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Damage to rental property - who is liable?

31 August 2016

Farmers commonly provide accommodation to their farm workers in conjunction with their workers’ employment. These arrangements are called “service tenancies” under the Residential Tenancies Act 1986 and the rules in that Act apply to them - with some differences (relating to deduction of rent in advance and the notice period landlords must give when their workers’ employment ends).

In a recent Court of Appeal judgment (Holler v Osaki [2016] NZCA 130) the Court held that the insurer (AMI) could not recover $216,000 worth of damage from the tenant of a residential property (Mr Osaki) caused by a fire from a pot of oil which had been left on a stove unattended. AMI had paid out the Landlord (Mr Holler) and then sought to recover the $216,000 from the tenant. In coming to this decision the task before the Court of Appeal was not an easy one - to interpret and reconcile the various statutory provisions in the Residential Tenancies Act 1986 and the Property Law Act 2007.

Who will be liable for damage?

As a result of this case, the Tenancy Tribunal issued a practice note to give direction to its adjudicators and provide guidance on how liability for damage to a residential rental property will be determined. In summary the position is as follows.

  1.     If the damage is caused by fair wear and tear, then the landlord will be liable.
  2.     If the damage is intentionally caused by the tenant (or someone at the property with the tenant’s permission), then the tenant will be liable.
  3.     If the damage is caused by the carelessness of the tenant (or someone at the property with the tenant’s permission), then tenant will not be liable to the extent the landlord is insured for the loss.
  4.    Whether or not the landlord is insured, the tenant will not be liable if the damage is caused by fire, flood, explosion, lightning, storm, earthquake or volcanic activity unless the tenant caused the damage intentionally, the damage is the result of an imprisonable offence committed by the tenant, or the tenant’s action (or inaction) prevents the insurance money being paid. “Fire, flood and explosion” do not have to be catastrophic natural events. For example, if these events are caused by cooking fires, a plug left in a sink and explosions resulting from fireworks, then the tenant will not be liable.
  5.     The landlord cannot recover the excess payable under the landlord’s insurance policy from the tenant.
  6.     As the rules in the Residential Tenancies Act which benefit the tenant cannot be overridden by any agreement between the landlord and the tenant, the tenant will be liable as set out above despite any other agreement the landlord and the tenant make.
  7.     The landlord should not issue the tenant with a notice to remedy if there is damage. Instead the landlord should apply to the Tenancy Tribunal for a work order. The Tribunal will not make a work order requiring the tenant to rectify the damage unless the Landlord shows the damage was intentional or the Landlord is not insured.

Decision criticised for favouring tenants

The policy reasons behind the law include: most lay tenants would expect to be covered by their landlord’s insurance; the law relating to tenant’s liability has not been clear and it would be impracticable and too costly for the tenants to take legal advice when signing a tenancy agreement or interpreting it if there was a dispute as to liability; and because the tenant indirectly pays the insurance premiums by paying rent, the tenant should take some benefit from the insurance cover. On the other hand, the decision has been criticised as unfair because it absolves a tenant for responsibility for the tenant’s carelessness and places the burden on the landlord even though the landlord has relatively little control over the tenant’s actions at the property.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

Barbara McDermott