The winds of change could be blowing for landlords in New Zealand, as a new investigation into tenant damage culpability is launched by the government. Recent court rulings have sparked confusion over whether landlords can recover costs of careless or negligent damage. Is it time for Residential Tenancy Act to change, or should it stay as it is?

The current situation

Under current laws, some responsibilities for property damage are held by the landlord, while others are held by the tenant. Intentional damage by the tenant or their invited guests are on the tenants, while issues caused by:

burglaries,

natural events, or, 

inadvertent damage,

are on the shoulders of the landlord.

Recent court rulings mean landlords cannot recover costs of careless or negligent damage

Housing Minister Dr Nick Smith says, "The latest court rulings mean landlords cannot recover the costs of this damage where they have insurance, including for their costs such as the excess."

"The problem with this approach is that it reduces the incentive for tenants to take good care of the property they rent. It also reduces the landlord's incentive to have insurance as it lessens tenants' responsibilities."

As a result of this, landlords could find themselves at risk of being underinsured.  A longer term impact, if these rulings continue, is potentially for insurance companies to become less willing to offer cover for negligent damage or to increase insurance premiums because of the lack of incentive for tenants to take care of the property. 

The proposed adjustment

"Tenants would be liable for damage caused by carelessness or negligence up to the value of their landlord's insurance excess but not exceeding four weeks' rent."

Under the new rules, tenants would have more culpability for damage caused by negligence or carelessness. Landlords would be able to retrieve lost capital from their tenants whenever negligence and carelessness is identified as the cause of the damage.

However, Nick Smith is also concerned that this could result in too much power in the hands of landlords at the expense of their tenants.

"The proposal I am considering is that tenants would be liable for damage caused by carelessness or negligence up to the value of their landlord's insurance excess but not exceeding four weeks' rent, which is aligned with the standard tenancy bond."

This new proposal is currently being developed, however, and is subject to change. Consultation is underway with tenant and landlord organisations, as well as the greater insurance sector. Regardless of the outcome of this investigation, it pays to ensure that your tenanted property is properly protected in case of damage.

Talk to the team at Rothbury today, we'd be happy to help tell you more about this issue and how it's affecting landlords.