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Changes Keep Coming

Legislation addressing several controversial issues, like tenant liablity for damage, recently passed into law. Miriam Bell reports on what it means for landlords.

By: Miriam Bell

1 September 2019

It all started with a pot of hot cooking oil. Famously, that pot was left unattended on a Dunedin rental property’s stovetop back in 2009. The hot oil started a fire and the house burnt down. The resulting court battle over the costs involved led to the Court of Appeal’s controversial Osaki decision in 2016.

Prior to the Osaki decision, residential tenants had always been responsible for damage that they caused to their rental property. But everything changed with Osaki and landlords were left liable for accidental damage caused by tenants.

Landlord advocates have been lobbying for change ever since. The widespread dismay around the issue prompted the previous National-led Government to introduce the Residential Tenancies Amendment Bill (No. 2) into Parliament.

As the Bill made its way through the Parliamentary process, its scope was expanded to also address public concerns around meth contamination in rental properties and unlawful residential dwellings, like illegally converted garages or sleep-outs.

In July, the Bill sailed through its final reading in parliament with unanimous support and then received Royal Assent shortly afterwards. That means the changes contained in the Residential Tenancies Amendment Act 2019 are now law.

And, as they took effect on August 27, 2019, landlords need to know about them and what they might mean for their tenancies. Here’s our rundown of all the changes, along with feedback on them from some property experts.

Tenant Damage Liability

For the general public, meth contamination and unlawful dwellings are the headline grabbing issues. But for landlords it’s always been tenant liability for damage that is the bigger, more troublesome problem.

Associate Minister of Housing Kris Faafoi says the new legislation makes practical changes to help ensure tenancy laws better reflect responsibility for careless damage of rental properties. “These changes will provide greater certainty to landlords, minimise cost and risk, and ensure tenants have the right information when deciding if they will rent a property.”

Under the new legislation, tenants will be liable for careless damage of up to four weeks’ rent or their landlord’s insurance excess, whichever is lower. Their liability for careless damage will be capped at four weeks of market rent.

Faafoi says these settings strike an appropriate balance between keeping landlords’ costs as neutral as possible and incentivising tenants to take care of rental properties. “They will help protect tenants from excessive risks and costs and should also encourage cost-effective insurance arrangements for landlords.”

Landlords must also now disclose their insurance information in a new tenancy agreement. This includes whether the property is insured and if it is, what the excess amount is. There must also be a statement in the tenancy agreement informing the tenant that a copy of their insurance policy is available on request.

Tenants on existing tenancies can ask their landlords for this insurance information and it must be provided within a reasonable timeframe. If a landlord doesn’t provide this information, or if they don’t tell tenants if this information changes, they may be liable for a penalty of up to $500.

That’s because tenants have a right to know the level of their liability for careless damage, Faafoi adds. “Bringing the level of their liability to their attention will incentivise them to take care of rental properties.”

Further Clarification Needed

Investor advocates have mixed feelings on the changes. But for NZ Property Investors’ Federation executive officer Andrew King, there’s no doubt they are an improvement on the problems and confusion that previously surrounded these issues.

The NZPIF is pleased that tenants are now at least partially responsible for the damage they cause to their rental property, he says. But while it is an improvement on the current situation, he thinks it is a complicated solution and could still lead to injustices for both tenants and landlords.

“Tenants’ liability will be determined by how much rent they pay and the landlord’s excess rather than the actual damage. Both landlords and tenants may have to pay considerable amounts of money depending on how many incidents of damage the insurer and Tenancy Tribunal decide have occurred. And there are still issues around how damage is categorised.”

On a practical note, Real-iQ Property Management director David Faulkner says there has to be greater clarification of aspects of the new law. For example, what information needs to be put in tenancy agreements.

“Is it enough to put in just one line saying what insurance is in place and the excess? Or does there need to be much more detail? And insurance information needs to be provided in ‘reasonable time’ but what constitutes a ‘reasonable’ timeframe? More guidance is necessary.”

Faulkner’s advice to landlords is that if they notice damages to their rental property they shouldn’t wait until the end of a tenancy to address it. “Doing it that way will limit what they can claim. Better to pursue something right away so that lots of incidents are not lumped together as one, which limits things.”

Meth Contamination

The new legislation also addresses meth contamination in rental properties – although it now applies to “contaminants” more generally rather than solely focusing on meth.

First up, landlords can test for meth while tenants are living there, but they have to give 48 hours’ notice before entering the property, or 24 hours’ before entering a boarding house room. They have to tell the tenant what contaminant they are testing for and share the results with the tenant within seven days of receiving them.

Critically, there’s also regulationmaking power in the new legislation. That means any contaminant identified as harmful to health can be dealt with by regulations. Over the next year, new regulations will be developed to prescribe the acceptable level for meth contamination, processes for testing and decontamination of rental properties.

Once relevant regulations are in place, landlords will not be able to knowingly rent premises that are contaminated above the prescribed level, without decontaminating in accordance with the regulations. They will be liable for a financial penalty of up to $4,000 if they do so.

King says the legislation clarifies a number of issues but doesn’t settle the confusion around meth levels.

That’s because while last year’s Gluckman report recommends there should be a minimum standard of 15 micrograms per 100cm2 for meth contamination, the standard that is officially in force is the NZS standard of 1.5 micrograms per 100cm2. And insurance companies are sticking to it, until there is an official change.

Change is likely to come: it’s just uncertain when. In King’s view, it’s likely that any new regulation will be consistent with the 15 micrograms standard recommended in the Gluckman report.

“The problem is that until those new regulations are developed, landlords are still in limbo. Given the Tribunal now uses the Gluckman recommended standard of 15 micrograms, it’s reasonable to say we can go on that. But there’s still some resistance to it and we won’t know for sure what the situation is until new regulations have been developed and made public.”

However, it’s good there is now a definition of contamination, and clarification on issues like habitability, testing and decontamination processes, he says.

Faulkner agrees there needs to be clarification on meth contamination levels. “At some point, the Government will say this is the standard and this is what you need to abide by. But until then… We really need insurers to clarify their position and what the situation is for landlords. Because we are still scratching our heads over it.”

‘The risks are now just too big not to have a compliant property. There are material consequences for not following the law on this one’ DAVID FAULKNER

Further complicating the matter is that the law applies to all potentially harmful contaminants, such as asbestos or mould for example, he says. That means there is a lot to cover and clarify in new regulations.

“But the reality is that mould is a bigger, more genuine problem for many. It has a very harmful impact on people’s health and does more damage than meth. It needs to be addressed. And so the focus should be on healthy homes and things like mould that we know hurts people rather than meth.”

Unlawful Dwellings

Finally, the law which deals with unlawful residential properties - like illegally converted garages, sleep-outs, warehouses or industrial buildings - has now been strengthened.

This has been done by amending the definition of “residential premises” in the Residential Tenancies Act (RTA). Now, whether or not a property can be legally lived in, it will be considered residential premises under the RTA if it has tenants living in it.

The change gives the Tenancy Tribunal full jurisdiction over cases concerning premises that are unlawful for residential purposes. It also means Tenancy Services will be able to take enforcement action against landlords who breach the RTA as they must comply with all legal requirements relating to buildings and health and safety.

King says the changes partially address some of the problems associated with unlawful dwellings, but not fully, and leave lots of grey areas.

“[It] is a better definition of what constitutes an unlawful dwelling and it gives the Tribunal more scope in hearings, to make awards and to dismiss claims. But how it will work in practice will come down to how the chief adjudicator determines it.”

Going forward, it would pay for people who do have unconsented dwellings on their rental properties to address the issue in order to keep safely on side with the law, he adds.

In many ways, the change should serve as a big wake-up call for landlords. Faulkner sees many properties which fit within the building code but are not consented.

That’s no longer acceptable, especially if a property is unsafe for tenants, he says. “The risks are now just too big not to have a compliant property. We are talking about rent having to be refunded and so on. There are material consequences for not following the law on this one.”

But it’s also creating an environment where some tenants are developing a sense of entitlement, he continues. “We will see some clued up, opportunistic tenants preying on under-educated and naïve landlords to try and get money back. Unfortunately, this is a growing trend and we’ll see more of it.”

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