Government Set To Amend The Residential Tenancy Act

Dr Nick Smith photo

Building and Housing Minister Dr Nick Smith has announced that the Government is considering changes to the Residential Tenancy Act over when property damage costs can be reclaimed from tenants.

Dr Smith was quoted as saying “This review has been prompted by recent court decisions and Tenancy Tribunal rulings, which have sparked confusion over how the Residential Tenancy Act (1986) and the Property Law Act (2007) interact. This is resulting in uncertainty for landlords and tenants, and is affecting the effective functioning of the Tenancy Tribunal.”

This announcement follows pressure from the NZ Property Investors Federation, which has argued the current law is making it nearly impossible for landlords to claim costs for accidental damage caused by tenants.

In a recent decision the Tenancy Tribunal ruled a woman should pay nearly $1000 to their landlord for damage to carpets and curtains after she left five cats shut in a room in her Wellington rental. The NZ Property Investors Federation has praised the decision, saying “it is a positive move in the aftermath of the Holler and Rouse v Osaki case, in which the Court of Appeal ruled in April a tenant did not have to pay for damage caused after leaving a pot of oil on the stove which started a fire.”

Dr Smith said the “The issue is tenant damage to a property through carelessness or negligence. 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.

“My concern about this new interpretation is that it will add to the overall costs of the residential sector, driving up insurance costs and rents. However, we do not wish to return to the situation where tenants may be sued by their landlord’s insurance company for hundreds of thousands of dollars, such as with an accidental house fire.

“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. A different amount could be mutually agreed if specifically provided for in the tenancy agreement and would enable the tenant, if they wished, to take out their own insurance.

“The tenant would remain fully liable for damage caused intentionally or caused by a criminal act, with no limitation. The landlord would remain liable for fair wear and tear, and any damage caused to the property by an event beyond the tenant’s control, such as a storm or an earthquake.”

Dr Smith has asked the Ministry of Business, Innovation and Employment to do targeted consultation with tenant and landlord organisations, and the insurance sector, on possible changes to the Act.

“New Zealand has 450,000 tenanted properties, and both tenants and landlords need certainty about their rights and responsibilities. I am looking for a practical solution that will work for both tenants and landlords.”