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Who Pays For Damage?

Recent changes to the Residential Tenancies Act (RTA) means there’s confusion amongst landlords on who pays for damage, Rene Swindley explains who’s liable.

By: Rene Swindley

31 August 2019

On August 27, 2019, changes to laws around tenant damage and meth contamination will come into effect. Some of these changes include:

  • Limiting tenants’ liability for careless damage in rental properties
  • Enabling landlords to recover damage from the tenant, in some cases
  • Allowing tenants protection under the landlord’s insurance policy
  • Preventing insurers from pursuing tenants for unintentional damage
  • Giving Tenancy Services the ability to take enforcement action against landlords who rent properties which don’t meet minimum standards
  • Allowing for regulations to address how contamination of rental properties is tested and managed.

Who Pays For Damage?

It depends on how the damage was caused. There are four ways a rental property can suffer damage:

  • Accidental damage – for example, electrical fire, leaking water pipe . Anything out of the tenant’s control. If the property is insured the landlord’s insurer is to bear the cost of this damage, and the landlord pays the excess.
  • Accidental damage by tenant – for example, tenant slipped and spilled red wine on the carpet. As this is still accidental, the tenant has no liability. The landlord’s insurer pays for the damage, and the landlord pays the excess. Tenant cannot be made to pay the excess.
  • Careless damage by tenant – for example, leaving a pot cooking on the stove and going to bed. The tenant is liable but the maximum amount payable is the landlord’s insurance excess, or four weeks’ rent (whichever is lesser). Effectively the tenant receives the protection provided by the landlords insurance.
  • Intentional damage by tenant – for example, tenant smashes holes in the walls. The tenant is liable for the entire cost of the damage. The landlord can request that the tenant repair the damage, but if the landlord is properly insured, they will be covered for these situations. In these cases, it’s best to lodge a claim and allow the insurer to pursue the tenant for the cost of repairs, and the excess the landlord paid.

What About Meth Contamination?

The Act allows landlords the right to give notice and enter the property to test for meth contamination. If the property is found to contain unsafe levels, both landlord and tenant have rights to terminate the tenancy: the landlord with a notice period of seven days, whereas the tenant only needs to provide two days’ notice. If a landlord knowingly rents a meth contaminated property, the tenant can be awarded damages of up to $4,000.

Given that the manufacture, use and/or possession of meth is a criminal offence, the tenant is not excused from liability and has no protection from the landlord’s insurance policy. Unfortunately, the likelihood of recovering costs for meth damage is extremely low: it’s often difficult to prove it was the tenant, and typically meth addicts don’t have the money to pay for repairs.

Straightforwad, Right?

Wrong. We expect to see disputes between landlords and tenants over the cause of the damage, which ultimately determines who pays the excess. For example, a tenant places a hot pot on the kitchen bench and a replacement bench top is required. The tenant argues it was an accident, while the landlord believes it was careless damage. Whoever is right, doesn’t need to pay the excess.

If the landlord and tenant cannot agree, the landlord can apply to the Tenancy Tribunal for a resolution.

Should Landlords Increase Their Excess?

It’s not recommended. Just continue to choose an excess that you can financially sustain.

Many landlords have misunderstood the changes to the RTA and believe that the tenant will be responsible for the insurance excess on all claims. As a result, landlords have increased their insurance excess to approximately four weeks’ rent. This is not recommended.

Landlords need to be aware that with an increased excess, the higher amount will apply to ALL claims, not just the seldom situation where the tenant can be held responsible for the damage

Initio is a New Zealand based online property insurance provider. Founded in 2011 by a couple of Kiwis, Initio set out to change the broken insurance industry by putting control back into the hands of the customer. Covering landlord insurance, short-term holiday rentals and home and contents, Initio specialises in tailored insurance, including a rented holiday home policy providing $2 million of liability cover. Initio’s market-leading policies can be quoted, bought and amended online – all in an instant. Initio is underwritten by NZI, a business division of IAG New Zealand Limited. www.initio.co.nz

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