The Problem
While our client (the tenant) had been in her commercial property for several years, her problems with it, the landlord, and the landlord’s property managers started from day one.

When the tenant moved in, the property’s roof was not fit for purpose as it was riddled with asbestos and eventually failed. While the landlord did replace the roof, all of the tenant’s stock had been contaminated and ultimately thrown out. She then had to rebuy all of her stock and was not compensated by the landlord (not to mention the downtime in her business, loss of sales, and impact on herself due to unforeseen stress).

While this wasn’t a great start to a landlord-tenant relationship, it certainly was a precursor to the problems that would eventually follow.
It wasn’t until an issue with her market rent review came up that she engaged with Azure Property. It was during our review of her lease that we uncovered several more serious issues.

Our involvement
Initially, the issue we dealt with was around the market rent review and the associated lease renewal that happened to coincide. The tenant had been sent a notice regarding her upcoming lease renewal, which she signed, agreeing to another three-year lease. However, she hadn’t been made aware that she was also due a market rent review, so it was a bit of a shock for her to find out her rent had been increased by 50%.

The landlord’s property managers argued that she had shown intent by signing the lease renewal letter and therefore was obligated to pay the rental increase. We came to recognise that the communication problem went with the property manager, which ultimately would impact the landlord they were contracted by.

The property manager doesn’t need to inform the tenant of their upcoming rent reviews, and the tenant has a duty to understand the contract they have signed. However, that being said, it is best practice to inform the tenant.

If it had been a deliberate move by the property managers not to inform the tenant, it demonstrated that the property manager only had the landlord’s interests in mind, not the tenants. As property managers, one of the core duties is to handle the relationship between the landlord and tenant. This is where their duty of care is required. Our team then started to look for any other areas of responsibility that the property managers’ were failing to fulfil.

The tenant informed us that she had notified the property managers of issues in her property’s kitchen. The landlord had taken it upon himself to paint the ceiling, forgot to use primer, and flakes of paint were now falling. The requirement for a repair was informed to the property managers. The property managers went to the property multiple times, even taking pictures on one occasion, but nothing was done, and the required repair was not completed. The tenant eventually arranged for her contractor to repaint it herself.

We discovered the tenant had been paying monthly outgoings, which should have covered this issue. We then found that they had never once been reconciled for the five years she had been paying these outgoings. The tenant had no way of knowing where this money was being used as it was clear that little repairs and maintenance were being completed on the premises.

The tenant was also paying property management fees, which were recoverable under her lease agreement. The fees, however, were significantly higher than the market average for the type of premises she hand, which went against the “fair and reasonable” proportion she was obligated to pay as per her lease agreement.

When Azure connected with the property managers, we were on track to resolve these issues. Unfortunately, Covid hit during this time. When New Zealand went into lockdown, the property managers went dark on us, and we were back at square one.

As the landlord wasn’t fulfilling their obligations to keep the premises in a fair and reasonable condition, we were forced to issue a breach notice to hold the landlord to account for their requirements under the lease with the tenant.

The Outcome
Shortly after we issued the breach notice, we were informed that the landlord had changed property managers. From here, the process went much smoother.

After briefing the new property managers, we were able to work together towards a resolution, which was our aim from day one.
Our team was able to secure a full and final settlement for the tenant not only for the tenant’s COVID rental abatement but for also the outgoings reconciliations and works to get the premises back on track, recovering the tenant a total of $25,000.

While we would like to use this as an example of why tenants and landlords should be clear with each other from the start about their responsibilities, we would also like to use this as an example of what happens when a property manager doesn’t consider the interests of both the landlord and the tenant.

Property managers should act as the ‘meat’ of a sandwich, the piece that brings the two other parties together. The consequences of failing to perform this balancing act can result in the tens of thousands of dollars, countless times working through issues and a significant amount of unnecessary headache.

It is also important to note that a tenant has a right to use the premises. However, the landlord also has a right to maintain the premises to a standard which is fit for a tenant to occupy and conduct their business.