As if we needed more proof of this Government’s war on landlords, its new Careless Damage Law has set the scene for worsening tenant-landlord relations.
It started with a pot of boiling oil and finished with new laws passed this week.
First the boiling oil.
In 2009, tenants of a Dunedin rental property left a pot of boiling oil unattended on a stove. The fire resulting from this carelessness caused extensive damage, costing $216,000 to put right.
The landlords claimed under their insurance policy, and AMI then pursued the tenants, who had caused the damage. If the tenants had taken out a contents policy, their insurance would have covered the damage they caused and all would have been sweet.
Instead they claimed they were not liable because the Property Law Act allowed them to rely on the landlord’s insurance.
The Property Law Act (PLA) applies to commercial tenancies and the Residential Tenancies Act (RTA) to residential tenancies.
The relevant sections of the PLA were intended to prevent commercial landlords suing their tenants instead of claiming on their insurance policy. It was never intended to protect uninsured residential tenants from the consequences of both their decision to not insure and their carelessness or negligence in causing damage.
Under the Residential Tenancies Act (RTA), tenants agree they will not intentionally or carelessly damage or permit anyone else to damage the property. AMI therefore claimed against the tenants for the damage to the property.
The claim was heard in the Tenancy Tribunal, appealed to the High Court and appealed again to the Court of Appeal, which decided that the PLA and its insurance “exoneration” provisions applied to both commercial tenancies and residential tenancies.
In short, the tenants won.
The landlord couldn’t even claim their insurance excess from the tenants, let alone damages.
The Property Investors Federation called for change after this case, claiming it was unreasonable for landlords to foot the bill for damage caused from carelessness, and had prompted a string of decisions in the tenants’ favour, including landlords paying for damage caused by dogs left inside and a drunk person falling through a skylight.
Which brings us to this week’s careless damage law.
Careless damage law
It is officially know as the Residential Tenancies Amendment Bill (No. 2) and took effect on Tuesday.
Tenants will now have to contribute to the cost of careless damage, but the amount is capped at the cost of the landlord’s insurance excess, or 4 weeks rent, whichever is lower.
Landlords will have to say whether they are insured and for how much in the tenancy agreement, and make any insurance details available on request. If they don’t they can be fined $500.
Previously, landlords could only recover costs from tenants if they could prove the tenants had intentionally damaged their rentals.
The new law allows them to also chase tenants over careless damage.
But tenants won’t have to pay if they can prove the damage was accidental rather than careless.
Andrew King, executive officer of the Property Investors Federation, said he was pleased some action was being taken to hold tenants responsible for damage, but it did not go far enough.
“The general principle of the bill is that tenants are still not liable for accidental damage they cause and this is very disappointing.”
Rene Swindley, chief executive of specialist landlord insurer Initio, said the scene had been set for a wave of small disputes and increase in Tenancy Tribunal cases.
“The tenant will say, ‘I tripped over a dog and caused all this damage, and so it was totally an accident’,” he said.
But the landlord will say, ‘No, you were responsible because the dog was supposed to be kept outside’.
“It is so subjective that arguments are absolutely inevitable,” said Swindley.
We all know how many people claim physiotherapy and other assorted treatments under ACC, inventing fictitious “accidents” to avoid having to pay full price.
In similar vein, tenants will create fictitious “accidents” to blame their careless or negligent damage on and avoid having to take responsibility for their actions.
Government in denial
Not unexpectedly, the Government is in denial about the conflict zone they have created.
Ministry of Housing and Urban Development’s Claire Leadbetter said the tribunal already had a working idea of what careless damage meant. It was generally defined as negligence, lack of care, or lack of forethought, she said.
But those of us with experience know the tribunal will err on the side of tenants in contentious cases.
One need only look at the case of landlord Paul Sheehy who had to pay compensation for not having a smoke alarm in his rental, despite having installed it. He believed his tenant Aaliyah Elmira Rafiee removed it.
The tribunal ruled in the tenant’s favour because the landlord had not kept proof it was there at the start of the tenancy.
On the other hand, Rafiee successfully won almost $3,000 compensation from Sheehy for lost goods even though she didn’t have receipts to prove she owned all the missing items.
Sheehy had collected Rafiee’s belongings when she had to vacate the rental after a police visit [you read between the lines] and then gave her and her family two opportunities to collect them.
There appear to be different standards for investors and tenants, with investors being held to a much higher standard than tenants.
New tenant-landlord battleground
We already have tenants being encouraged to dob their landlord in and collect a reward, dressed up as “compensation”, for missing the insulation deadline.
Now we expect the careless damage law to become the new tenant-landlord battleground.
It’s another nail in the coffin for residential property investment.