Nick Smith's Bill, clearing haze around meth contamination, landlord liability and dodgy housing, passes First Reading

Your rental property burns down due to the tenant carelessly leaving a pot of oil boiling on the stove unattended. Who’s liable?

You suspect the tenant of your rental is a P smoker. How quickly can you get in to test the property for meth contamination? How much meth needs to be present for it to be considered contaminated? Can you evict the tenant if the house fails the test?

You move into a new rental property and find out it’s contaminated. Do you have to keep paying rent? How quickly can you terminate your tenancy agreement?

You suspect your neighbour is renting out their draughty garage to a family in need of a home. Is this legal?

These are the issues the Residential Tenancies Amendment Bill (No. 2), which has just passed its First Reading in Parliament, seeks to address.

Tenant’s liability for damaging a property capped

To answer the first question, the Bill deems the landlord liable, but stipulates the tenant will need to pay the excess on the landlord’s insurance.

While most landlord policy excesses are around $400, the tenant’s liability will be capped at four weeks’ rent for each incident of damage caused by carelessness.

The Bill’s Regulatory Impact Statement (RIS) says for 25% of renters nationwide, payment will be capped at more than $1,996, for 50% of renters: between $1,116 and $1,996, and for 25% of renters: less than $1,116.

Tenants will remain fully liable if they damage a property deliberately or through a criminal act. Meanwhile landlords will remain liable for fair wear and tear and damage beyond the control of the tenants, like a natural disaster.

Insurance companies will also be prevented from using their right of subrogation to pursue tenants for causing damage.

Building and Construction Minister Nick Smith has addressed this issue of liability, as a 2016 Court of Appeal decision in the Holler vs Osaki case put the onus on landlords to pay for damage caused by a tenant’s carelessness or negligence.

The ruling was seen as a game-changer for insurers and was met with much opposition from landlords.

Smith says the settings under the Bill “strike a balance between incentivising tenants to take reasonable care of the premises they rent, and protecting tenants from very high cost and risk.

“The Bill also encourages cost efficient insurance arrangements, which will reduce disputes, litigation and the potential for double up of insurance arrangements.”

However the RIS says: “An unintended consequence could be that insurers increase premiums for landlords which are passed on to tenants in the form of rent increases (anticipating more claims from landlords in general).”

The Insurance Council of New Zealand (ICNZ) has warned this could be the case, the RIS explaining: “ICNZ prefers an unlimited cap on liability because it considers that without an effective incentive on tenants to take care of their landlord’s property, the incidence and cost of tenant damage is likely to rise over time.”

Furthermore, the RIS points out: “Landlords could increase insurance excesses to the level of four weeks’ rent to limit their risk, but not pass on savings to tenant in terms of rent reductions.

“This is mitigated by the need for landlords to disclose their insurance arrangements to the tenant at the beginning of the tenancy and during the tenancy if there were changes to the policy.”

Tenancy termination due to meth made easier

To address the second set of questions around meth, posed above, the Bill provides for a property owner to be fined up to $4,000 for renting out a home contaminated by meth.

Standards New Zealand last week detailed how much meth needs to be present in a property for it to be deemed contaminated.

The Bill also gives landlords the right to provide tenants between 48 hours and 14 days’ notice before doing a meth test, with the Standard detailing how tests should be done.

The Bill stipulates that both tenants and landlords can terminate the tenancy if the house is found to be contaminated. The minimum period of notice a landlord needs to give is seven days, while the minimum notice a tenant must give is two days.

The tenant does not have to pay rent if the property is found to be contaminated and they didn't contaminate it.

Smith says: “Contaminated homes create real and serious risks to the health of occupants, but equally we do not want homes to be vacated as a consequence of an overly cautious approach.”

Green opposition

The Greens - the only party not to vote in favour of the Bill - don’t believe Smith has struck the right balance.

Green Party MP Marama Davidson says: “We have to weigh up the harm we do when we evict people. Evicting people is a big call.”

Furthermore, she says: “The advice from the Drug Foundation is that representatives of the meth testing industry are over-represented on the panel developing the Standard…

“There is no science for setting a contamination level for meth use.”

Labour MP Phil Twyford supports the Bill, but points out: “Without proper regulation of the meth-testing and remediation agencies, these provisions are very unlikely to be effective.”

The Bill’s RIS says: “According to a recent New Zealand Health Survey, amphetamine use since 2011/12 has been constant, at around 1% of adults (which equates to 26,000 people).

“Making a crude assumption that there is no more than one amphetamine user per household, and based on 33% rental occupation, this equates to methamphetamine usage in about 8,500 rental properties and 17,500 owner-occupied properties…

“There has been a significant increase in Tenancy Tribunal decisions involving methamphetamine contamination.

“In 2015, five cases involving methamphetamine contamination were brought to the Tenancy Tribunal. In comparison, in the period January-October 2016, 110 cases were brought to the Tribunal. Half (55) of these cases involved Housing New Zealand.

“The historical and projected cost to the rental property industry and social housing providers is not known, however Housing New Zealand spent $6m in the seven months to January 2016 testing for methamphetamine and cleaning when traces have been found. Annualised, this is over $10m per year, up from $700,000 in 2013.

“In the absence of a standard, it is not clear whether the actions of Housing New Zealand have been proportionate to the actual risk.”

Prosecuting a landlord for renting out substandard accommodation made easier

To answer the final question posed at the start of the article, the Bill strengthens the law for prosecuting landlords who tenant unsuitable properties.

“The Tenancy Tribunal’s jurisdiction is currently limited to residential buildings, meaning those who rent out unlawfully converted garages, warehouses or industrial buildings as living spaces can avoid accountability,” Smith explains.

The RIS says: “It is not possible to quantify how many tenants may be living in residential premises which could be considered unlawful but the number is likely to be high because of the number of situations to which the decision could apply, including illegally converted garages, unconsented dwellings and commercial properties.

“The issue could be more prevalent in Auckland where pressure for rental housing is higher than in other areas.”

Labour’s Twyford says: “We applaud the intent of this, but it is ironic a government that has overseen an explosion in the number of New Zealanders living in substandard and over-crowded housing… is cracking down on this particular aspect of it…

“There are so many things that need to be done to improve the quality of rental accommodation, to give renters more security of tenure, to curb the property speculation that’s driving house prices and rents through the roof, but this government prefers to focus on fairly small and relatively inconsequential matters when it brings a Bill like this to the house.”

The Residential Tenancies Amendment Bill (No.2) has been referred to the Local Government and Environment Committee for consideration where the public will be invited to make submissions.