Lawyers for a diplomat who owes $20,000 in unpaid rent and property damage, argue she can't be held liable because of diplomatic immunity.

The Tenancy Tribunal today reheard the case against the EU delegation's deputy head of mission Eva Tvarozkova, after a dispute over a $1.5 million property in Karaka Bay where she had been a tenant.

The $1500 a week property was supposed to have been rented for three years, but she left after six months.

EU delegation lawyer Peter Cullen said the biggest issue was whether diplomatic immunity applied, and he argued that it did.

"Diplomatic immunity means that the Tribunal does not have the authority to hear the claims," he said.

"The rules go back to antiquity. The Convention codifies the rules for the exchange of embassies among sovereign states, and those rules protect the sanctity of ambassadors, enabling them to carry out their functions in the oldest, established and most fundamental rules of international law.

"The convention is a cornerstone of the modern international legal order."

Cullen said that if diplomatic immunity was ignored, it could hurt New Zealand's diplomatic relationships.

While the landlord's case rested on an exemption from diplomatic immunity in the case of commercial transactions, Cullen argued that rental payments didn't come under that exemption, and were still protected by diplomatic immunity.

"There is no basis to believe that upholding diplomatic immunity would allow diplomats to behave as they please in New Zealand.

"All diplomats in New Zealand are committed to respecting New Zealand law. Diplomatic immunity has been invoked in several other circumstances before in this country, which has not yet descended into lawlessness."

Matthew Ryan on the deck of his house in Karaka Bay, Wellington, which he rented to a foreign diplomat. He is owed unpaid rent. Photo / Mark Mitchell

Steven Price, representing the landlord, said that if the diplomat was allowed to claim immunity from the rent arrears, it would severely disadvantage anyone trying to do business with a diplomat in future.

He said previous legal decisions showed there was nothing about renting the home that made it a commercial act part of the state's activity, and therefore protected by immunity.

"A line was drawn really, they looked at the question of, this is a residence, it is used for social purposes, it is used for functions for diplomats, but said, 'that's not enough'.

"That's not enough to stop this being a commercial activity, just because there are some peripheral benefits.

"When a person who's a diplomatic agent contracts on their own behalf for a residence, they are not holding that residence for the purpose of the mission."

Price said there were issues of fairness, and the right to uphold a contract.

"[The landlord] is left out of pocket, and without any remedy. Potentially, every other landlord who is renting to diplomatic agents might be in the same position.

"Potentially, beyond that, anyone who does significant business a diplomat may be out in the cold as well."

The Tribunal's decision is reserved.

In a March ruling, the Tenancy Tribunal had ordered Tvarozkova to pay the $20,000.

But that was overturned in May, after EU delegation lawyers argued the Tribunal hadn't properly considered the issue of diplomatic immunity.