Ministry of Education reimburses overcharged rental on school owned house
Tenants renting house from Board of Trustees paid $35 per week more than permitted by the Ministry of Education guidelines and tenants sought reimbursement from the Ministry—the Ministry refused but Ombudsman found the Board was acting as Ministry’s agent and it had been unreasonable for the Ministry to decline reimbursement—the Ombudsman recommended that tenants be fully reimbursed
In 2001 there were approximately 2,600 Ministry of Education houses in New Zealand, of which about one-half were directly managed by individual Boards of Trustees (principal and caretaker houses) who were the landlords in terms of tenancy agreements, while the remaining one-half (teacher pool houses) were directly managed by the Ministry of Education which acted as landlord. Houses periodically not required by teachers, principals or caretakers were made available for private tenancies. All rentals for both education service personnel and private tenants were set by the Ministry regardless who was the landlord. Therefore, all Boards of Trustees were required to follow the Ministry’s charging guidelines when letting school houses.
In 1995 a couple moved into a school house let by a particular school’s Board of Trustees. They were charged rent of $100 per week. However, the Ministry had directed that the rent for this particular school house was to be $65 per week. During the couple’s tenancy, $65 per week was paid to the Ministry and the remaining $35 was entered in the school’s accounts as sundry income.
In 2000, the tenants learned of the Ministry’s direction that Boards could only charge rent on school houses at the rate set by the Ministry. They approached the School Board seeking repayment of the excess rent they had paid over the past 5 years, which amounted to $7,525. When discussions failed, the tenants went to the Tenancy Tribunal. However, their claim was unsuccessful as the Tribunal was of the view that the tenants had signed a rental agreement agreeing to pay rent of $100 per week. This amount was therefore ‘the rent lawfully payable’ under the Residential Tenancies Act. The tenants then approached the Ministry of Education for reimbursement of the outstanding money on the basis that the Board was acting as the Ministry’s agent. However, the Ministry also refused to provide reimbursement, advising that it considered the issue had been settled by the decision of the Tenancy Tribunal. The tenants then complained to the Ombudsman, alleging that the Ministry’s refusal was unreasonable.
The Ombudsman investigated and requested the Ministry’s response. The Ministry confirmed that it had issued Property Management Guidelines which specified that Boards of Trustees were not to charge above the rental set by the Ministry, and acknowledged that the Board in this particular case had charged in excess of the set rental. However, it argued that the Tenancy Tribunal’s decision was binding between the parties. The Tribunal had found that it was the Board who was the landlord in terms of the Residential Tenancies Act. Therefore, the Ministry said it could not assume responsibility for the actions of the Board and was not liable to pay the tenants any money that the Ministry had not received.
The Ombudsman acknowledged that the Tribunal was the sole body with jurisdiction in relation to disputes between landlord and tenant by virtue of section 77(1) of the Residential Tenancies Act 1986. However, the Ombudsman had not been asked to make any determination of that kind. Rather, he had been asked to investigate the situation whereby a Board of Trustees, acting as agent for the Ministry, had charged a tenant more than the rent required by the Ministry. Therefore, the focus of his enquiries was the relationship between the Ministry and the tenants.
After reviewing the circumstances of the case, the Ombudsman was satisfied that the Board was acting as the Ministry’s agent. As such, it was his view that it was reasonable for the tenants to expect that they would be charged only the rent set by the Ministry, and not any additional surcharge imposed by the Ministry’s agent without authorisation. In this particular case, given that the tenants had suffered loss, and the Board was acting as the Ministry’s agent, the Ombudsman considered it open to argument that the Ministry should bear some responsibility. He therefore sought the Ministry’s further comment.
The Ministry disagreed that any loss had occurred on the basis that the tenants paid the amount in rent that they agreed to pay when signing the rental agreement for the beneficial occupation of a house. However, it was willing to concede that the Board was acting as its agent. The Ombudsman then met with the Secretary of Education to discuss the issues raised by his investigation.
The Ombudsman also reviewed the steps the Ministry had taken to monitor rental charges for school properties to ensure its directives are complied with. The Ministry advised that it required its housing management contractor to monitor rentals set by school Boards. However, in this particular case, it was clear to the Ombudsman that the contractor had not picked up on the fact that the Board had deviated from the Ministry’s policy guidelines, otherwise the overpayment of $35 per week would have been discovered earlier.
The Ministry advised that, after reviewing the matter, it agreed the Board had not complied with the Ministry’s directives relating to rental of school properties and it therefore considered it would be reasonable for the Board to remedy this situation. The Ministry undertook to work with the Board to ensure that appropriate steps were taken to reimburse the tenants. The Ombudsman was satisfied that the Ministry was taking appropriate steps to remedy the situation and decided to discontinue his investigation on that basis.
Six months later the tenants advised the Ombudsman that the Ministry had still not contacted them about reimbursement of their rental money. As a result, the Ombudsman wrote to the Ministry requesting an urgent report on this matter. In response the Ministry advised that the Board had refused to assist in reimbursing the tenants and discussions between the Ministry and the Board had reached an impasse.
In these circumstances, the Ombudsman decided to reopen his investigation. He found that the Board was the Crown’s agent and the Ministry’s omission to adequately monitor the requirements it had placed on the Board resulted in the tenants paying more rent than would otherwise have been due. The Ombudsman was of the view that it would be unreasonable and wrong for the Ministry not to refund the unauthorised rent. Further, the Ombudsman also considered it would be improperly discriminatory for the Ministry to attempt to rely on the decision of the Tenancy Tribunal, as this would appear to single out the tenants in this case from other similar tenants who had been charged rent on a correct basis.
The Ombudsman then formally recommended, pursuant to section 22(3) of the Ombudsmen Act, that the Ministry pay the tenants a sum equal to the rent paid in excess of the Ministry’s guidelines.
The Ministry expressed disappointment with the view reached by the Ombudsman. In particular, the Ministry requested that the Ombudsman review his decision so as to place greater emphasis on the actions of the Board given it was their actions that had resulted in this case being brought before the Ombudsman.
The Ombudsman agreed to review the matter. After doing so he remained of the view that it was clear the payments made by the tenants belonged to the Crown and the Board was acting as the Crown’s agent when it collected the rental money. It was therefore the Ministry’s responsibility to provide redress and the Ombudsman’s recommendation to the Ministry remained. However, the Ombudsman did note that it was open to the Ministry to recover the money from the Board but this would be a matter for the Ministry to decide. The Ministry accepted the recommendation and full redress was made to the tenants.
The focus of the Ombudsman’s enquiries in this case was always the reasonableness of the Ministry’s conduct when it discovered that the tenants had been required to pay more rent than the Ministry had authorised. For that purpose it was not necessary to address the issue of the Board’s understanding of its rights and obligations at the relevant times.
This case note is published under the authority of the Ombudsmen Rules 1989. It sets out an Ombudsman’s view on the facts of a particular case. It should not be taken as establishing any legal precedent that would bind an Ombudsman in future.