It started out with the Osaki decision, a landmark Tenancy Tribunal case that handed down the decision which clarified that residential tenancy law meant tenants were not to be held liable for careless damage.

With landlords in uproar all over the country, the principal tenancy adjudicator put out a practice note further clarifying that landlords couldn’t even charge the excess of their insurance policy to tenants in cases of unintentional damage.

The pressure was on the previous government to acknowledge the issue of negligent damage by tenants and it tried to tackle it in the Residential Tenancies Amendment Bill (No 2) which is due to receive Royal Assent shortly.

But while not all details are known about the new legislation, there have been some new developments on the “unintentional” versus “intentional” damage front in Tenancy Tribunal and District Court cases that may help landlords prove intention when they are facing a case of negligent or careless damage to their property.

A Deliberate Act

The new legislation will seek to ensure tenants aren’t liable for any unintentional damage, says Tenancy.co.nz principal Scotney Williams, but there are exceptions where landlords can claim for damage caused by negligence.

In a 2016 case, Tekoa Trust v Stewart, whereby the tenant’s dog was allowed to urinate inside the house causing a significant amount of damage to the carpet, there was no compensation awarded to the landlord due to the adjudicator’s interpretation of the word “intentional”. However landlord Tekoa Trust appealed to the District Court, where Judge Smith overturned this decision, by re-examining the interpretation of the law made at the Tenancy Tribunal.

The verdict was in favour of the landlord, with Judge Smith citing the following interpretation of intentional damage:

“After a dog had urinated on the carpet once or possibly twice, continuing to allow the dog to enter the property on numerous occasions, which would have been required to damage the carpets to the extent shown, was a deliberate intentional act by the tenant.”

Further, “the tenant would have known that the dog(s) would continue to urinate and that the damage was virtually certain to result in the way in which it did by allowing the dog to continually enter the premises.”

‘The tenant would have known that the dog(s) would continue to urinate and that the damage was virtually certain to result in the way in which it did by allowing the dog to continually enter the premises’ JUDGE D G SMITH

Williams says this decision was significant and paved the way for landlords to prove their case where they perceive continued carelessness or negligence by a tenant has caused damage to their property.

“It means that if a tenant embarks on a course of behaviour day after day after day, that even though that behaviour may genuinely have been described as careless or unintentional, where it goes on for a period of time and ultimately causes damage to the landlord’s dwelling then the Tribunal is going to be able to find that it’s intentional because the tenant failed to take reasonable steps to mitigate that damage occurring.”

No Insurance?

The proposed legislation will ensure tenants aren’t liable for unintentional damage, except in the case where the tenant has committed an imprisonable offence (such as methamphetamine damage).

But one of the important aspects of the proposed legislation is that it will restore the landlord’s right to claim for accidental or unintentional damage up to the excess of the landlord’s insurance policy, further limited to a maximum value of four weeks’ rent equivalent.

This becomes interesting when your insurance policy exempts certain types of damage, says Williams, for example, damage caused by pets.

In that case, Williams says a landlord would be considered uninsured. Therefore it’s key to understand exactly what you are insured for before you go to the Tenancy Tribunal.

“So before [landlords] do any preparation at all, it’s important to ask themselves, ‘have I got insurance?’ and ‘is this intentional damage?’ and if it is, ‘how would I prove that to the adjudicator?’”

The burden of proof lies on the landlord.

“If you believe you don’t have insurance, get your policy out and highlight the clause where it says ‘we will not pay for damage done by domestic animals’. That would be the landlord’s intro to say that they didn’t have insurance for damage caused by the tenant’s dog.”

All insurance policies are unique, so it’s critical to understand what your policy insures you against.

Williams also advises landlords to tailor their excess to about four week’s rent, “Because in the event that you might suffer loss, you might as well have the ability to sue for it to the maximum degree. There’s no point in having a $500 excess if the rent is $800 a week and you can sue for up to $3,200 dollars.”

The greater the excess, the less the premium payments will be, says Williams.

A Lifestyle Of Intent

Real iQ director David Faulkner sites another example of a Tenancy Tribunal case in Wellington, where the result was in favour of the landlord/property management company.

The tenant in question kept about five or six cats inside the house despite it being against the tenancy agreement.

“The tenant intentionally kept these cats in the property which led to inevitable damage,” says Faulkner. “The argument was that the tenant had adopted a way of life that had led to inevitable damage – and in that sense it was intentional damage, because the tenant would have known what was going to happen and done nothing to prevent it.”

‘In the event that you might suffer loss, you might as well have the ability to sue for it to the maximum degree’ SCOTNEY WILLIAMS

Faulkner says landlords have to look at how the tenant is living in the property. “The terminology that we teach property managers, is that if the tenant’s ‘leading a way of life that will inevitably cause damage’, then that is intentional damage and you should claim for that at the Tenancy Tribunal.”

Private Compensation Off The Cards

If there isn’t enough evidence to prove negligence, or if a tenant is happy to admit liability for unintentional or careless damage, the landlord and tenant have often negotiated a mutually beneficial outcome.

Investor Glenn Morris had an outgoing tenant in December 2018 who caused damage to the gutter on the flat with a hired furniture trailer. The damage was reported to him by a neighbour.

“Things got a bit tense about claiming costs – [it was] just the sort of thing Tribunal would claim was accidental and should be covered by insurance.”

Morris initially suggested the damage might be covered by her motor vehicle insurance, but in the end the pair agreed that he would take the cost of the repair out of her bond.

“In the end because she wanted the bulk of her bond she finally signed. It’s an example of knowing the rules and knowing what the Tribunal would do.”

However, one of the captures within the new legislation is that a landlord will not be able to ask or receive payment by a tenant for accidental damage – this means voluntary payments will not be acceptable.

When it comes to partially refunding a bond, the unintentional damage exemption still applies, so if you’re going to negotiate an adjustment to the bond refund with your tenant, then you will need to know that your case would stand up at the Tenancy Tribunal.