IAG, one of New Zealand's leading insurance providers has drawn a line in the sand with regards to claims around Meth-contaminated properties. In our opinion, their stance leads us a step closer to compulsory Meth Testing for all residential rental properties in New Zealand.
The stance IAG has taken is understandable considering a number of claims it is having to deal with. In 2016, IAG dealt with over 60 claims a month, that's well over 700 claims in 2016. The total amount of claims that IAG has had around Meth-contaminated properties in the last 12 months is around $14 million.
Do the basic maths and this equates to approximately $20,000 a claim. With numbers like this, it was only a matter of time before one of the major insurance players took a stance and other will probably follow suit.
IAG make their position perfectly clear.
- The maximum claimable amount has increased from $25,000 to $30,000
- Premiums on rental properties will increase by a range of around $40 to $130 per annum
- Standard excess will increase from $400 to $2,500
- Probably most importantly, Claims will not be accepted for contamination to contents in homes, if it is too difficult to determine the timing and nature of any event causing contamination.
What this means is that it is highly unlikely that the likes of State, AMI, NZI and Lumley will pay out if a landlord cannot prove that the property was clean at the commencement of the tenancy. This stance means that Property Management companies have to recommend testing in between tenancies to landlords or else they may find themselves facing action against unsuspecting landlords.
The reality is that this drug is not going to go away anytime soon and with the increase in insurance plus the cost of testing between tenancies, the cost of being a landlord is likely to go up by an estimated annual amount of approximately $300.
Tenants will again face rent increases as landlords look to pass on the extra cost of around $5 to $10 a week. With some regions of New Zealand facing a critical shortage of rental stock, this will only squeeze an already tight rental sector even further.
IAG's stance may also have major consequences around Holiday Homes as people may be less willing to lease out Baches. The cost and time frame around testing between guests makes the idea of testing simply impracticable. This may leave many Bach owners worried about the risk and they may simply not lease it out.
We now await the new regulations around Meth levels to be released by the Government, which will likely put acceptable standards for non-lab properties at 1.5 micrograms per 100cm2 for carpeted properties. Once this has been confirmed we believe Practice Notes should be issued by Head Adjudicator Melissa Poole around how Tribunal Adjudicators will rule around Methamphetamine cases.
Our research shows that in 2016 there were over 220 Tenancy Tribunal cases that involved Meth-contaminated properties. That is about one case a day around New Zealand. It is a very sad state of affairs and it highlights the size of the problem facing everyone around this drug.
We are also seeing a number of cases were opportunistic tenants are trying to claim a full rent refund claiming that landlords are renting out properties that do not comply with the Residential Tenancies Act.
One particular case caught our attention where the tenant took Lodge City Rentals in Hamilton to Tribunal seeking compensation of $8,680 of rent plus the cost of a composite test. Her claim was dismissed, even though her composite test had readings of 2.2 micrograms per 100 cm2.
Lodge City Rentals General Manager David Kneebone represented the company and commissioned a full diagnostic test on the property with no areas coming above 0.5 micrograms. This is not the first time that composite tests have caused issues.
The adjudicator also went on to state that Tribunal is now referring to updated guidelines around acceptable standards for properties with a reading of under 1.5 micrograms. This means that even if a property is over 0.5 micrograms and there is no evidence to suggest that meth was manufactured in the property, Tribunal will not act.
The sorry state of Meth in rental accommodation continues to burden this industry but at least with IAG stance, we are starting to see some boundaries being set that we can all work towards.