brief and not sufficient to justify the
cost claimed.)

– Methamphetamine testing (The adjudicator is not satisfied that there are reasonable grounds for the landlord to assign the cost to the tenant. In any
event, the test came back negative anyway.)

Related article: What is ‘reasonable’ post letting fee?

Observation and take-homes for landlords

– Claims for compensation must be well documented (invoices, receipts etc) and well-reasoned in the application.

– Additional administrative costs should be clearly delineated from other standard procedures for tenancy turnover.

– Use a task-based approach to itemising various costs and avoid breaking each task down into separate components. For example, claim for advertising as
one cost rather than claiming advertising + photography + listing + administration.