Greater certainty for residential landlords and tenants: proposed changes to the Residential Tenancies Act 1986

Tuesday, August 22, 2017

On 4 July 2017 the Residential Tenancies Amendment Bill (No 2) (Bill) passed its first reading in Parliament and was referred to the Local Government and Environment Select Committee. The Bill seeks to address three topical issues for residential landlords and tenants:

  • liability for careless damage to rental premises caused by a tenant;
  • the management of methamphetamine contamination issues in residential rental premises; and
  • the use of “non-residential” premises for residential use.

Tenant liability for careless damage to rental premises

The Bill would ameliorate the effect of the Court of Appeal’s decision in Holler v Osaki [2016] NZCA 130.

The Bill proposes that in relation to each careless act or omission of a tenant (or someone for whom the tenant is responsible) that causes destruction or damage to the premises, the tenant’s liability will be limited to the lesser of the landlord’s insurance excess (if applicable), or four weeks’ rent. Where the cost of the damage is less than the landlord’s insurance excess, the tenant would be liable only for this lower cost.

The Court of Appeal’s decision in Holler v Osaki essentially prevented an insured landlord from recovering against a tenant for the cost of careless or negligent damage caused by that tenant. The Bill would re-open the pathway for landlords to recover against tenants for such damage, albeit on a more limited basis than was the case prior to Holler v Osaki.

The rationale for the Bill placing limited responsibility for unintentional damage on residential tenants is that tenants should enjoy the benefit of their landlord’s insurance cover, as by paying rent, they contribute to funding the premiums for their landlord’s insurance. The proposed amendments attempt to incentivise tenants to take care of rental premises, whilst also protecting tenants from excessive risks and costs.

The Bill also proposes that landlords will be required to disclose insurance information (insofar as it relates to the tenant’s liability for damage to the premises) to tenants upon request at any time during the tenancy. Relevant information will include whether a landlord is insured, and the level of excess payable in the event of a claim. A landlord who fails to supply requested information within 14 days may be liable for a fine of up to $500.

The Bill will be of particular interest to the insurance market in terms of the proposed limitations on insurers’ rights of subrogation. The Bill would generally prevent insurers from pursuing a subrogated claim against a tenant who has caused unintentional damage. There are limited exceptions proposed, including where the tenant has intentionally caused damage or where the tenant's act or omission which has caused the damage constitutes a criminal offence (as carried over from the Property Law Act 2007).

Methamphetamine contamination in rental premises

The Bill proposes to provide landlords a specific right of entry to rental properties (on notice and during specified hours) to sample and test for methamphetamine contamination. The Bill also would provide rights for both tenants and landlords to terminate the tenancy if testing shows that methamphetamine presents at unsafe levels in accordance with the regulations.

Standards New Zealand has been developing a standard for testing and remediating properties where methamphetamine has been manufactured or used. That standard has now been released: NZS 8510:2017 (approved on 22 June 2017). The standard provides definitive safe levels to guide testing for contamination and subsequent decontamination procedures; and also seeks to ensure quality and integrity of methods during this process. A landlord who tests in accordance with the standard must notify the tenant of the results within seven days of receiving the results.

The Bill provides that where methamphetamine contamination is established, the minimum notice period would be seven days (for the landlord) and two days (for the tenant) to terminate the tenancy. The ability to terminate is not fault-based. In addition, unless the tenant is responsible for the contamination, the rent would abate.

The Bill also provides that it would be an unlawful act, with a maximum level of $4,000 damages, for a landlord knowingly to provide premises at the commencement of a tenancy that are methamphetamine contaminated and the premises have not been decontaminated in accordance with the prescribed regulations.

One of the consequences of the Bill if implemented, and the new standard NZS 8510:2017, for landlords and insurers alike is that they will want to understand the scope of cover available for rental premises which turn out to be contaminated by methamphetamine.

Rental premises that are not lawful for residential purposes

The Bill seeks to respond to the decision of the High Court in Anderson v FM Custodians Ltd [2013] NZHC 2423.

In Anderson the High Court found that where a property is not lawfully able to be used for residential purposes and is therefore not a “residential premises” as defined under the Act, the tenancy is not covered by the Act. The result being that the Tenancy Tribunal does not have the jurisdiction to take further action. The remedies open to the Tribunal in such cases have been limited to ordering a refund of rent and bond, and ordering an award of exemplary damages limited to $1,000 (as the tenancy would be viewed as a prohibited transaction).

This has left tenants living in unlawful residential premises in an unenviable position, as they have been left without the protections and minimum requirements afforded to them by the Act, including as to bond lodgment requirements, rent increase obligations, termination rights, and the right to quiet enjoyment.

The Bill would give the Tribunal full jurisdiction over premises occupied or intended to be occupied for residential purposes, regardless of whether the occupation is unlawful under the Act. Once the Tribunal has found a rental premises to be an unlawful residential premises, the Bill would allow the Tribunal to give specific remedies including making a work order requiring the landlord to remove or rectify the legal impediment to lawful occupation or to comply with building, health, or safety requirements that apply to the premises. The proposed amendments will allow the Tribunal to adjudicate on the particular circumstances and merits of each case.

For further information please contact a member of our litigation and dispute resolution team.

 

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.