Unintended consequence
An unintended consequence of the 2016 Osaki ruling (see a previous blog – Osaki Case Appeal Ruling) in which the Court of Appeal determined that ‘the tenant is not liable for careless damage where it is covered by the owner’s insurance’, is that it has made it difficult to hold a tenant responsible for any damage to a rental property. The ruling means that unless the damage can be proved to be deliberate, the owner is not able to make a claim against the tenant and the Tenancy Tribunal is also bound by this decision.
Liability for careless damage to go back to tenants
The Residential Tenancies Amendment Bill (No 2), which is currently due to have its second reading, seeks to redress this situation and put the liability for careless damage back onto the tenant. If enacted, it will put a cost back onto the tenants for any damage that may have occurred through their carelessness or negligence. This cost will be either the amount of the owner’s insurance excess or four weeks rent, whichever is the lesser.
Who will this benefit?
Although this may not seem to be a large amount of liability on the tenants, it will serve to provide more incentive to take care of their rental property while at the same time limiting their liability (in reality most tenants would not have the ability to take on the full cost of reparation). It also ensures that owners are not out of pocket for careless damage but also recognises that most owners will have insurance and will benefit from the reparation work.
Are there other options for the tenant?
Under the Amendment Bill, if allowed in the tenancy agreement or with the agreement between both the owner and the tenant, the tenant may repair the damage up to the cost of their liability limit (as described above).
What if the owner has no insurance?
If an owner does not have property insurance, the tenant could be liable for the full cost of reparation. This means tenants must be able to access the owner’s insurance information, such as whether their landlord has insurance and what the insurance excess is, where it relates to their liability.
Conclusion
The amendment to the Act will reinstitute and clarify the situation with regard to careless damage by tenants that existed prior to the Court of Appeal ruling, making it fairer for property owners while at the same time, ensuring that tenants have a responsibility to take care of their rental property.
For more information on careless damage by tenants, go to the MBIE websites:
Talk to us
If you have any questions about this subject or any of the other Nightingale Properties blogs, please feel free to call or email us on 029 200 3950 or len@nightingales.net.nz.