1. Home
  2.  / Insuring Damage

Insuring Damage

What can a landlord do to get a tenant to compensate them for damage to a rental property to the extent that they are liable for?

By: Property Investor Team

30 September 2019


Regarding the new law where landlords have to provide insurance information to a new tenant so that the tenant will know their liability (which is bond money or the landlord’s insurance excess, whichever is lower). It means that tenants can get away with trashing a property only to pay the excess amount of landlord’s insurance, which would always be lower than bond money.

Are there any other tactics which would bind tenants for what they are actually liable for? For example, would increasing the excess to of insurance to more than $2,000 give some relief to a landlord?


Intentional damage is not just limited to the amount of the landlord’s excess. If a tenant “trashes” a property and it was intentional, the tenant can be held responsible for the total cost of the damage.

Contrast this with a tenant leaving a house in a poor state caused by careless damage – due to pets for example. In this case, the tenant is liable per careless damage “event” to the extent of the landlord’s excess or four weeks’ rent (whichever is lesser). So the tenant has responsibility for careless damage on a per event basis, not a per tenancy basis.

Regular property inspections and communication with tenants helps to identify such “events”. If you leave it to the end of the tenancy to hold the tenant responsible, then you might come up short.

Trying to get more relief by increasing your rental property insurance excess may backfire as the excess for accidental damage, such as a burst water pipe, is your responsibility. So you’ll end up paying the higher excess too.

To further complicate this, the legislation’s approach to “careless damage” is ambiguous. It’s not a given that all tenant-related damage is the responsibility of the tenant. For example, if a tenant accidentally spills wine on the carpet is that careless or accidental? Government guidance or a Tenancy Tribunal decision is needed to provide us with much-needed clarity in this area. - Rene Swindley

Trust Matters


The Trust owns the property. As a beneficiary of the Trust I currently stay in the house and the mortgage is under my name. So when I buy my own house under my personal name, what is the best position to hold the current house (which will then be an investment property)? Is it to continue to hold it under the Trust or move it to an Look Through Company (LTC)? And what about the bright line test?


While I cannot give you a definitive answer without knowing more of your circumstances, I can outline what is likely to be the best structure for you. A key thing you want to achieve is a good mix of asset protection and tax outcomes. From an asset protection perspective, you want to protect any property that you occupy as your home in a trust. Accordingly, I suggest you settle the new home into your Trust.

From a tax perspective you want to make sure that your bank borrowing is structured effectively. The way to achieve this is to have a rental company established (which could be an LTC) and have that company buy your existing home (which is going to become a rental) from the Trust. The company can then undertake borrowing up to the purchase price of the ex-home and the interest on this will be deductible.

This will provide you with good asset protection and an effective tax outcome, but there are potential adverse tax consequences that need to be considered. One is the bright line rule. If your existing home has been held for less than two years then the bright-line rule may apply to it, although there is a main home exemption. Be aware that a new five-year bright-line period will then apply to the property in the rental company. I would suggest you get specific professional advice to guide you. - Matthew Gilligan

Equity For Family Purchase?


We own a home in Cambridge. Its value on Homes.co.nz is $845,000 to $920,000. The outstanding amount on the mortgage is $460,000. Both my wife and I are self-employed and we have three kids.

As we are self-employed, our accountant does a good job showing as little as possible income. Our total income is $170,000 but our net profit is only $80,000. Our cars are in cash. We have credit card debt of about $20,000.

Our parents are South African and we would like to buy a property with them in New Zealand using the equity in our house. What do they need to bring to the table so we can use our equity? How can we set this up so we can do something like this together?


Based on the information you’ve provided it is unlikely you will meet bank affordability requirements for further funding at this stage. In regard to your parents:

‘If you leave it to the end of the tenancy to hold the tenant responsible, then you might come up short'

I presume they are living in South Africa and, because of the non-resident rule change, they wouldn’t be able to buy with you unless they can give you cash to assist a purchase. If this is the case, check with a solicitor to make sure everything is fine. - Kris Pedersen

Unruly Neighbour


We recently purchased a downstairs unit in a block of four. The upstairs units are owner occupied and the downstairs units are rentals. One of the owner-occupiers in the block is disruptive, often shouting loudly and being abusive. She is set off by tenants doing normal things and going about their lives.

This has resulted in difficulty securing tenants for the unit below, which has been vacant for most of six months. The police have been called on multiple occasions but it is an ongoing occurrence. Our cross-lease agreement states to “refrain from excessive noise or disturbance”. What options do we have given that she is not approachable, may have mental health problems and the police haven’t been able to help.


As you may have deduced, this is a neighbour issue. It is not an issue between landlord and tenant. I recommend that you keep calling the local authority’s noise control number and repeatedly complain about the neighbour. There are noise control bylaws which apply within a local authority area, and these are intended to regulate excessive noise in the interests of neighbours.

If you don’t get the response that you need and the unruly behaviour continues, call the police. Another alternative may be to make an application against the neighbour in the Disputes Tribunal, claiming a financial remedy against the neighbour for “failing to refrain from excessive noise or disturbance”. If you document the episodes well you may be successful in achieving an order from the Disputes Tribunal. - Bernard Parker

Granny Flat Taxes


We’ve purchased an investment property for my elderly mother to live in. She is paying us below market rent, which covers our mortgage payments. The insulation and heating standards are below par, but she is on the pension/community services card and a gold card member. What are the tax implications for this arrangement? Do we/she qualify for any subsidies for upgrading the house insulation/heating if she’s not on the title?


Your mum is a related party to you and, for family reasons, you have chosen not to seek a market rent from her. In these circumstances a full deduction for costs is not available to the extent that losses could be created. That’s because it would amount to a tax deduction for the discount you are allowing your mother, which is a private and domestic arrangement. It is acceptable to claim a deduction to the extent that rent is derived but not acceptable to go beyond that to deduct a loss.

Anyway, a loss from residential renting is now ring fenced from deduction against other income. I would like to point out that there is no “main home” exemption available to you from the bright line as the house is the home of your mother but she is not the property’s owner. This means that should the house be sold within five years any gain on disposal is taxable under the bright line test.

Your question about heating subsidies is outside my area of expertise but I suggest you check with Work and Income. As for insulation, the house is rented and so there is an obligation to ensure it is adequately insulated. - Mark Withers

‘Tenants in a rental property which does not meet insulation requirements have several options, including going to the Tenancy Tribunal’

Insulation Compliance


We are booked in for underfloor insulation to be installed in our rental property but it will be a few months before it can be done. Our tenants have informed us we are in breach - which we are aware of. But it is not possible to get the insulating done before then due to the high demand.

We want to terminate the tenancy to ensure our safety and have the property untenanted until insulation is compliant. But we are worried the tenants will try and prosecute due to non-compliance. Is there any cover for landlords who have insulation booked in but can’t complete it due to the lack of tradies available to do this?


No. The requirements to insulate the ceiling and underfloor where reasonably practicable by July 1, 2019 have been widely publicised since July 1, 2016. As the changes were announced three years ago, no grace period has been allowed. Tenants in a rental property which does not meet insulation requirements have several options, including going to the Tenancy Tribunal. The Tribunal will determine whether an order of exemplary damages is appropriate. It will consider whether the breach was intentional, the intent of the landlord, the effect on the tenant, and the interests of the tenant when making its decision. To end a periodic tenancy, the landlord must give at least 90 days’ written notice. The landlord or tenant can’t give notice to end a fixed term tenancy early unless both parties agree to end it early. Even once notice has been provided, the tenancy is subject to current renting law until the end date. Landlords must ensure that when giving notice to terminate a tenancy it is not “retaliatory notice”. This is terminating a tenancy due to a tenant exercising their rights. - Jennifer Sykes

Related Articles