Hayes and Dart v Berlyn (Residential Tenancies) [2018] VCAT 2006

1. The tenants applied within 30 days after receiving a report from the Director of Consumer Affairs, for an order declaring the proposed rent increase excessive.
2. The rent payable per week under the tenancy agreement is $300.
3. The proposed rent is excessive, having regard to the evidence, including the report of the Director of Consumer Affairs dated 11 May 2018 and:

1. The rent payable for comparable rented premises let under a tenancy agreement by a landlord, other than a public statutory authority, in the same locality; 2. The state of repair and general condition of the rented premises;

1. The cost of goods and services and facilities provided within the rented premises;

1. Any charges in respect of the rented premises for which the landlord is or may be liable under the Residential Tenancies Act 1997 (the Act) or any other Act or the tenancy agreement; 2. The cost of goods and services and facilities provided by the tenants under the tenancy agreement; 3. Any charges payable by the tenants under the Act or any other Act or the tenancy agreement; 4. Any work which the tenants have done with the landlord's consent or agreed with the landlord to do to the premises; 5. Any changes in the rent and the condition of the rented premises or facilities since the commencement of the tenancy agreement; and 6. Any valuation of the rented premises.

The maximum rent payable per week in respect of the rented premises from 17 December 2018 until 16 June 2019 is $300.

1. This case is about a landlord's desire to increase the rent payable under a residential tenancy. The landlord gave his tenants notice of rent increase and the tenants have challenged the increase, using a mechanism provided to them by the Residential Tenancies Act 1997 (the Act).

1. The background to the present case is a little complicated, because the landlord (who is the respondent in this proceeding) has given the tenants three notices of rent increase. (The tenants are the applicants in this proceeding.)

1. The tenancy began in June 2016. The initial rent was $300 per week. This first notice sought to increase the rent from $300 to $325 per week. The landlord accepts that the notice was invalid - it did not give the tenants the full 60 days' notice required by section 44(1) of the Act. [At the conclusion of the hearing in this proceeding, I made interim orders dealing with that first notice and with the increased rent which the tenants had paid pursuant to it.]

1. The second notice sought to increase the rent to $350 per week. It is that notice which is the subject of this decision.

1. During the course of the present proceeding, a final order was made in the absence of the landlord. The landlord then successfully applied to the Tribunal for that order to be set aside, which I did when this matter first came on for hearing, on 10 October 2018.
2. The third notice was given after that final order had been made. The landlord's obvious intention in giving that notice was to remedy what he saw as a defect in the second notice.
3. The third notice, like the second notice sought to increase the rent to $350 per week. While slightly different from the second notice, the third notice is effectively the same and the order which I make in this proceeding, which concerns only the second notice, applies with equal force to the third notice. [The third notice is the subject of a separate proceeding.]

1. (In section 44) that a landlord of a residential tenancy may only increase rent by giving the tenant 60 days' notice of the proposed rent increase. 2. (In section 45) that when given such a notice, a tenant who thinks that the proposed increase is excessive, may apply to the Director of Consumer Affairs Victoria (the Director) to investigate and report.

1. (In section 45) that on receipt of such a request, the Director must investigate, then report in writing to the tenant.

1. (In section 46) that, once armed with the Director's report, the tenant may apply to this Tribunal for an order declaring that the proposed rent increase is excessive. 2. (In section 47) that the Tribunal may then declare the proposed rent increase excessive or else may dismiss the tenant's application.

1. The tenants followed the procedure set out in the Act and applied for and received a report from the Director. The report found that the proposed rent increase was excessive and the tenants then issued this proceeding, seeking a declaration to that effect.
2. The landlord defended the proceeding and argued that the proposed increase was not excessive.
3. The tenants gave evidence, the evidence of the tenant Juliane Dart being of short compass, as she is terminally ill.
4. In support of his case, the landlord gave evidence and called two witnesses, Garry Paterson, the author of the Director's report and his colleague, Mark Sultana.
5. Mr Paterson is a Residential Tenancies Inspector on the Director's staff, acting under a delegation by the Director, of the Director's powers to investigate and report under the Act. In his evidence Mr Paterson said that he has been conducting rent inspections for 10 years and estimated that, in that time he has carried out between 150 and 200 inspections. When cross-examined by the landlord, Mr Paterson stood by his report and the conclusions contained within it.
6. Mr Sultana is the General Manager, Community Services, Grampians Region, in the Department of Justice and Regulation. Mr Sultana is Mr Paterson's superior. Mr Sultana said that, at the landlord's request, he had reviewed the Director's report prepared by Mr Paterson and had satisfied himself that the report had been correctly prepared.

1. The landlord argued that the Tribunal could not rely on the Director's report because:
   1. The Director's procedure was not followed; and
   2. The three comparison properties used in the report were not in fact comparable.

1. The Director's rent inspection guidelines are contained in a document headed "Residential tenancy - rent inspections". A copy of those guidelines was tendered in evidence by the landlord, having been obtained by him under the Freedom of Information Act 1982. The document states its objective as follows:

These guidelines set out the legislative background for rent inspections conducted by residential tenancies inspectors, the extent of the investigations that should be carried out and the content of the consequent reports.

1. The guidelines require an inspector, among other things, to:

Discuss the rental increase with the tenant/resident and the landlord/agent and obtain their views on relevant matters having regard to the factors relevant to the Statutory Considerations below.

[Note] any significant factors of differentiation between the premises [ie, the rented premises and the comparable premises chosen by the inspector] ... e.g. size, features, fittings, location, distance to services etc.

1. Mr Paterson said that when preparing the Director's report, he had written to the landlord, seeking information. I noted from a letter tendered by the landlord that, on 15 May 2018 the landlord had written to Mr Paterson, supplying information in response to Mr Paterson's letter of request. Mr Paterson accepted that, other than writing to the landlord seeking information, he had not sought the views of the landlord when preparing his report.
2. The landlord, as I understood him, argued that, because Mr Paterson had not "discussed the rental increase ... with the landlord" and therefore had not followed the Director's guidelines, the tenants' application was not properly based and should be rejected. I do not accept that argument.
3. The Act is silent about how the Director should perform the duties of inspection and reporting imposed on the Director by section 45(3) of the Act. If, in preparing his report, Mr Paterson failed to follow the Director's guidelines to the letter, such a failure does not necessarily invalidate the report. The landlord did not put forward any evidence or explanation to show that discussing the rent increase with the landlord would have led to Mr Paterson's reaching a conclusion different from the one reached in his report.
4. For the sake of completeness, I note that the Director's report does not contain any record of factors of differentiation between the various premises, as is required by the guidelines. That breach of the guidelines is a defect of form only and does not serve to impugn or invalidate the report.
5. I therefore find that Mr Paterson's failure to discuss the rent increase with the landlord when preparing his report does not invalidate that report. Further, I find that the fact that the tenants' application in this proceeding was based on Mr Paterson's report does not invalidate the application.

Were the three comparison properties actually comparable?

1. The landlord gave evidence about a number of differences between the rented premises and the three comparison properties which he had selected for the Director's report. Those differences may be summarised as follows:
   • Smaller land size.
   • Lower capital value.
   • Pets not allowed.
   • Not as close to services along Howitt Street - doctors, hospitals, dentists, banks, commercial, station.
   • In the case of two of the three properties, further from Stocklands shopping centre. One was closer to Stocklands, although the landlord characterised that proximity as being, too close.
2. The landlord also gave evidence that the rented premises had a number of attractive characteristics which were not possessed by the comparison properties, including:
   • Close proximity to two aged care facilities.
   • Room for parking multiple cars.
   • Presence in the Red Zone.
3. [The Red Zone. The landlord tendered a street map which he had prepared, showing the location of the rented premises and the three comparison properties. The map showed that the rented premises lay within a zone of several streets, which the landlord had marked out in red. The landlord explained that under the relevant planning rules, properties within that Red Zone could be developed to a height of four storeys. The landlord said that properties within the Red Zone had higher capital values than properties outside the zone.]
4. The landlord argued that, because of those differences and those attractive characteristics, the rent for the rented premises should be higher than the rents of the comparison properties. I am not convinced that the landlord is correct, for the following reasons.
5. First, rental values will be controlled by a number of factors. Those factors may well include the ones identified by the landlord. But there may also be other factors, such as the age of the property (one of the comparison properties was relatively new), which could affect rental value.
6. Secondly, a number of the characteristics identified by the landlord (such as proximity to doctors and hospitals, ease of access to aged care facilities) may be particularly relevant to the landlord, but not so relevant to the bulk of potential renters.
7. Thirdly, if it were correct that rent must reflect capital value (a proposition about which I am not at all certain), the high capital value of the rented premises is likely to be explained by their presence in the Red Zone, with their attendant potential for development. That is not a quality which is likely to have any effect on the appeal of the rented premises to potential renters.
8. In short, the landlord's evidence and submissions have not satisfied me that the differences and the attractive features identified by him necessarily lead to the conclusion that the rent of the rented premises must necessarily be higher than the rent of the three comparison properties.
9. The landlord's evidence and submissions raised questions about the Director's report, but those questions went unanswered. I would expect that the answers to those questions could easily have been given by a witness qualified to give evidence about rental values. Ballarat is a big city. I imagine that it does not lack for estate agents or valuers well able to give evidence about rental values. It is striking and ultimately fatal to the landlord's case, that he did not adduce any such evidence.
10. The landlord did tender a document dated 13 January 2017, entitled Residential Valuation and Security Assessment for Mortgage Purposes, addressed to Bendigo Bank on behalf of the landlord and his wife. As well as providing a valuation of the rented premises, the document included, as "Rental Value Unfurnished" a valuation of $330 per week. The valuation document appears to have been prepared in support of a loan application. The landlord did not call the author of the valuation to give evidence. In the absence of its author, I do not believe that a valuation prepared in support of a loan application is necessarily persuasive and I prefer the evidence of Mr Paterson and the Director's report.
11. The landlord's evidence was in marked contrast with the Director's report and the evidence of its author, Mr Paterson. Mr Paterson's evidence was that he had consulted two estate agents in the course of his research for the report, one of 17 and the other of 13 years' experience. The agents both managed similar types of properties in the area. The agents had confirmed to him that the three comparison properties were indeed comparable. One of the agents had said that he believed the rented premises could obtain a weekly rent of $260-$270, the other that it could obtain a weekly rent of $280-$290.
12. In summary, the landlord did not adduce any evidence which would allow the Tribunal to conclude that the finding urged by the landlord, namely that the Director's report was to be rejected, was open to it. Nor did the landlord adduce any evidence which satisfied me that the proposed rent for the rented premises is not more than should reasonably be paid by the tenants.
13. In the circumstances, I am satisfied on the evidence presented to the Tribunal that the proposed rent increase to $350 per week is excessive, with comparable properties receiving less than the $300 per week currently being charged.
14. Accordingly, I will order making a declaration to that effect.