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McConnell, Rachel --- "Maintaining the balance: the scope and purpose of hardship under section 55B of the Residential Tenancies Act 1986" [2023] NZLawStuJl 3; (2023) 4 NZLSJ 1

Last Updated: 7 April 2024

Maintaining the Balance: The Scope and Purpose of Hardship under Section 55B of the Residential Tenancies Act 1986

RACHEL MCCONNELL[*]

I Introduction

Housing is a political and contentious issue in New Zealand. In 2020, Parliament passed amendments to the Residential Tenancies Act 1986 with the primary objective of improving security of tenure for tenants.^[1] These new tenure-securing amendments included prohibiting no cause terminations except on specified grounds and converting all fixed-term tenancies to periodic tenancies upon expiry. Landlords and the Opposition criticised the amendments as tipping the balance too far in tenants’ favour.^[2] Many amendments were labelled “anti-landlord” and speculation around the Bill’s consequences were rife.^[3] The Opposition consistently voted against the amendments on the basis that landlords would not be able to get rid of problematic tenants.^[4]
This give and take was noted by Cabinet’s Social Wellbeing Committee who stated in return for the improvements to security of tenure there would be protections in place for fairness in protecting landlord interests.^[5] Thus, amendments were also made to increase the grounds for tenancy termination by landlords in certain circumstances. Most of these grounds have tightly prescribed criteria, with the exception of s 55B, which allows landlords to apply to the Tenancy Tribunal to terminate a tenancy on the basis that they would suffer hardship should the tenancy continue. Section 55B therefore grants a high level of discretion to adjudicators to determine fairness. This provision seems to be an attempt to address landlord concerns, but limited commentary on the rationale for the provision during the legislative process means some inference is required in determining how the provision is intended to operate. That is where s 66(1), a pre-existing hardship provision to end fixed term tenancies early, becomes important for ascertaining the context and scope of s 55B.

II Hardship provisions in the Residential Tenancies Act 1986

Sections 55B and 66(1) allow terminations of tenancies on the grounds of hardship.^[6] Section 66(1) allows applications by both landlord and tenant, but only in relation to fixed-term tenancies. The applicant must demonstrate that “severe hardship” will result if the tenancy was not reduced and that their hardship “would be greater than the hardship which the other party to the tenancy would suffer”.^[7] By contrast, s 55B is limited to a landlord’s application for termination of periodic tenancies on the grounds of hardship. Under this provision, the landlord must only demonstrate hardship simpliciter, but must also demonstrate that the hardship would be greater than that of the tenant and thus that it “would be unreasonable to require the landlord to continue the tenancy”.^[8] Thus, while the provisions differ in wording and the circumstances in which they apply, they are generally similar in what they allow the adjudicator to do. By balancing respective hardships, the provisions provide a greater level of discretion to adjudicators than other provisions in the Act.
Theoretically, the pre-existing s 66(1) could have been extended to cover both periodic and fixed-term tenancies. However, the briefing report suggests the provision’s drafters deliberately chose to have two separate provisions for two primary reasons. First, fixed-term and periodic tenancies are conceptually distinct: namely, under the former the parties intend and agree to be bound for a set period, whereas under the latter they agree to the status quo indefinitely.^[9] Second, extending s 66(1) would have meant tenants also having the option of pleading hardship under a periodic tenancy, and it was felt that this was not needed.^[10] This latter point is discussed further below.

III How do hardship provisions work?

There are generally two steps to considering hardship in both ss 55B and 66(1). First, there is a factual assessment, with the onus being on the applicant to provide evidence of hardship.^[11] Second, this factual assessment is followed by a discretionary exercise which balances the respective hardships of each party and finds in favour of the party whose hardship is deemed greatest. It is implicit that the respondent must also provide some form of evidence of their own hardship even if the burden rests on the applicant. Since 2020, only six applications have been made under s 55B.^[12] This means s 66(1) provides the most guidance on what constitutes hardship for the purposes of the Act and how this hardship-balancing exercise operates.^[13]
Hardship is not defined in the Act. This allows the concept to be given greater scope of coverage without being exhaustive or overly specific. Some adjudicators refer to the Oxford English Dictionary definition of “hardship” in making their determinations, but generally hardship is accepted as a factual determination.^[14] Previous Tribunal orders have treated tenant hardship as covering habitation issues such as physical safety,^[15] serious maintenance issues,^[16] impacts to health from dissatisfactory living conditions,^[17] development of illness,^[18] and even impacts from COVID-19.^[19] These factors invariably link to financial hardship, such as the burden of paying double rent if a house is not fit to live in. Landlord hardship is generally financial hardship: the cost of absorbing the remaining rent left on the tenancy in terms of s 66(1). It may be assumed that s 55B is also designed for preventing financial hardship to the landlord, but the one successful case under s 55B discussed below, in which the Tribunal found the hardship was the risk to the landlord’s safety, suggests landlord hardship can be much wider.^[20] What this means is there are no specific limitations applied by the Tribunal as to what qualifies as hardship. A generous definition prevails because the heavy lifting is done by the second step—the balancing exercise.
This balancing exercise looks at the respective hardships of each party and is noted for its “significant” discretion.^[21] However, it is also highly contextual. In a s 66(1) context, for example, the ability to re-let a house quickly may balance in favour of the tenant, but this may only be a relevant factor in a buoyant market or in an urban environment.^[22] Contextual factors make it hard to discern particular patterns, but there appear to be certain factors that weigh in favour of the tenant, notably if the tenant would otherwise be rendered homeless,^[23] or if children live in the tenanted premises and would be adversely affected by termination.^[24] The inability to rectify issues, such as the time it may take to rectify any deficiency in the tenanted address, may also weigh towards hardship being found in favour of a tenant.^[25] This consideration is more relevant in the s 66(1) context where the tenancy is of fixed duration and thus harder for the tenant to leave.
These examples illustrate the weighing of different kinds of hardship, often mental or physical hardship, as against the landlord’s financial hardship. One adjudicator noted that “[i]t is always difficult to assess the competing levels of hardship that may be suffered by each party and mental health and well-being versus financial health”.^[26] This is particularly difficult when financial health and wellbeing often go hand-in-hand.
In a s 55B context, the balancing exercise has been applied in a similar manner as s 66(1). In one failed case, the adjudicator found that there was no hardship on the landlord’s part, and, in any event, the tenant would suffer greater hardship from being rendered homeless and their child having to consequently unenrol from school.^[27] The other failed application also found that the consequence of potential homelessness outweighed the landlord’s hardship.^[28]
Only one landlord has succeeded in proving greater hardship than the tenant under s 55B.^[29] This appears to be a reasonably unique case where it can be inferred from the decision that the landlord lived close to the tenant. The tenant, by her own admission, conceded she had allowed “high risk” people onto the property.^[30] Either the tenant or one of those “high risk” people entered the landlord’s residence and stole from her.^[31] The tenant herself stated she no longer felt safe at the address and had left to live with family.^[32] However, the case has not provided much guidance as to how s 55B operates, as the application was unopposed by the tenant. In this case, the hardship to the landlord was greater if required to suffer the “continued presence of high risk people in very close proximity”.^[33] Unlike other cases of hardship, in this case the tenant had somewhere else to stay. Therefore, while ss 55B and 66(1) appear to operate in a similar manner, there are significant differences affecting the viability for landlords to obtain relief under s 55B. Part of that lies in the distinction between a fixed term and a periodic tenancy. Section 66 is the only avenue to terminate or reduce a fixed term tenancy for both a landlord and a tenant. But a landlord has several avenues to end a periodic tenancy under the new amendments. If there are multiple ways a landlord can end a periodic tenancy, then the purpose of s 55B becomes even less clear.

IV What was Section 55B designed to do?

There are some aspects of s 66(1) that make it appear more limiting than s 55B. For example, s 66(1) contains a gateway step in that any applicant must first demonstrate an unforeseen change in circumstance before hardship and the balancing exercise can even be considered.^[34] There is no such limitation in s 55B. Additionally, a landlord only needs to demonstrate “hardship” under s 55B versus “severe hardship” in s 66(1).
However, s 55B may be more limiting than it appears in that it seems to have an “invisible” gateway. Out of the six applications made thus far, two have been declined solely on the grounds that the landlord had other provisions open to them first.^[35] In the case of termination on the grounds of hardship due to rent arrears, the Tribunal noted the landlord still had rights under other sections.^[36] In a hardship application on the basis of damage to the property, the adjudicator refused the application noting that substantial damage has its own provision for termination—s 55(1)(b)—and therefore “an allegation of this kind is best dealt with under that provision rather than under hardship”.^[37] This suggests that adjudicators may refuse applications under s 55B if more appropriate avenues have not been exhausted. Thus, s 55B is a last resort provision, even though it is not stated as such within the Act.
Part of the reasoning underpinning this treatment of this provision by the Tribunal may link back to the initial briefing report by the Ministry for Housing and Urban Development. While the briefing report provided only a brief overview of the purpose and intended operation of s 55B, it described the provision as a “final option for landlords whose circumstances do not fit into the specified termination grounds”.^[38] But precisely what situations this might cover was unspecified, given s 55B was part of a suite of changes to the terminations section in the Act. Sections 55,^[39] 55A,^[40] 55AA,^[41] and 59^[42] provide avenues for termination by the landlord in very specific circumstances. Section 56 also allows termination for non-payment of rent and other breaches.
This suggests that s 55B is a catch-all provision for novel situations and a future-proof provision to cover situations that may arise as the tenancy landscape changes. But without specific guidance as to how and when it should apply, this potentially gives adjudicators far more discretion under the provision than under s 66(1).
The only successful case thus far under s 55B, set out above, demonstrates how s 55B may operate as a catch all provision. In this case, the tenancy was terminated on the basis of theft from the landlord’s adjoining house either committed by a third party allowed onto the premise by the tenant or committed by the tenant herself. Currently, third-party actions can provide grounds to terminate a tenancy under s 55A for anti‑social behaviour, including those committed by any person permitted by the tenant to be on the premises. However, s 55A requires three warning notices to be issued before the termination is effected. Section 55B could allow a speedier termination without compliance with notice periods where the risk is too high to wait. But the discretionary nature of the provision means it will be entirely dependent on whether an adjudicator would insist on compliance with the notice period or allow a s 55B application to be made. Nevertheless, as noted above, the use of s 55B appears to be very limited in practice, with adjudicators insisting that other avenues must first be exhausted. Landlords who are counting on s 55B as a failsafe may be disappointed.

V Has fairness been achieved through Section 55B?

One of the key tenets of the 2020 amendments was to provide security of tenure for tenants, but also promote good faith relationships and achieve fairness between landlords and tenants.^[43] Landlords were responsible for 60 per cent of the submissions on the Bill,^[44] many out of concern their rights would be eroded in favour of promoting security of tenure.^[45] The briefing report indicates s 55B was in part designed to address those concerns, as a noted “safeguard” for landlords as against the new no cause evictions provision.^[46] Thus, while s 66(1) provided a starting point of sorts in terms of how hardship should be considered within the Act, the creation of a new, distinct provision was intentional.^[47]

1. Fairness to landlords

In response to queries from submitters, the briefing report was clear s 55B should only apply to landlords.^[48] A significant distinction was made between ss 55B and 66(1) on the basis of sanctity of contract: “with a fixed-term tenancy, both the tenant and landlord have a reasonable expectation that the tenancy will continue for the time period agreed to”. ^[49] The briefing report noted that in applying s 55B:^[50]

[The Tribunal] will be exercising significant discretion in determining what circumstances are appropriate for ending a tenancy ... It is appropriate that the Tenancy Tribunal should balance the impact on both the landlord and the tenant in making that decision.
That means under s 55B, balancing fairness, rather than honouring promises, is one of the guiding principles in how it should be applied by adjudicators.
Whether that fairness to landlords has been achieved is a matter for debate. Because s 55B appears to be treated a last resort provision and few scenarios seem to qualify thereunder, it means that a landlord may have already suffered financial hardship or damage by the time s 55B applies. The Opposition expressed concern that this would force landlords to sell and thus increase rental prices.^[51] However, the limited number of applications being made under s 55B suggests it is operating as intended—which is rarely, as a safeguard should. Given the provision goes to termination and also allows a high level of discretion, the limitations to the provision seem fair to landlords, particularly in the context of the other amendments that provide avenues for landlord terminations.

2. Fairness to tenants

The issue is then whether the provision is fair to tenants. The briefing report did not support widening s 55B to include tenants, namely because s 66(1) remains open to tenants and, in any event, tenants on a periodic tenancy only need to give 28 days’ notice to leave the tenancy.^[52] However, part of the rationale of the 2020 amendments was to move more people onto periodic tenancies to give greater security of tenure.^[53] The natural consequence of this means s 66(1) will no longer apply because those tenants, should they stay beyond any initial fixed term tenancy, will be moved onto periodic tenancies by default through the operation of s 60A.^[54] The rationale is that s 66(1) will only have a limited window of applicability should the parties initial start a tenancy on a fixed-term basis. Section 60A may also encourage landlords to opt in offering a periodic tenancy at first instance.
Similarly, the rationale of the briefing report assumes that a 28-day notice period is fair and limits hardship to tenants. But in some tenancies, particularly flatshares, the financial hardship is a lot higher. There are two types of flatshares. Some operate by having one “head” tenant on the lease and the remaining co-inhabitants are flatmates who have no legal standing under the Act.^[55] The other type of flatshare has all tenants jointly and severally liable on the lease. The situation can be financially precarious under either flatshare arrangement, regardless of whether the tenancy is periodic or for a fixed term. For example, if for some reason the entire rent fell on one tenant, they would likely suffer severe hardship should they have to pay the entire household rent, even with a 28-day notice. This is more so in circumstances where it would be difficult to pursue action in a timely enough manner against whomever has departed.^[56]
To that end, expanding s 55B for periodic tenancies would have increased the fairness and coverage of security of tenure for flatshares. Hardship in multi-tenant situations was considered within the new amendments but in a limited form and, again, only for fixed-term tenancies. For example, a tenant can now withdraw from a tenancy on the grounds of family violence under s 56B, with the landlord absorbing the rent shortfall for two weeks if there are other tenants on the lease. Section 56D allows the remaining tenants to apply for termination of the tenancy on the grounds of hardship, but only if the tenancy is for a fixed term. The remaining tenant has two weeks to replace that tenant or it may be assumed the remaining tenants would be liable for their rent. Under a periodic tenancy where the family violence clause is invoked, the remaining tenants cannot apply under s 56D but would have to give their 28 days’ notice either immediately or after the two-week grace period if they have not replaced the departed tenant.
Extending s 55B to tenants would allow an adjudicator discretion to shorten the 28-day notice period in appropriate circumstances. To commit to the prevailing idea of fairness, this would be a high threshold and the tenant would need to demonstrate a complete inability to pay rent or extreme hardship. It would exclude scenarios where that tenant may have contributed to that inability to pay rent by choosing to have flatmates rather than joint tenants. Having this added protection of s 55B for tenants could incentivise both tenants and landlords to ensure all residents in the household are joint tenants. Currently, there is high risk to both parties where there is a head tenant and flatmate situation in that flatmates are not afforded the protection of the Act, the head tenant takes the financial risk of all rent, and the landlord takes on the risk of having unvetted persons living in their house.^[57] This financial risk to the tenant could then be weighed against the landlord’s ability to find a new tenant who has the ability to pay rent in a more timely manner as opposed to seeking enforcement through legal means. The Tribunal, through its application of ss 55B and 66(1), demonstrates that there is sufficient discretion to ensure the provision is applied in appropriate circumstances that reinforce the concept of fairness.

6. Conclusion

Section 55B appears to readdress some of the arguable imbalance in favour of tenant rights from the 2020 amendments made to promote security of tenure under the Residential Tenancies Act. However, the provision’s limited applicability as a result of very narrow eligibility criteria means there will be few situations where the provision can be used. Section 55B only protects landlord rights in extreme situations. The use of hardship provisions allows greater discretion to adjudicators. Therefore, it is appropriate in the circumstances that s 55B is a provision of last resort, to maintain the integrity of the amendments promoting security of tenure. Section 55B is ultimately cautious and could have been drafted in such a way to increase security of tenure in mixed tenancy situations even with the ability to give 28 days’ notice. This caution reflects the political nature of New Zealand’s housing and rental market and any further drive for change will most likely be guided by public opinion.

[*] LLB(Hons) Wgtn. Many thanks to those who provided feedback and ideas for this paper: Ruiping Ye, Matt and June, and the editors of the journal for their refinement for publication. My gratitude as always to those who have been instrumental throughout the journey to getting my degree: my family, my friends, JG and colleagues. Arohanui.

[1] Residential Tenancies Amendment Act 2020.

[2] See for example Brett Hudson MP of the National Party who labelled the Bill an “attack on private property rights” and said that the Bill had the effect of “saying the house you own as a landlord is no longer yours to decide what to do with it”: see (20 February 2020) 744 NZPD 16482.

[3] See Dan Satherley and Emma Stanford “Government slammed as ‘most anti-landlord in history’ despite rising house prices” (3 August 2020) Newshub <www.newshub.co.nz>; Brianna McIlraith “Law to protect renters may see landlords reluctant to take risk on tenants with bad credit” (10 August 2020) Stuff <www.stuff.co.nz>; Lana Andelane “Proposed law changes will benefit anti-social tenants – property expert” (4 August 2020) Newshub <www.newshub.co.nz>; and “Concern as landlords advised to get rid of ‘problem’ tenants soon” (10 September 2020) RNZ <www.rnz.co.nz>.

[4] Residential Tenancies Amendment Bill 2020 (218); and see (20 February 2020) 744 NZPD 16470; (4 August 2020) 748 NZPD 20416; and (4 August 2020) 748 NZPD 20456 for the votes at each reading.

[5] Cabinet Office Minute “Reform of the Residential Tenancies Act 1986: Improving Fairness in the Act: Minute of Decision” (25 September 2019) SWC-19-MIN-0142 at [1].

[6] Section 66(3) also relates to hardship, although there is no balancing requirement and it is therefore not discussed here.

[7] Section 66(1).

[8] Tenants can end a periodic tenancy for any reason so long as they give the statutorily required notice of 28 days: see s 51(2B).

[9] Ministry of Housing and Urban Development Residential Tenancies Amendment Bill: Officials’ Report to the Social Services and Community Committee (May 2020) [Briefing report] at [190].

[10] At [191].

[11] Platinum Rentals NZ Ltd v Madden [2013] DCR 125 at [17].

[12] Fairgray v Clarke [2022] NZTT 4419066; [Landlord] v [Tenant] [2022] NZTT 4340751; [Landlord] v Brennan [2022] NZTT 4339238; Trustees of the Ranolf Trust v [Tenant] [2021] NZTT 4301132; Harmer v Malcom [2021] 4299981, 4298137; and [Landlord] v [Tenant] [2021] NZTT 4314683. Square brackets for parties’ names denote that one or both of the parties succeeded in obtaining name suppression.

[13] The author examined cases heard by the Tribunal over a three-month period from September to December 2022 by searching on the Tenancy Tribunal orders database using the keyword “hardship”.

[14] See for example Trustees of the Ranolf Trust v [Tenant], above n 12, at [55].

[15] [Tenant] v Dominion Property Management Ltd [2022] NZTT 4389541, 4419080.

[16] [Tenant] v B O R Trust Co Ltd [2022] NZTT 4391883, 4345923; and [Tenant] v Te Aro Tenancies Ltd [2022] NZTT 4421220.

[17] Little v Superior Property Management Ltd [2022] NZTT 4371320.

[18] [Tenant] v Taylor Property Plus (2006) Ltd [2022] NZTT 4424740.

[19] Again, this is contextual. [Landlord] v [Tenant] [2022] NZTT 4352962, 4344774 succeeded on the grounds of financial hardship due to a downturn in business, whereas Cram v Taylor Property Services Ltd] [2022] NZTT 4389742 failed as the adjudicator found COVID-19 and its risks were well known at this point.

[20] Fairgray v Clarke, above n 12.

[21] See Briefing report, above n 9, at [188] in relation to s 55B; and see Platinum Rentals NZ Ltd v Madden, above n 11, at [17] in relation to s 66(1).

[22] See for example [Tenant] v Northland Real Estate Ltd [2022] NZTT 4367061 at [11] that the property could be “re-tenanted without undue delay”.

[23] [Landlord] v [Tenant], above n 12, at [25].

[24] At [25]; and [Landlord] v [Tenant] [2021] NZTT 4311731 at [21]–[22].

[25] Labrooy v Lett [2022] NZTT 4374002 at [70].

[26] [Tenant] v Dominion Property Management 2014 Ltd, above n 15, at [16]. The Tribunal held that five female students living in conditions deemed unsafe would suffer greater hardship than the landlord despite there being $13,600 in rent left on the lease. In this case, a brothel was operating in the building and there was anecdotal evidence some clients had 24/7 swipe card access. The tenants had been burgled twice and reported concerns around drug paraphernalia found in the common areas.

[27] [Landlord] v [Tenant] [2022] NZTT 4340751 at [25].

[28] [Landlord] v Brennan, above n 12, at [18].

[29] Fairgray v Clarke, above n 12.

[30] At [5].

[31] At [6].

[32] At [5].

[33] At [7].

[34] See Ethan Te Ora “Wellington couple stuck with $20,000 rent bill after moving out” (14 January 2023) Stuff <www.stuff.co.nz>. See also their Tribunal case McFadyen v Comprende Ltd [2022] NZTT 4365020.

[35] [Landlord] v Brennan, above n 12; and Trustees of the Ranolf Trust v [Tenant], above n 12.

[36] [Landlord] v Brennan, above n 12, at [20].

[37] Trustees of the Ranolf Trust v [Tenant], above n 12, at [58].

[38] Briefing report, above n 9, at [188].

[39] Termination for non-payment of rent, damage or assault.

[40] Termination for anti-social behaviour.

[41] Termination for physical assault by tenant.

[42] Destruction of premises.

[43] Ministry of Housing and Urban Development Impact Summary: Residential Tenancies Amendment Bill Supplementary Order Paper (2020) at 1.

[44] Briefing report, above n 9, at [15].

[45] See Satherley and Stanford, above n 3; McIlraith, above n 3; Andelane, above n 3; and “Concern as landlords advised to get rid of ‘problem’ tenants soon”, above n 3.

[46] Briefing report, above n 9, at [33].

[47] At [190].

[48] At [189].

[49] At [190].

[50] At [188].

[51] See Dan Bidois MP (20 February 2020) 744 NZPD 16470.

[52] Briefing report, above n 9, at [189]–[190].

[53] See the Hon Kris Faafoi MP’s speech at the first reading of the Bill: (20 February 2020) 744 NZPD 16470; and Briefing report, above n 9, at [7].

[54] However, s 60A(2)(a) allows either party to either extend or renew on a fixed-term basis. Therefore, whether tenancies are actually moving onto periodic by default will be difficult to assess.

[55] Tenancy Services “Flatting” <www.tenancy.govt.nz>. Section (2) of the Act defines a tenant as someone who is a grantee of a tenancy of the premises under a tenancy agreement. A flatmate is someone who has not signed an agreement and thus falls outside the ambit of the Act.

[56] In a flatmate situation, the Disputes Tribunal is the appropriate avenue rather than the Tenancy Tribunal: see Disputes Tribunal “What the Tribunal can help with” <www.disputestribunal.govt.nz>.

[57] Some may say it is their right to take on that risk, given that tenants cannot eject a joint tenant without ending the tenancy and essentially starting afresh. That may mean having no choice but to accept a new fixed-term tenancy: see Lucy Smith “Getting rid of a flatmate you can’t stand (legally)” (5 April 2017) RNZ <www.rnz.co.nz>.