Long-awaited clarification for landlords and tenants in key areas of residential tenancy law has come with the passing of amendments to the Residential Tenancies Act. But there are still many fishooks

Long-awaited clarification for landlords and tenants in key areas of residential tenancy law has come with the passing of amendments to the Residential Tenancies Act.

The Act remains silent on the vexed issue of liability when tenants intentionally damage a rental property. The inability of a landlord’s insurers to pursue the tenant for the cost of making good that damage compounds that problem.

Further, where the damage is deemed to be unintentional, the amended Act still prevents a landlord’s insurer from suing the tenant. There is no longer any right of subrogation.

A recent High Court decision, Guo v Korck [2019] NZHC 1541, suggests the issue about intentional damage is far from settled (more on this later). There is no doubt that more sophisticated legislation will likely be required to meet the growing demands of New Zealanders as tenants.

The amending legislation has given more certainty  to two other controversial areas of the law: namely, methamphetamine contamination of rental premises and the difficulties created by tenancies that were unlawful for residential use, such as sleepouts and garages.

It has been a long time coming. The amended legislation was introduced into the House on 23 May 2017. Its passage through the House has been fraught, with the Prime Minister’s then chief science advisor, Sir Peter Gluckman, intervening in the debate around meth-contaminated properties.

The legislation received final assent on 30 July.

The issues were discussed at length in a paper presented to an ADLS seminar on 22 February 2019. This article will examine the final form of the provisions in the amending Act and where it has taken the law.

Meth testing

There was a degree of anti-climax here, as the change was well signalled after Sir Peter’s intervention but the legislation has produced clarity on this issue.

It has adopted the regulations-based approach signalled earlier.

No regulations have yet been passed to establish testing standards and it is anticipated they will be developed in the coming year. That should not be surprising, given the uncertainties about the previous standard.

Once the regulations are effective, landlords will be unable to knowingly rent premises that are contaminated above the prescribed level without a complete decontamination process being done.

For existing rental premises, landlords are permitted to enter on 48 hours’ notice to test for methamphetamine and other contamination.

If there is a positive result, landlords are required to advise the tenant of the contaminant they are testing for and share the results within seven days.

Unlawful premises

The previous uncertainty about responsibility or liability for premises that had been illegally rented, or deemed to be so, has now been removed.

The amending Act incorporates an enlarged definition of the phrase “residential premises” to the extent that premises are deemed to be captured within the definition if they were being lived in or were intended to be lived in.

Importantly, an onus has been placed on landlords to ensure all premises are of a liveable standard at the start of a tenancy.

An initial obligation has been placed on landlords to comply with all health and safety requirements, and to meet building consent obligations at the outset of the tenancy.

The jurisdiction and authority of the Tenancy Tribunal has been enlarged to enable it to take appropriate action for breaches of reasonable standards.

Minimum standards for rental properties have been prescribed in other amending legislation, such as for smoke alarms and insulation.

They will apply here. It is anticipated the legislation will see a decline in substandard garage accommodation and sleepouts.

Damage to premises

The spectacular consequences of the fact situation in Holler v Osaki have been mitigated by the means signalled in my earlier paper (available at ADLS).

The amendments proposed have been passed in full in the amending Act, particularly through changes to section 49 of the principal Act.

Put briefly, those changes mean a tenant:

• cannot be required to meet the cost of making good any destruction or damage to the premises;
• will not be required to indemnify the landlord against the cost of making good;
• will not be required to pay damages relating to any destruction or damage; and
• will not be required to carry out works to make good destruction or damage.

In addition, no rights attaching to a landlord may be subrogated to the landlord’s insurer. A tenant’s liability, if any, will be limited to the lesser of the excess under the landlord’s insurance cover or four weeks’ rent.

Emphasis has been placed on the benefits of insurance cover. A landlord is required to provide insurance details to any prospective tenant, along with details of any excess under a policy. All this leaves aside the issue of deliberate damage caused by a tenant and for which the insurance company declines cover.

Sobering statistics

Although the amendments are now law, issues around residential tenancies have been a rapidly-moving feast.

Continuing dissatisfaction with the present position is clear from a response to the final assent by a principal player in the rental housing market, and one – the Salvation Army – that is well-placed to comment on the social issues facing tenants.

A spokesperson for the Army, reflecting on the changes, said they did not go far enough. Wholesale reform was required, including more secure tenancies, the provision of tenancy advocacy services and tougher sanctions against breaches.

Those comments reflect earlier remarks made in the ADLS seminar paper and also to the changing demographic of New Zealand.

The following statistics make for sobering reading.

In the 27 years between December 1991 and December 2018, owner-occupied homes rose from 963,000 to 1.1 million (an increase of 22%) while rented dwellings more than doubled, from 306,000 to 638,000 (up 108%).

Put another way, renting in New Zealand through residential tenancies increased by one-third while during the same period home ownership in New Zealand declined by 60%.

A brief snapshot of the same statistics taken at 30 June 2019 confirms the trend is continuing. Owner-occupied dwellings stood at 1,180,100, an increase of 5,200 in the six months since 31 December 2018, while rented dwellings at the half-year were 647,700, an increase of 8,900.

The Reserve Bank’s recent cut in the Official Cash Rate (OCR) from 1.5% to 1% is yet to produce any tangible reduction in mortgage rates.

Although the OCR and mortgage rates are both at record lows, there is no evidence of any uplift in house purchases.

It is a reasonable supposition that at this present year-end, home occupancy against rental will have continued to decline so the demand for residential tenancies will increase.

That concern may also be set against the potential commercial outcome of increasing regulation on landlords, resulting in letting becoming a less attractive investment proposition.

For example, the lack of subrogation of a landlord’s rights to have recourse to tenants in the event of damage may mean insurers will load this risk onto landlords. Rents will inevitably rise.

Rental damage

As mentioned earlier, there has been a recent decision of the High Court on liability for damage to a premises by tenants in Guo v Korck.

The tenancy agreement had permitted the tenancy to include two toy poodles, against an assurance by the tenants to the landlord that their dogs were house-trained.

However, the dogs were not house-trained at all and significantly damaged the carpet.

There were inevitable consequences. The Tenancy Tribunal ordered the tenants to pay $10,000 to replace the damaged carpet, a decision which was overturned in the District Court on the grounds that the damage was not intentionally caused within the meaning of section 269(3)(a) of the Property Law Act 2007. That exoneration was also applied because the landlord was insured, in spite of such cover being refused by the insurer.

The landlord appealed. The High Court decision focused on the extent of the tenants’ immunity provided under both sections 268 and 269 of that Act.

The tenants argued firstly, as the tenancy agreement provided for the two dogs to be permitted on the property, the tenants could not be held liable and, secondly, the landlord held insurance cover that should have taken care of the situation.

The High Court agreed that section 269 of the Property Law Act restricted claims against tenants for insured damage where the damage was caused carelessly.

It then observed that was not the case where the damage was done or caused intentionally. It also noted it was significant that the insurance company had declined cover.

The High Court held this was intentional damage. It said the tenants were aware it was virtually certain, in the circumstances, that there would be such damage, given the lack of training of the animals and the extent of the damage that had been caused.

That led to the carpet being uninsured and it was therefore arguable that section 269 was not applicable in such circumstances – a conclusion that must lead to the view that things are not always as they seem.

Des Wood is an Auckland barrister specialising in property.  This article originally appeared in LawNews (ADLS) and is here with permission.