What does the Residential Tenancies Amendment Bill (2) mean for Property Investors?
Government introduced the Residential Tenancies Amendment Act (2) to Parliament on 23 May 2017, for its first reading.
There are three main parts to the Bill:
- Tenants Liability for damage
- Unlawful residential premises
- Methamphetamine in rentals
The Bill will next be assigned to a Select Committee (a group of MP’s from different political parties) to hear public submissions on the Bill. Following the Select Committee’s recommendations it will be amended and receive its second reading and third reading before receiving royal assent from the Governor General and becoming law.
At any of the two readings in Parliament, the Bill may be voted down if Government cannot obtain support for it among MP’s.
The following is a summary of the Bill’s three main parts. The NZPIF is meeting this weekend and will be discussing the Bill and how we will react to it.
Tenant’s liability for damage
The RTA currently says that a tenant shall not intentionally or carelessly damage their rental. If any damage does occur, tenants have to prove to the Tenancy Tribunal that they didn’t cause the damage intentionally or carelessly.
However this was overturned by the Courts through the Osaki case. This means that tenants are no longer liable for damage that they cause to a rental property.
This aspect of the Bill is Government’s reaction to the consequences and unjustness of the Court ruling for rental property owners.
A general principle of the new Bill is that the tenant is still not liable for damage unless the damage was intentional by the tenant or a guest or if any insurance moneys that would have been payable is irrecoverable because of an act or omission by the tenant or their guest.
However the Bill does hold the tenant liable for damage that is caused by a careless act or omission by the tenant or their guest, but this is limited to either the landlord’s excess or four weeks rent, whichever is the lower.
This limited liability is applicable for each incident of damage. For example if the tenant puts two holes in a wall on separate occasions, they will be liable for the repair cost up to twice the excess or 8 weeks rent, whichever is the lower.
The potential problem for rental property owners is if the insurance company and the Tenancy Tribunal differ on how many incidents of damage has occurred.
For example, there may be four stains on a carpet and it will cost $3,000 to repair it. If the landlord’s excess is $750, this is less than four weeks rent and the insurer and tribunal agree that it is four incidents, then the tenant will be totally responsible for repairing the damage. However if the Tribunal believes that there is only one incident, then the tenant will only be liable for $750 of the repair cost. The landlord will be responsible for the balance.
As outlined, the Bill is stating that the tenant’s liability is limited but it still applies to each incident of damage. The tenant could therefore be responsible for a large cost to repair damage. Consequently tenants are still going to benefit from having contents insurance to protect themselves.
Previously insurers had the potential to seek costs from the person responsible for damage. However under the Bill, the property’s insurer has no right or claim against the tenant, including no right of equitable or contractual subrogation. Because of this, insurers say their risk is increasing and premiums for rental properties may increase.
The landlord’s insurance can be used by tenants. Therefore the Bill states that landlords must advise the tenant if the property is insured or not and provide a statement setting out details of the insurance policy that are relevant to the tenant’s liability. They must do this within 14 days of receiving a request from the tenant and must notify the tenant of any changes to the insurance policy. Failure to do this is an unlawful act costing $500.
Under the Bill it is also an unlawful act for a landlord to try and obtain more from the tenant than the Act allows. Damages of $1,000 can be awarded to the tenant if this occurs.
An additional part of the Bill is that damages for a landlord not undertaking repairs under a works order is increased from $3,000 to $4,000.
Despite the limitations of the Bill, it is still an improvement on the current situation where tenants have no liability for accidental damage they cause.
Unlawful residential premises
An earlier court ruling meant that if a property could not legally be used for residential purposes, then it could not be classed as a residential property. This meant that the Tenancy Tribunal could not have jurisdiction over these properties.
The Bill now gives the Tribunal full jurisdiction for premises occupied or intended to be occupied for residential purposes, regardless of whether the occupation would be unlawful. This allows the Tribunal to hear such cases.
The Tribunal may order the landlord to refund all rent the tenant paid for the whole period that the premises were unlawful residential premises.
Tenants can give two days notice to terminate a tenancy of an unlawful premise.
The NZPIF is concerned that the Bill may have an adverse affect on the many “granny flats” around the country, which may be in excellent condition but are not consented. We would not like to see owners of these rental properties not be able to rent them out without risk of prosecution.
We are also concerned to ensure that a tenant’s actions cannot be used against a rental property owner. This may occur under the Bill if, for example, a tenant uses a garage as a bedroom and then claims it wasn’t a legal residence.
The Bill defines methamphetamine-contamination if it is proved to be present in any part of the premises at a level above any prescribed maximum acceptable level.
The landlord must not rent a property if they know that the premises are methamphetamine-contaminated or have not decontaminated in accordance with the prescribed decontamination process. This would be an unlawful act and damages could be awarded to the tenant.
Landlords have a right of entry to test the property for methamphetamine at any time between 8am and 7pm after giving at least 48 hours but not more than 14 days notice.
The landlord must notify the meth test results to the tenant within 7 days of receiving the results.
If tests establish that the premises are meth contaminated, the landlord can give no less than 7 days notice to terminate the tenancy and the tenant no less than 2 days notice. If the tenant is not responsible for the contamination the rent stops.
The key part of this section of the Bill is that it explicitly gives landlords the ability to conduct meth tests without requiring the tenant’s approval. Previously it was possible for tenants to not give their permission, so this is a good thing to clarify.