The NZ Property Investor's Federation annual conference was recently held in New Plymouth and was an outstanding success.
Conference organisers were extremely pleased that Housing Minister, Dr Nick Smith, was able to rearrange his schedule and speak to attendees on the Osaki situation.
The Minister announced that Government was considering a change to the Residential Tenancies Act so that tenants were again responsible for damage they unintentionally caused. There was an almost audible sigh of relief from attendees.
However it was not only the NZPIF who were calling for action on resolving issues caused from the Osaki ruling. The Principle Tenancy Adjudicator wrote to the Minister outlining how the court ruling meant parts of the RTA holding tenants accountable for their damage could now no longer be enforced.
Like the NZPIF, the Tenancy Tribunal has suggested clarifying section 142(2) of the RTA, which was the basis of the court of appeals decision.
Minister Smith said at the NZPIF Conference that he was concerned about the Osaki ruling, saying it reduces the incentive for tenants to take good care of the property they rent and will drive up insurance costs and rents.
However he tempered this by saying "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 that he is considering is that tenants would be liable for damage caused by carelessness or negligence, but only up to the value of their landlord’s insurance excess and not exceeding four weeks’ rent.
While this is a step in the right direction towards resolving ramifications from the Osaki case, it only minimises the loss to landlords and still holds them liable for the majority of damage that their tenants may cause.
One problem is that rental properties in lower rental price areas would not have the same protection as similar properties in high rent areas. However the cost to, say, replace the carpet for these two properties would essentially be the same.
The current problem of multiple excesses would not be resolved through this proposal. Insurance companies often treat damage to property as several incidents and apply a separate excess to each. With tenants liability limited to four weeks rent, landlords would still be forced to meet the extra excess costs.
It is also unclear if insurance companies will want to know details of a landlords tenants so they can more accurately determine their level of risk. This means that a landlords insurance premium could increase or fall depending on who their tenant is.
The proposal the Minister is considering does say that a different amount to the four weeks rent 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.
This could possibly overcome some of the problems in some circumstances, however it is a complicated and potentially inconsistent method to achieve a resolve to the situation caused by the court ruling.
Minister Smith should be applauded for looking for a practical solution that will work for both tenants and landlords, however this proposal may not sufficiently solve the problems that rental owners currently face.