If your tenants sublease your rental without consent you may be able to claim the profits
In potentially the first claim of its type in New Zealand, in Nice Place Property Management Limited v Paterson we recently, successfully sought an account of profits from a tenant who subleased our client’s property on Airbnb without the landlords’ consent, in breach of the tenancy agreement.
The facts of the case are fairly simple, and we anticipate quite common. The tenant had leased our clients’ property under a general residential tenancy, which included an express prohibition on subletting the property, including via Airbnb and similar. Despite that, the tenant listed and let the premises via Airbnb on at least 55 occasions over the course of 6 months. In addition, the tenant had installed a deadbolt and missed rental payments. To learn about what a residential tenancy involves read our article here.
After being exposed, the tenant stopped paying rent and abandoned the tenancy.
The claim and remedies sought
The claim before the Tenancy Tribunal was straightforward in terms of recovering the missed rental payments and remediating the damage caused by the deadlock installation.
However, the Residential Tenancies Act does not specifically provide for a landlord’s recovery of profits earned by a tenant through illegal subletting. We, therefore, sought an equitable remedy called an “account of profits”. An account of profits usually applies where a party who has breached their duties or obligations to another has profited from their wrongs and allows the wronged party to recover the profits. In Nice Place Property Management Limited v Paterson, the tenant earned a profit through his illegal Airbnb letting. In doing so, the property suffered from accelerated wear and tear and it had implications on the landlord’s insurance of the property. Accordingly, it was found that the landlord could recover the profits of the activity.
An order for an Account of Profits in the Tenancy Tribunal is very rare, if not, something that has not previously been awarded. This case now sets a precedent recording that there is a legal basis for seeking that the profits be paid to an aggrieved landlord where a tenant sublets the property.
This adds another layer of protection to landlords where activities such as subletting are becoming much easier for tenants.
If you find yourself in a similar position it is important to be fully informed about all the remedies available and we recommend you obtain legal advice from our experienced team.