Tenants could face limited liability for some damage

Tenants could end up being liable for damage caused to a property through carelessness or negligence, however the maximum penalty is not particularly high.

Minister for Building and Housing Nick Smith, acknowledged at the NZ Property Investors Federation conference that recent court rulings are causing “angst” for landlords.

The most high profile of these rulings was the Court of Appeal ruling

“The issue is tenant damage to a property through carelessness or negligence. The latest court rulings mean landlords cannot recover the costs of this damage where they have insurance, including for their costs such as the excess. The problem with this approach is that it reduces the incentive for tenants to take good care of the property they rent. It also reduces the landlord’s incentive to have insurance as it lessens tenants’ responsibilities.

“My concern about this new interpretation is that it will add to the overall costs of the residential sector, driving up insurance costs and rents. However, we do not wish to return to the situation where tenants may be sued by their landlord’s insurance company for hundreds of thousands of dollars, such as with an accidental house fire.

“I am not satisfied with the way the law is being applied,” Smith said. “There’s no incentives to stop damage.”

Smith outlined to the conference some potential law changes to address this issue.

He said “costs need to fall where they will provide the strongest incentives to minimise carelessness and damage.”

“I’m not interested in just passing costs from the landlord to the tenant or vice versa.”

Smith said tenants are “best placed” to ensure damage isn’t done to a property.

He is proposing that tenants could be held liable for damage caused by carelessness or negligence up to the value of their landlord’s insurance excess but not exceeding four weeks’ rent, which is aligned with the standard tenancy bond.

There could be a different figure if it is explicitly agreed to in the tenancy agreement.

The NZ Property Investors Federation has yet to respond to the announcement, however it is likely to see this a move in the right direction.

Smith said that there needed to be more certainty and less disputes around these types of issues.

“The more fuzzy the law is in its interpretation the more it  drive up costs.”

He also said there needs to be the right incentives around insurance.

“I don’t want landlords discouraged from insuring their properties,” he said. Likewise he didn’t want landlords and tenants to have insurance for the same property.

Smith said the current law is quite clear on intentional damage and damage caused by criminal acts.

Likewise it is clear on damage caused by natural disasters such as earthquakes.

Smith said he wanted feedback on the ideas and what the appropriate limits should be.

While investors have signalled this is a significant issue, a Bill is unlikely to be tabled in Parliament until early next year.

Smith says what he is suggesting is broadly in line with laws in Australia and the United Kingdom.

“I realise this is causing angst and I want to find a solution,” he told delegates.

Comments from our readers

On 17 October 2016 at 8:15 pm Andrew said:
How about making tenants responsible for their actions. Its a ridiculous world we live in where Tenants that have the benefit of living in someones house who is taking all of the risk have such leniancy, Perhaps if some of these ministers lost $10k like we did to a rogue tenant and gutless laws their opinions may change. Harden up NZ this isnt Australia!
On 17 October 2016 at 8:39 pm Peter said:
If a tenant accidentially drives his uninsured car into the side of someone's Rolls Royce he is then entirely responsible for the cost of repairing that damage. Why then is he not entirely responsible for any accidential damage to my rental property?
On 15 December 2016 at 5:16 pm neville said:
This lawchange making the tenant held harmless for damage caused would be applauded by the greens and labour left.However the practical effect will be landlords will discriminate against the rough and unwashed multitude out there,by refusing to give them a start in their rentals, fearing the consequences if there is damage caused.This will mean the state will have to pick up the pieces ( more shortage of supply)caused by this illconcieved idea
On 12 January 2017 at 12:29 pm Carl de Malmanche said:
Make third party insurance compulsory for tenants. It puts the moral hazard back on them. Reduces risk to landlords. Bonds can be reduced as the risk reduces. Insurance companies are already set up to provide such things to drivers, and it spreads the cost. It allows bad tenants to be linked to their actions and identified , not via blame but through the increase in the cost of insurance cover. Good tenants would see their premiums fall. And such insurance is linked to the history of the tenant, not to individual properties. I have been discussing this with my Property Manager at Property Brokers but there is some resistance by insurance companies and legal experts (because it reduces their incomes from existing set up)
On 12 January 2017 at 1:19 pm Leila McGregor said:
It seems to me, as the law currently stand, tenants (those from rougher backgrounds, no conscience.) have little incentive to look after a property as there are basically no consequences for their actions, other than a bad reference. And even that may not deter a property manager from installing them into your property, especially if you don't live in the same city. NZ's laws are pathetic. Make both bad tenants and bad property managers accountable. Make the property management sector transparent, not as it stands now, where any cowboy can set up this business. These people often have property owner's entire life savings in their hands, and not all of us are investors. Some rent their homes out due to work situations/moving cities...
On 16 January 2017 at 4:32 pm Mike Eagle said:
I think this is a good compromise. I have always thought it wrong that a tenant should have to pay insurance or get cover when it has already been paid for by the landlord.
On 5 April 2017 at 10:31 am Brett said:
I think the balance is about right - deliberate/malicious v accidental...although I do get the point about the uninsured car and the Rolls Royce above. The key for me is that standard landlord insurance policies align with the new approach so that there is no gap between what the tenant is liable for and what the insurance covers....otherwise its a nightmare waiting to happen.
On 3 May 2018 at 10:49 am Lloyd Kane said:
Change the rental agreement to require tenants to hold their own insurance and that includes personal liability. Landlords could pay the premium for this cover and take it from the rent.
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