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Tenant's liability amended

10 Jul 2017

The Residential Tenancies Amendment Bill currently before Parliament seeks to address issues with the original legislation such as liability for damage to rental premises caused by a tenant.

The Bill deems the landlord liable where damage results from a careless act by a tenant, but stipulates the tenant will need to pay the excess on the landlord’s insurance.

While most landlord policy excesses are around $400, the tenant’s liability will be capped at four weeks’ rent for each incident of damage caused by carelessness.

The Bill’s Regulatory Impact Statement (RIS) says for 25% of renters nationwide, payment will be capped at more than $1,996, for 50% of renters: between $1,116 and $1,996, and for 25% of renters: less than $1,116.

Tenants will remain fully liable if they damage a property deliberately or through a criminal act. Meanwhile landlords will remain liable for fair wear and tear and damage beyond the control of the tenants, like a natural disaster.

Insurance companies will also be prevented from using their right of subrogation to pursue tenants for causing damage.

Building and Construction Minister Nick Smith has addressed this issue of liability, as a 2016 Court of Appeal decision in the Holler vs Osaki case put the onus on landlords to pay for damage caused by a tenant’s carelessness or negligence.

The ruling was seen as a game-changer for insurers and was met with much opposition from landlords.

Smith says the settings under the Bill “strike a balance between incentivising tenants to take reasonable care of the premises they rent, and protecting tenants from very high cost and risk.

“The Bill also encourages cost efficient insurance arrangements, which will reduce disputes, litigation and the potential for double up of insurance arrangements.”

However the RIS says: “An unintended consequence could be that insurers increase premiums for landlords which are passed on to tenants in the form of rent increases (anticipating more claims from landlords in general).”

The Insurance Council of New Zealand (ICNZ) has warned this could be the case, the RIS explaining: “ICNZ prefers an unlimited cap on liability because it considers that without an effective incentive on tenants to take care of their landlord’s property, the incidence and cost of tenant damage is likely to rise over time.”

Furthermore, the RIS points out: “Landlords could increase insurance excesses to the level of four weeks’ rent to limit their risk, but not pass on savings to tenant in terms of rent reductions.

“This is mitigated by the need for landlords to disclose their insurance arrangements to the tenant at the beginning of the tenancy and during the tenancy if there were changes to the policy.”



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