Otago Property Investors Association Inc

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23-09-2016

An update on tenants' liability for damage

In 2009, a tenant called Mrs Osaki left a pot of oil unattended on the stove. A fire broke out that caused over $200,000 of damage. The property was repaired through the owners’ insurance, but the insurance company decided to seek the cost of the damage from the Osakis.

The Tenancy Tribunal held that the Osakis were liable for damage. However the case went to the district court and court of appeal, who decided that tenants should have the protection of the Property Law Act (PLA), which says that commercial tenants cannot be held responsible for damage they cause if the landlord has insurance to cover the damage. The PLA does allow the tenant to pay the excess however.

While it is understandable that the Court wants to prevent the financial ruin of tenants causing unintentional but severe damage, it is not reasonable or balanced to absolve all tenants from blame for any damage that they unintentionally do.

Many claims are treated as separate incidences by insurers, meaning rental property owners cannot rely on their insurance to cover their tenants’ damage.

The court's decision and how it has been implemented by the Tenancy Tribunal has increased the risk of rental property damage and placed the financial burden for tenant damage, large or small, onto the property owner. This is completely unjust and the NZ Property Investors' Federation is seeking to have the situation reverted to how it was previously.

As the Court’s decision cannot be appealed to a higher court, the only option is legislative change to have the RTA amended.

We have met with Minister of Housing, Nick Smith, Labour leader Andrew Little, Labour housing spokesperson Phil Twyford , plus ACT leader David Seymour.

We explained the ramifications of the Osaki case to the opposition parties and sought their support for asking the Government to rectify the situation. We are meeting with the Green Party soon and hope to meet with NZ First, the Moari Party and Peter Dunne as soon as possible.

We recommended that section 142(2) the RTA be amended so that it cannot be interpreted by Courts that the Property Law Act overrides the RTA and that tenants are not responsible for any damage they cause.

The NZPIF believes that there are better ways to protect tenants than absolving them from blame and holding rental property owners financially responsible. We presented some potential options:

  • Require landlords to advise tenants of their responsibility for damage they cause and that insurance policies are available to financially protect them.
  • Allow tenants to use their landlord’s insurance policy for damage they cause which is higher than, say, $10,000, plus they would be responsible for the excess.
  • Require landlords to take out insurance on behalf of their tenants to protect themselves from damage they cause and make this payable by the tenant.

Both Labour and ACT immediately saw the unjustness of the situation caused by the court ruling. While no one wants tenants to be financially ruined through an accidental mistake, it is clearly unjust to hold property owners financially responsible for tenants’ actions causing damage, no matter how large or small.

We were extremely pleased that Labour and Act have agreed in principle to support the Government in correcting the situation. This will be dependent on what legislative changes Government intends to make of course.

Minister of Housing, Nick Smith, could see that there were problems, however he doesn't want to see tenants financially ruined. Extra information was sought to clarify the situation so that any potential solutions could be correctly considered.

The NZPIF  Taking out some extremely large claims that skewed the results, the average claim for damage was estimated at $3,079. With approximately 7,000 claims to the Tribunal from landlords for damage each year, the cost to landlords is estimated at around $21m.

However this figure doesn't include all the informal instances where landlords agree to use their insurance cover and the tenant agrees to cover the excess. It also doesn't cover all the smaller instances of damage that tenants previously just sorted out themselves and paid for. Likewise it doesn't include the cases of tenants using their own contents insurance to cover the cost of damage they have caused.

It is highly likely that the real cost of damage that rental property owners will have to cover will be considerably higher than $21m.

Members have also provided copies of recent tribunal rulings where claims for tenant damages were dismissed. One of these involved a drunk tenant’s relative who fell through a skylight while fooling around on the roof. Why should a landlord have to cover the cost of this kind of activity?

In addition, there was also the outrageous case of a Foxton tenant whose tenancy agreement did not allow pets, but she kept dogs in the property anyway. The dogs were kept inside and defecated on the carpet more than 50 times in five separate rooms. Fifty separate excesses meant insurance didn't cover replacing the carpet and the owners claim for damages was dismissed.

This information has been provided to Minister Smith who has also requested extra information from his Ministry. We are organising further meetings very soon to hear what can be done to provide a suitable solution as fast as possible.

The NZPIF is hopeful that a suitable solution that protects tenants from financial ruin, but doesn't absolve them of all responsibility, can be found. We will be working hard to help develop this solution and get it into affect as soon as possible.

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