NZPIF slams limit on tenant liability for property damage

By Andrea Milner

Under the proposal, tenants will no longer have substantial liability for damage that they can prove they didn’t cause and couldn’t have prevented.

The proposed reforms are a resurrection of the Residential Tenancies (Damage Insurance) Amendment Bill, which was canned in September 2006 following widespread criticism from both insurance industry and landlords’ organisations.

President of the NZPIF Martin Evans says the federation is “severely disappointed” that this has resurfaced when Parliament dismissed the original proposal.
 
“As with the original, the latest proposal was not developed with any landlord or insurance company input,” Evans says.

“Once again it is noteworthy that Tenancy Services continue to develop policy without consultation with affected parties,” agreed Scotney Williams, principal of Tenancy Practice Service, a consultancy that advises landlords and tenants on the RTA.
 
“The onus will still be on the landlord to recover costs from the tenant, who is likely to have absconded to avoid any liability,” says Evans.
 
He says the NZPIF would prefer that the RTA require tenants to have their own insurance cover as a condition of their tenancy agreement.
 
Tenants can and will blame their ‘guests’ for property damage to avoid liability, Evans says.
 
“The government would do well to consider the serious financial implications of this poorly thought through proposal on their own housing stock of 67,000 properties,” he warned.
 
President of the Auckland Property Investors’ Association Andrew King believes the proposal is a solution to a problem that no longer exists because most tenants have contents insurance or third party liability insurance that covers them if they or a guest cause damage to a rental property.

“If they choose not to take out insurance, then that is their decision,” King says.
 
He thinks there are other steps the government can take to address the issue, such as making it compulsory for landlords to get tenants to sign a statement on their risk exposure if they are not insured. “Tenants would then be in a position to make an informed choice on whether they take out insurance or not.”
 
“Another option would be compulsory insurance for tenants. Tenants would have to prove to landlords that they have contents insurance or at least third party liability insurance before being granted a tenancy. This would not add an extra layer to landlords’ insurance premiums, and tenants could gain the benefits of no claim bonuses.”

Tenancy Practice Service’s Williams says the proposed amendment “seems to fail completely in making liability fair”. 

“The proposal is fatally flawed, in that it clearly intends to permit tenants to be careless and do damage and to not be made liable for the real cost of the damage, but only for a pathetic four weeks’ rent.” 

The proposed changes to limit tenants’ liability for damage that they did not cause and could not reasonably have prevented require a tenant to prove that carelessness and not recklessness or intentional misbehaviour caused the damage, or that none of the tenants personally caused (or failed to prevent) the damage. The Department of Building and Housing says this means people that cause substantial damage through reckless or intentional acts, and those tenants that sit by and let it happen, will retain responsibility for the damage. But tenants will no longer have substantial liability for damage that they didn’t cause and couldn’t have prevented.
 
Williams says liability is going to depend upon whether the Tenancy Tribunal determines on the facts whether the tenant’s act or omission amounts to merely careless behaviour, or to reckless behaviour. “It is very predictable that the Tribunal will find most acts careless rather than reckless,” Williams says.    

“Insurance companies should be concerned about this proposal because it will, without doubt, affect their ability to recover losses.”

If the government wants to reduce tenants’ risk, Williams says, then it should require tenants to have their own insurance policies.