A landlord who discovered his tenant was running a brothel from his rental property has failed in a bid to win compensation.

The landlord also sought a share of the brothel's profits, but later abandoned the application.

In a recent Tenancy Tribunal decision, Earle Properties Limited - acting as landlord - claimed tenant Jo (Kelly) Lien had been "unlawfully" running a brothel at the home in Mt Cook in Wellington.

Company director Lionel Earle told the tribunal he first became aware of Lien's business when police got in touch to say they had received a complaint and were "investigating whether the brothel was certified".

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When questioned by Earle, Lien "freely admitted to running a brothel", he said.

He told her this type of business wasn't permitted from the home. Lien replied that if she couldn't run a brothel, then she wanted to end the tenancy, Earle said.

Both parties then reached an agreement to end the tenancy.

However, Earle Properties later lodged an application to the Tenancy Tribunal seeking exemplary damages over claims Lien had used the rental unlawfully.

The company also sought a share of the brothel's profits, but later withdrew this application.

In examining the issue, the Tenancy Tribunal adjudicator said the Prostitution Reform Act in 2003 permitted brothels to be run anywhere so long as they complied with district plan bylaws.

In the case of Lien's brothel, there was insufficient evidence that it violated any district plan bylaws and no evidence it was being run illegally and subject to police charges.

"Accordingly, I cannot find that the tenant running a brothel amounts to using the
premises 'for an unlawful purpose' and the claim for exemplary damages on that
basis must be dismissed," the adjudicator said.

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Earle Properties was successful, however, in winning $1854 compensation for other matters.

The adjudicator said there was evidence Lien had allowed four other people to live at the rental and work in her brothel.

Because this was in breach of the maximum number of people allowed to live in the home under the tenancy agreement, the adjudicator awarded Earle Properties $500 in exemplary damages.

The landlord also won a further $1300 for cleaning, rubbish removal and pest control and for replacing a missing kitchen bench and damaged curtains at the end of the tenancy.