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Tenant's Liability For Damage

Andrew King outlines the Holler versus Osaki case and how it has placed the financial burden of tenant damage onto the landlord.

By: Andrew King

31 August 2016

In 2009, tenant Mrs Osaki left a pot of oil unattended on the stove. A fire broke out, causing over $200,000 damage.

The property was repaired through the owner’s insurance, but the insurance company decided to seek the cost of the damage from the Osakis.

The Tenancy Tribunal held that the Osakis were liable for damage. However, the case went to the district court and court of appeal, which decided that tenants should have the protection of the Property Law Act (PLA), which says that commercial tenants cannot be held responsible for damage they cause if the landlord has insurance to cover the damage. The PLA does allow the tenant to pay the excess however.

Many sections of the Residential Tenancies Act (RTA) clarify that tenants are responsible for any damage they cause to a rental property. Section 142(1) even states that “nothing in ... the Property Law Act 2007 applies to a tenancy to which this Act applies.” Despite this clear statement, the court has determined that section 142(2), which says Tenancy Adjudicators "may" look to the PLA actually means they "have to" look to the PLA.

The court says that by implementing section 142(2) of the RTA, the intent of Government was to treat commercial and residential tenants the same with regard to liability for damage. However, Hansard reports show that this is not the case. Before section 142 (2) was introduced, Labour proposed to limit tenant liability for damage to four weeks. This lesser reduction of tenant liability for damage was not passed, showing that Government did not intend for residential tenants to be completely unaccountable for accidental damage they cause.

While it is understandable that the court wants to prevent the financial ruin of tenants causing severe and unintentional damage, most cases of damage are more minor. Many claims are treated as separate incidences by insurers, meaning rental property owners cannot rely on their insurance to cover their tenant’s damage.

Excess Premium

Despite the PLA allowing commercial tenants to pay for the excess, the Tenancy Tribunal is not allowing this for residential tenants. This seems highly inconsistent. As insurance companies view separate damages as separate claims, multiple excesses effectively remove the benefit of insurance cover.

To protect themselves, rental property owners could be forced to change their insurance policies and lower the excess to zero and apply the extra premium cost onto the rental price. Should this happen, tenants who have contents insurance will effectively be paying twice to cover any damage they may cause.

The court's decision and how it has been implemented by the Tenancy Tribunal has increased the risk of rental property damage and placed the financial burden of tenant damage, large or small, onto the property owner. This is completely unjust and the NZ Property Investors' Federation is seeking to have the situation reverted to how it was previously.

As the court’s decision cannot be appealed to a higher court, the only option is legislative change to have the RTA amended. Seeking such a change, the NZPIF has arranged meetings with Government and Labour MPs.

We will be recommending that the RTA section 142(2) be amended so that it cannot be interpreted by courts that the PLA overrides the RTA; and that tenants are responsible for any damage they cause.

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