Welch v Chabra

NCAT Consumer and Commercial|2022-08-15|Before: Aid Co P

Background

By application to the Tribunal dated 22 May 2022 the tenants seek an order pursuant to section 44(1)(a) of the Residential Tenancies Act 2010 (NSW) ('the Act') that a rent increase is excessive.
The tenant Mr Welch appeared in person at the hearing and gave sworn oral evidence. He relied on one folder of documents sent to the Tribunal and to the landlord and marked as Exhibit A.
The landlord appeared in person at the hearing and gave sworn oral evidence. He relied on documents sent to the Tribunal and to the tenants marked as Exhibit B. Mr Noakes, a real estate agent, also provided sworn oral evidence for the landlord.
At the commencement of the hearing the landlord sought leave to submit further evidence, including evidence of comparable rents. This was opposed by the tenants who had not had the opportunity to consider the documentation.
The Tribunal refused leave because on the last occasion the orders were that the landlord should provide all documents by 18 July 2022, a delay of nearly four weeks. It would be prejudicial to the tenants to allow the landlord to rely on those documents and not in the interests of the just, quick and cheap resolution of the proceedings.
On 17 August 2022 the Tribunal received an email from the respondent landlord stating in part: 'the Applicant sent an email to my real estate agent at 5:58pm on Sunday 15 August 2022, advising he had made a section 53 variation to their submission to the Tribunal. No copy of the variation was provided to the Respondent by the Applicant. I am concerned the Registrar is reviewing the evidence from the Applicant including this s53 variation, that I have not had the opportunity to review or consider and was therefore was not able to respond to in the hearing.'
The Tribunal is unaware of a 'section 53 variation' in relation to this matter. In any event, this is an issue the landlord should have raised at the hearing.

The Tenancy

The tenancy at 3 Heath St Asquith ("Heath St") commenced on 2 June 2018 for a fixed term until 1 June 2021, with rent of $5041.00 per month. There were 2 rent increases, each of 3%, pursuant to the Residential Tenancy Agreement (RTA), which brought the rent up to $1195.00 per week.
The parties then entered a second tenancy commencing 2 June 2021 for a fixed term until 18 December 2023 with rent set at $5344.99 per month ($1229.00 per week). There have been no rent increases since the commencement of this agreement.
Copies of these RTAs were among the documents provided by the landlord.
The Notice of Rent Increase is dated 9 May 2022 and was served on the tenants via email on the same day.
The Notice stated the rent would be increased to $7821.43 per month (or $1799.00 per week) from 2 August 2022.
On 2 August 2022 the tenants paid the rent at the increased rate of $7821.43 per month, pending the outcome of these proceedings.
The tenants made their application within the 30 days prescribed by clause 39(1) of the Residential Tenancy Regulations 2019 (NSW) and section 44(2) of the Act.
I am satisfied the Tribunal has jurisdiction to hear and determine this application.

Relevant Law

The law concerning this matter appears in section 44(1)(a) which relevantly provides: (1) Excessive rent orders The Tribunal may, on the application of a tenant, make any of the following orders: (a) an order that a rent increase under an existing or proposed residential tenancy agreement is excessive and that, from a specified day, the rent for residential premises must not exceed a specified amount, … (5) The Tribunal may have regard to the following in determining whether a rent increase or rent is excessive - (a) the general market level of rents for comparable premises in the locality or a similar locality, (b) the landlord's outgoings under the residential tenancy agreement or proposed agreement, (c) any fittings, appliances or other goods, services or facilities provided with the residential premises, (d) the state of repair of the residential premises, (e) the accommodation and amenities provided in the residential premises, (f) any work done to the residential premises by or on behalf of the tenant, (g) when the last increase occurred, (h) any other matter it considers relevant (other than the income of the tenant or the tenant's ability to afford the rent increase or rent).
Not all these factors are required to be considered and the weight to be attached to each is a matter for the Tribunal in the circumstances of each case. There is a wide discretion to be exercised judicially but without a requirement to adopt any particular method of determining the fair rent. The Act does no more than provide a list of matters for consideration and leaves it to the Tribunal to determine whether any or any particular weight should be given: Randy River Health and Beauty Aid Co P/L t/as Middlerock Village Park v CTTT [2007] NSWSC 1142.
An excessive rent order is limited to 12 months (section 44(6)).
The tenants have the onus to prove on the balance of probabilities that the rent increase is excessive.

The general market level of rents for comparable premises in the locality or a similar

Locality

Section 44(5)(a) requires attention to both: 1. 'comparable premises' which calls attention to the size and facilities of the premises; and 2. the 'locality' or a 'similar locality' of the premises.
I have not put weight on the evidence both parties submitted from 'Rent Tracker'. While Rent Tracker does indicate broad trends about rent in identified suburbs, apart from the number of bedrooms and dwelling type, it does not provide a filter for other relevant facilities or the size of the property.
In considering 'comparable premises' as required by section 44(5)(a), I have instead weighed up the evidence of actual properties put forward by the parties, in terms of their size, facilities and location relative to Heath St.
Both parties agreed that the Heath St premises is a large, well appointed, prestige property with a floor area of 436 sqm. It is relatively new, being built in 2018. It is comprised of 5 'king sized' bedrooms and 5 heated bathrooms; 2 remote control garage spaces; 4 walk-in wardrobes and one built in wardrobe; a remote-control gate and fully enclosed yards; formal lounge and dining; casual dining and sitting area; a media room; well-appointed kitchen with walk in pantry; outdoor kitchen and covered outdoor dining and lounge area. Some of the other features include fully ducted air conditioning; large rainwater tank; and dual hot water.
Heath St is located close to a rail depot.
Both parties relied on extensive evidence of the general market level of rents for properties they consider comparable and this evidence was strongly disputed.
I am not satisfied that the properties put forward by the tenants are comparable to Heath St. Although they are positioned in similar localities to Heath St (Hornsby and the border of Wahroonga/Waitara), they are not similar in size and facilities.
All are significantly smaller than Heath St (the largest being 254sqm); most are only 4 bedroom; none have 5 bathrooms; only one has an outdoor kitchen and most do not have the extensive outdoor lounge and dining area of Heath St. Only two of the properties have ducted air conditioning.
Most of the properties put forward by the tenants do not have other attractive features that are found in Heath St including dual hot water, a media room, extensive walk-in wardrobes and fenced yards. Overall, Heath St is superior to the premises put forward by the tenants.
The landlord relied on 3 Comparative Market Analysis reports ("CMA") prepared by 3 local agents. In terms of size, functionality and finishes, the properties identified in these reports were better comparisons than those proposed by the tenants.
With the exceptions of one property in Asquith and another in Hornsby, all of the properties identified in the CMAs are located in Wahroonga, North Wahroonga and North Turramurra on the prestigious upper North Shore.
I do not consider that the Hornsby property identified in the Core Logic CMA is comparable to Heath St: it is a much older and smaller property. There was no evidence as to whether it shares any of the prestige features found at Heath St.
Mr Noakes prepared one of the CMAs. In oral evidence he said that Heath St is a unique property in the Asquith area, particularly given its large size. Most of the nearby properties are around 200 or 250 sqm. Therefore, for similar size and facilities, his 'pricing estimate has drawn more heavily on houses in Wahroonga …' (Stone CMA Summary).
CMA explains that the closest comparisons to Heath St in terms of size, features and fit out are located in Wahroonga, Warrawee, North Wahroonga and North Turramurra.
Although a relatively short distance, Asquith is not situated on the upper North Shore.
Even taking into account evidence that some of the CMA properties are located in the Hornsby LGA and/or in the less desirable parts of the upper North Shore (such as close to the freeway), it is well known that the upper North Shore suburbs have a level of exclusivity which Asquith does not. This is reflected in the heat map of median house values submitted by the tenants.
I find that Asquith and the suburbs of the upper North Shore are significantly different localities, despite their physical proximity.
The CMAs indicate that on the open market Heath St would rent for between $1800.00 and $2050.00 per week.
As the landlord points out, the CMAs and rent appraisals were prepared by professional, licensed real estate agents and I have given them due weight in making this determination.
However, their rent appraisals are not entirely persuasive because no CMA explains whether or how it has factored in the significant difference in locality between Heath St and nearly every other identified property.
Taking into consideration size, facilities and locality, I find that the following two properties are the most comparable to Heath St.

45B Bundarra Ave Wahroonga

4B Bundarra Ave Wahroonga ("Bundarra Ave") was built within a year of Heath St. It has some of the same prestige features and finishes, but lacks an outdoor kitchen, dual hot water, video intercom and formal lounge and dining.
It is also smaller at 288 square metres but does have 5 double bedrooms, a study, 3 bathrooms. It is close to the wall of the freeway and in that sense somewhat comparable to Heath St's proximity to the rail depot.
Bundarra Ave currently rents at $1900.00 per week.
The landlord described Bundarra Ave as the 'bellwether' which was used to establish the rent for Heath St, both in 2018 and 2022.
When questioned by the Tribunal, the landlord stated that the less prestigious location of Heath St was factored in when calculating its rent relative to Bundarra Ave, plus the fact that Heath St is the larger property.
The landlord set Heath St's new rent at $101.00 less than Bundarra Ave. However, there was no evidence that the $101.00 difference accounts adequately for the significant difference in locality.

105A Sherbrook Rd Asquith

One of the properties, featured only in the Core Logic CMA, is located at 105A Sherbrook Rd Asquith ("Sherbrook Rd").
I accept the tenants' submission that this is a good comparison with Heath St, since it is located in the same suburb and has some similar facilities.
The landlord submitted that Sherbrook Rd is less desirable than Heath St as it is a battle-axe block. Even if I accept this submission, a battle-axe block would not seem to be any more of a liability than close proximity to a freeway, as is the case with Bundarra Ave.
Sherbrook Rd currently rents at $1100.00 a week.

Rents per square metre

The landlord relied on a comparison of the rent per square metre of the properties he provided with that of Heath St. He submits that at the former rate of $5344.99 per month, Heath St would rent for $2.82 a square metre and at $4.13 per square metre at the increased rate.
By comparison, the other properties he relies on rent for between $4.55 and $7.42 per square metre. The landlord submits that this is evidence that the rent increase is not excessive.
While I accept the landlord's calculations, I do not put much weight on them as evidence. The locality of the properties, not only their size and facilities, will impact their value per square metre. Again, most of the properties in the landlord's calculations are located in prestige suburbs that are not similar to Asquith.

The landlord's outgoings under the residential tenancy agreement

I accept the landlord's documentary evidence that his outgoings have increased by around 15% over the last 4 years, including water, council rates and insurance. Interest rates have also increased.

When the last rent increase occurred

I accept that the last rent increase was in June 2020, when the second 3% increase was applied.

Other relevant factors

The Tribunal also considers the following matters relevant in determining whether the rent is excessive (section 44(1)(h)): 1. The length of the tenancy agreement, which has continued for some 4 years; 2. Adherence to the terms of the agreement by both parties: there is no evidence of any breach by the landlord of his obligations, nor the tenants. The tenants have complied with the Notice of Increase, pending the outcome of these proceedings; 3. The landlord's approach to repairs: there is no evidence that the tenants have requested repairs which the landlord has refused to carry out. To the contrary, the landlord has repaired the fence, re-oiled the deck and paid for an arborist to prune trees close to the house; and 4. The size of the rent increase, being 39%, which the Tribunal considers a very large increase in one 'jump', compared with previous increases of just 3%.

Determination

Taking into account the size, facilities and location of Heath St, the fair and reasonable rent lies somewhere between the 2 most comparable properties: Sherbrook Rd at $1100.00 per week, and Bundarra Ave at $1900.00 per week.
Bundarra Ave is the more comparable to Heath St in terms of facilities and finishes but is not in a similar locality. Sherbrook Rd is in the same locality as Heath St and while it shares some of its features, Heath St is the superior property.
The Tribunal takes into account the other factors identified above and puts particular weight on the significant size of the rent increase, being 39%, after a history of very modest increases.
The Tribunal finds that the rent increase to $7821.43 per month (or $1799.00 per week) is excessive.
I do not accept the tenants' submission that a reasonable increase would be just 6%, taking the rent to around $1302.00 per week.
Doing the best I can on the evidence before me, I am satisfied there should be a rent increase of $221.00 per week to $1520.00 per week. This is an increase of around 17%.
The tenants are named on the Residential Tenancy Agreement dated 2 June 2021 as Karen Lee Welch and Michael Trenley Welch.

Orders

The Tribunal therefore makes the following orders: 1. The applicants' name is amended to Karen Lee Welch and Michael Trenley Welch. 2. The rent shall not exceed $1520.00 per week from 2 August 2022 to 1 August 2023. 3. Any overpaid rent is to be paid as a rent credit to the tenants' account within 7 days of the date of these orders.

I hereby certify that this is a true and accurate record of the reasons for decision of the Civil and Administrative Tribunal of New South Wales. Registrar

Amendments 29 September 2023 - Formatting amendments. DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated. Decision last updated: 29 September 2023

Residential Tenancy Regulations 2019(NSW)

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