RSS Feed

Rumour has it...

Thursday, August 29, 2019


Landlords are, understandably, feeling vindicated and excited about the RTAA 2019 which now makes tenants liable (up to a certain extent) for carelessly damaging the property

But Parliament being Parliament, its legislative language leaves much to be desired. It should come as no surprise then that various hot-takes arrived at different conclusions as to exactly how will the tenants be liable. 

Our view is that until disputes arrive in front of the Tenancy Tribunal or unless the Legislature or the Executive is to issue a compendium giving context to the concerned sections, it is too early for anyone to give a definitive take on some of the more nuanced issues that are currently being debated. Any such position-taking is, for the time being, academic at best. 

In the interest of transparency, we feel compelled to disclose to the readers our reluctance to put too much commentary out there in the meantime for fear of confusing our members. Had not there been the volume of information and online discourse that is already out there, we perhaps would not have put this piece together on this day. Still, all things considered, we feel that it is appropriate to put forth our views. It should go without saying that we do not hold our views out as legal advice though we have sought out Kristine King from Duncan King Law for her opinions (which are provided as general information rather than legal advice): 

On the matter of whether the tenant is liable for careless damage on a per-tenancy or per-event basis, we feel that it must be on a per-event basis. The purpose of the RTAA 2019 vis-à-vis tenant damage is to ameliorate the inequitable outcome cased by Holler v Osaki. It should follow that it could not have been Parliament's intention to cap the lability on a per-tenancy basis given that the objective is to incentivise tenants to take reasonable care of the property (or financially disincentivise them to act carelessly) as well as protect them against the possibility of having a large financial claim made against them by the landlord's insurance company (right of subrogation). 

We refer also to that which the past Ministers were quoted by Hansard to have said during the first and second reading of the bill: 

On 4 July 2017, the then Minister for Building and Construction The Hon. Dr Nick Smith said, 'This bill makes it clear who pays for what. Tenants will be liable for each incident of careless damage they cause, up to a limit of the value of their landlord's insurance excess but with a cap of 4 weeks' rent. These damage liability settings strike a balance between incentivising tenants to take reasonable care of the premises they rent and protecting tenants from very high cost and risk.'

On 8 November 2018, the then Minister for Housing and Urban Development The Hon Phil Twyford said, 'Lastly, the words "for each incident" have been removed from new section 49B(3). These words were superfluous and confusing. The fact of the matter is that a tenant will be liable for each lot of damage caused by a careless act or omission or that of their guests, and that is already clear in new section 49B(2).'

Kristine considers that '[t]he Residential Tenancies Amendment Act Part 1 deals with damage caused to the premises and liability for the same. The ability to claim from a tenant for intentional or illegally caused damage (section 49B(1)) and careless damage (49B(2) is not restricted in the legislation to one claim per tenancy. We see that it would be one claim per incident that causes damage.'

We conclude therefore that the tenant's liability is on a per-event basis and as such have advised our members to consider more frequent and thorough inspections to identify damages as early as possible. Note that per-event is not the same as per-incident. The latter we feel is up to the individual insurer to define and the Tribunal to concur with. We recommend members to request from their insurers a definition for 'incident' in writing and share it with their tenants in the interest of transparency. 

On the matter of whether the tenant is liable only for careless damages but not accidental damages, we feel that they must be liable for all unintentional damage resulted from their action/inaction whether it be carelessly or accidentally done. To be clear, we consider careless damage and accidental damage one and the same for the purpose of s49B. There is no other way to phrase the reasoning any better than what Kristine has already done. We will simply share her views verbatim:

'Section 49A states that a tenant is not liable for damage to a premise unless section 49B applies. The sections in 49(B) deal with the damage caused intentionally or activity that constitutes an imprisonable offence (section 49B(1)) and careless damage (49B(2)). We see that this General Principle section would cover all damage not caused by the tenant. An example of this would be the neighbour hits a ball through the window.

Section 49B(1)) means the tenant is not excused from liability for the costs of all damage or destruction resulting from the intentional action or actions that constitute an imprisonable offence. The best example of this would be damage resulting from drug-making activity. The tenant may have not intended to damage the premises but the activity itself constitutes an imprisonable offence so the tenant is not protected by section 49A(1).

Section 49B(2) and (3) sets out that tenant liability will be limited to the lower of the excess or 4 weeks rent when the damage is caused by the tenant (or people they are in charge of) caused by a “careless act or omission of the tenant”.

The terms “careless act or omission” are not defined in the legislation. It has been questioned if accidental damage is different from careless damage if caused by a tenant. We note there is no reference in the legislation to accidental damage at all, so it is not dealt with in the legislation as a separate type of cause of damage.

Instead, we see that the terminology in the legislation is used to create a distinction between the two classes of damage set out in the first two subsections of section 49B, being the “careless damage” dealt with section 49B(2) and “intentional” damage in section 49B(1). This is in line with most insurers distinguishing between accidental and intentional loss, with only accidental loss covered as there is a long-standing principle that an insured party cannot recover for loss or damage intentionally caused.

In the recent case of Guo v Korck [2019] NZHC 1541 Justice Walker stated:

“…Accidental damage generally encompasses damage arising from the insured party’s carelessness or negligence…”

We also note the recent case of Tekoa Trust v Stewart [2017] DCR 628 where it was discussed whether the actions of the tenant were “an accidental or careless act” or “an intentional and deliberate act”. The use of the word “or” in the phrase “an accidental or careless act” indicates judicial acceptance that careless could interchange with accidental, but both terms were clearly distinct from the concept of an intentional and deliberate act.'

Irrespective of how a landlord is to read and interpret these issues, we still recommend the following best-practice guidelines:

  • Build the habit of regular and thorough inspection as well as recording keeping from all sessions in order to identify damages in the first place; 
  • Seek clarity on how your insurance company defines an 'incident' for the purpose of damage claims; 
  • Provide your tenant with the information necessary for them to fully understand their financial risks relating to careless damage; and
  • Review with your insurance provider or financial advisor your existing policy excess. 
As to how these issues will ultimately play out, as our friend Rene Swindely from Initio Insurance has said - Only time will tell. 



Recent Posts


robert kiyosaki interest only covid-19 mindset banking market rent sale and purchase boarding house rent arrears trust buyer's agent rent increase warm up new zealand capital gain Market report anz data security parry v inglis winz Property (Relationships) Act extractor fan buying inspection equity finance RBNZ cat cgt skill shortage tenancy issues return clnz maintenance worksafe fixed-term tenancy television property cycle bond productivity HSWA bad tenant buying rules development asbestos watercare debt enforcement lvr heating Jeff Bezos Sponsored post Landlording rta reform auckland council Kris Pedersen Mortgages and Insurance rent property maintenance CCC advice election 2017 LIM twg report trespass DTI nzpif Q&A beginner investor Question and answer Investor story property principal and interest Editor's Choice house prices HHGA termination TCIT speculator investment strategy Gluckman privacy education tenancy tribunal negotiation bond form shower dome RTAA 2019 initio management meth contamination building sublease insurance Case study mortgage market income off the plan renovation khh cash-flow letting fee Investment tip first home buying Tribunal case study Holler heater positive cash flow structure letting insulation legal tenant How to warren buffett damage ocr property value rental wof recycling equity tax water bill ventilation housing bubble tenancy services personal growth investor wealth creation reserve bank Standards New Zealand smoke alarm ring-fencing relationship ird auckland financial advisers act HHS airbnb rta partners subdivision unitary plan ask an expert p lab scotney williams holiday house sale and purchas wins meth government housing affordability CoreLogic minor dwelling Guest blog rental market business Level 4 interest rates landlord property management gluckman report Must knows short-term rental trademe Must know


Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo Keith Hay Homes logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo
09 360 2376

The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 

Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited