Taranaki Property Investors' Association

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15-10-2016

Tenancy law change on damage claims being considered

The Government is considering changes to the Residential Tenancy Act over when property damage costs can be reclaimed from tenants, Building and Housing Minister Dr Nick Smith says.

“This review has been prompted by recent court decisions and Tenancy Tribunal rulings, which have sparked confusion over how the Residential Tenancy Act (1986) and the Property Law Act (2007) interact. This is resulting in uncertainty for landlords and tenants, and is affecting the effective functioning of the Tenancy Tribunal.

“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.

“The proposal I am considering is that tenants would be 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. A different amount could be mutually agreed if specifically provided for in the tenancy agreement and would enable the tenant, if they wished, to take out their own insurance.

“The tenant would remain fully liable for damage caused intentionally or caused by a criminal act, with no limitation. The landlord would remain liable for fair wear and tear, and any damage caused to the property by an event beyond the tenant’s control, such as a storm or an earthquake.

“I have asked the Ministry of Business, Innovation and Employment to do targeted consultation with tenant and landlord organisations, and the insurance sector, on possible amendments. I am particularly interested in views on what is an appropriate limit on tenants’ liabilities.

“New Zealand has 450,000 tenanted properties, and both tenants and landlords need certainty about their rights and responsibilities. I am looking for a practical solution that will work for both tenants and landlords.”

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