0800 REAL IQ

Tenants liable excess? No chance according to Ms. Poole

On the 26th July Principal Tenancy Adjudicator Melissa Poole released long-awaited practice directions under section 115 of the Residential Tenancies Act (RTA) as the fallout from the Osaki case continues. Up and down the country Property Managers and Landlords are finding out the hard way that the Court of Appeal's ruling in the now infamous tribunal case Holler v Osaki has now seen tenants walking away scot-free, without being held liable for any damages that they may have caused to the property.  

The case basically exonerated tenants for damages caused to a property other than intentional damage done by a tenant referring to sections in the Property Law Act (PLA). One Property Manager based in the Taranaki has informed us that there is extra security at Tenancy Tribunal due to uneducated landlords losing their temper as they find out the impact of this decision.

However, one big question has remained up until now. Can the landlord claim excess on insurance claims made after damages have been caused by the tenants?

Last week, we found out. Ms. Poole clearly states in her notes that the landlord cannot be awarded the excess. Her reasoning for this is under section 269 of the PLA. This section states that the lessee (tenant) is exonerated if the lessor (landlord) is insured. The only way the landlord can claim the damages is if the damage was intentionally done. 

In her practice notes, Ms. Poole also refers to other sections of the PLA such as s268 and s271 but she fails to make mention of s270. Why is this relevant?

It is relevant because s270 talks about the rights of a landlord if insurance for leased premises or land is affected by the negligence of the tenant. This act states very clearly that "the lessor may recover from the lessee any increased costs incurred...in relation to the premises" This then goes on to state that increases in the insurance premium or any insurance excess can be recovered from the lessee.

Underneath that, it then says that this section overrides section 269.

Why does Ms. Poole make no reference to this section in her notes?

One cannot help but feel that the conclusion Ms. Poole has reached simply defies logic. Common sense tells you that if you break something then you should simply pay for it. Apparently not according to Ms. Poole.

It is a further blow to landlords and Property Managers who have had to deal with so much change in recent months. However, this ruling cannot help but make you feel that the current system is biased towards tenants. I may not be a lawyer and I may have misinterpreted this section but my understanding of s270 of the PLA is that you can recover the excess from the tenants. If this is the case is Ms. Poole guilty of showing favoritism towards tenants?

In the UK the tenant is liable for anything not covered by insurance such as the excess. Considering so much of our law is taken from the UK, you wonder why we have gone in the complete opposite direction.

Although you can understand that Tribunal Adjudicators have to follow the rulings set by the Court of Appeal with regards to the Osaki case you would have thought that there must have been some common sense around small damages caused by tenants. Apparently not.

Unfortunately, we are seeing Property Managers bear the brunt of landlord frustration. I myself witnessed one Property Manager resigned to the fact that she was going to lose a management through no fault of her own due to this case. The landlord blamed the Property Manager for losing in tribunal and the poor Property Manager just shrugged her shoulders and said "What can I do?"

My view is that Ms. Poole has got this wrong. All we are going to see is more and more landlords sell their properties as the risk, along with the cost around owning investment properties increases. Insurance premiums will simply go up and landlords may be wise to look at reducing their excess. This along with the real prospect that testing for Meth may become compulsory between tenancies will only see costs increase further. As costs go up more and more pressure will be put on landlords to cut corners elsewhere. Mass selling of rental properties is a very realistic prospect.

It looks like New Zealand is the standard bearer in the world for the rights of the tenants. This may make people in positions of authority feel good about themselves but when you look at the facts presented, there is no common sense applied in any of the decisions we have seen from the courts and tribunals. 

One hopes that common sense will prevail and this ruling will be challenged and overthrown. However, I wouldn't bet any money on it.