Firm pocketed rents and bonds - tribunal

Photo: Lawrence Smith

Merlot was run from offices on Auckland's Princes Wharf.

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TENANTS WHO rented homes from the Merlot property investment group have been left thousands of dollars out of pocket after the company kept their tenancy bonds, the tenancy tribunal has found.

Merlot operated through three arms: Merlot Homes, which acted as a property developer; Merlot Investments, which sold those homes to mum and dad investors, and Merlot Residential, which acted as property manager and rented on behalf of their investor-owners.

Stuart Herron, Grant Petrie, Stewart Goldstone and Derek Hughes ran the companies from luxurious harbourside offices next to the Hilton Hotel on Princes Wharf in downtown Auckland.

A big attraction for investors in Merlot properties was that, as well as managing the properties on the investors' behalf, Merlot Residential would take out a tenancy agreement and give investor-owners a "guaranteed" rental income. Merlot Residential would then sublet the properties, collecting a bond and rent.

The rent was to be passed on to the investor-owners after Merlot had deducted 12.5% management fees and the bond was to be passed on to the Department of Building and Housing's Bond Centre.

However, in many cases, the tribunal found Merlot not only failed to pass on to investor-owners rent it had collected, it also kept bonds, leaving tenants such as Patrick and Euna Maguire in the lurch.

The couple and their two young children rented a house from Merlot Residential at Gulf Harbour, north of Auckland. Merlot asked for a bond of $1230, equivalent to three weeks' rent. Merlot was legally required to deposit that money with the Bond Centre within 23 working days, but did not do so.

Euna Maguire said the first indication was when a new property manager appeared and said Merlot had been replaced as property manager. He then dropped the bombshell that their bond had not been forwarded to the bond centre.

When the Maguires contacted Merlot, the staff said they were unaware of the problem, so the Maguires lodged a claim with the tenancy tribunal, seeking a refund of their $1230 from Merlot.

They were not the only ones to do so.

Nine other tenants of Merlot Residential lodged similar claims totalling $10,065 for bond money the company had retained illegally. In each case, the tribunal ordered Merlot to repay the money, and in five cases also added "exemplary damages" totalling $2950.

At the same time, many of Merlot's investor-owners were also bringing tenancy tribunal claims for rent Merlot had received from the sub-tenants and failed to pass on to them. In each case, the tribunal found in favour of the investors, ordering Merlot to pay them a total of $26,621 in rental arrears.

No one from Merlot attended the hearings and the company gave no explanation as to why it had retained the bond money or failed to pass on rent.

The tribunal was also critical of the arrangements whereby Merlot acted as both property manager and principal tenant. "It is difficult to envisage how Merlot Residential could fulfil its obligations as a property manager, whilst at the same time occupying the role of tenant. Arrangements of this nature are simply unworkable," the tribunal said in one of its orders requiring Merlot to pay rental arrears to an investor.

However, such orders do not appear to have been any help to people such as the Maguires, who have never received the money Merlot was ordered to pay them. Merlot Homes was put into liquidation in June last year and Merlot Investments followed it a month later.

Merlot Residential was wound up in November and its directors, Herron, Petrie, Goldstone and Hughes, are now all bankrupt.

"We don't have any chance of getting it [the $1230] back," Euna Maguire said.

- © Fairfax NZ News