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.