The Osaki case ruling by the Appeal Court, made on 15 April 2016, is likely to have significant implications for landlords (see my previous blog article, A Question of Law, on the Osaki case).
In 2009, the Osaki case successfully argued that under sections 268 and 269 of the Property Law Act 2007 (PLA), the landlord’s insurer cannot recover the cost of damage to a property caused by a tenant in a residential situation even though sections 268 and 269 of the PLA refer to immunity from inadvertent damage for commercial tenants.
Appeal Court ruling
The Appeal Court had to answer two questions:
1. Whether residential tenants should be immune from claims by the landlord where the loss or damage to the rental property was caused negligently by the tenant or the tenant’s guests, and
2. Whether Parliament intended different outcomes to be adopted for commercial and residential tenancies based on the interpretations of the Property Law Act and the Residential Tenancies Act 1986 (RTA).
In the case of the first question the answer was a definitive, “Yes, sometimes,” despite the fact that section 142.1 of the RTA states that: ‘Nothing in Part 4 of the Property Law Act 2007 applies to a tenancy to which this Act applies.’ In the case of the second question the answer was no, and the appeal was dismissed.
So what does this mean for landlords?
At the moment, the full implications of the ruling are unclear. On the face it, damage to a rental property, even when the damage has occurred as a result of tenant negligence, is not likely to be able to be recovered from the tenant.Until this has been tested in court and a precedent created, it is impossible to know what the full consequences of this outcome may be and it may ultimately need to be resolved by Parliament.
Other potentially undesirable consequences
In the meantime, there are a number of other potentially undesirable consequences of the ruling for both landlords and tenants including:
- Insurance premiums for landlords may increase, while tenants will no longer require personal liability insurance.
- The increased insurance premiums are likely to result in rent increases for tenants.
- Tenants may become more casual in how they treat and care for the property they are renting.
- There may be discrimination against some prospective tenants, such as students and families with young children, because they are seen as ‘higher risk’ tenants.
For you who are interested in further reading on the Osaki case, please click on the following links: