Tenant liability for property damage limited

The rules around liability for damage caused by tenants are likely to change under reforms to the Residential Tenancies Act.

Wednesday, February 28th 2007, 3:04PM

by The Landlord

The latest proposed changes include limiting the liability of tenants for damage that they did not cause and could not reasonably have prevented.

The government proposes amending the legislation so that tenant liability is limited to four times the weekly rent.

However to limit their liability, a tenant will have to show that carelessness and not recklessness or intentional misbehaviour caused the damage, or that none of the tenants personally caused (or failed to prevent) the damage.

The Department of Building and Housing says this means people that cause substantial damage through reckless or intentional acts, and those tenants that sit by and let it happen, will retain responsibility for the damage. But tenants will no longer have substantial liability for damage that they didn’t cause and couldn’t have prevented.

Tenants will have to prove grounds for limiting their liability, which the department says recognises the fact a tenant is more likely than a landlord to be able to prove who caused damage and how. The department says it will be in a tenant’s interest to help their landlord identify the person responsible for damage.

President of the Auckland Property Investors’ Association Andrew King says the key problem with this proposal is that “it takes the responsibility away from tenants and places it with landlords”.

“This is inherently unfair and will lead to more damage to rental property.”

King says the risk of substantial damage to rental properties will increase and so will insurance premiums. “All landlords will have to pay this cost increase.”

“We believe that the proposal is a solution to a problem that no longer exists,” says King.

He says currently, if one tenant or a guest damages a property then the insurance company will only seek damages from them. If the culprit is unknown then all tenants are held responsible collectively. King says most tenants have contents insurance or third party liability insurance that covers them if they or a guest cause damage to a rental property.

“If they choose not to take out insurance, then that is their decision,” King says.

There are other steps the government can take that address the real issue, he says.

“One option could be to make it compulsory for landlords to read a statement to tenants on their risk exposure if they are not insured and get tenants to sign it. Tenants would then be in a position to make an informed choice on whether they take out insurance or not.”

“Another option would be compulsory insurance for tenants. Tenants would have to prove to landlords that they have contents insurance or at least third party liability insurance before being granted a tenancy. This would not add an extra layer to landlords’ insurance premiums, and tenants could gain the benefits of no claim bonuses.”

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