NZILA President’s message
Jonathan Scragg

NZ debates immunity for residential tenants

Nearly a year has passed since the New Zealand High Court’s decision in Holler v Osaki [2014] NZHC 1977 but the conclusion reached by Justice Keane continues to generate debate.

In residential tenancies governed by the Residential Tenancies Act 1986 (RTA), the long-standing position has been that tenants are liable to landlords (or their insurers) for accidental property damage. That contrasts with the immunity afforded to commercial tenants under the Property Law Act 2007 (PLA).

The High Court’s decision in Holler v Osaki has tipped the long-standing position on its head and given residential tenants the immunity previously understood to apply only to commercial tenants.

The High Court’s decision

In March 2009, an Auckland rental property was extensively damaged by fire caused by the tenant’s wife, Mrs Osaki, leaving a pot of boiling oil on the stove which ignited. The landlord’s insurer met the repair cost, $216,413, and sought to recover the sum (in the name of the landlord) from the Osakis.

That was on the basis the Osakis were in breach of the tenancy agreement requiring them “to take all reasonable precautions against the outbreak of fire”. The Osakis defended the claim, relying on ss268 and 269 of the PLA, which provide immunity for commercial tenants from claims by landlords or their insurers for accidental damage to leased premises.

The case had a protracted passage through the courts, with hearings in the Tenancy Tribunal, the District Court and the High Court. An appeal will be heard in November by the Court of Appeal.

In the High Court, the issue was whether the immunity provided to commercial tenants in ss268 and 269 of the PLA extended to residential tenancies governed by the RTA.

S142 of the RTA was central to the High Court’s analysis. It provides:

(1) Nothing in Part 4 of the Property Law Act 2007 applies to a tenancy to which this Act applies.
(2) However, the tribunal, in exercising its jurisdiction in accordance with s85 of this Act, may look to Part 4 of the Property Law Act 2007 as a source of the general principles of law relating to a matter provided for in that Part (which relates to leases of land).

The High Court held the PLA immunity extended to residential tenants; the extension was consistent with the policy of the RTA and the PLA. The High Court held that RTA’s ss142(1) on its own would bar any resort to ss268 and 269 of the PLA, but ss142(1) is qualified by subsection 142(2) and the two must be read together. The High Court held that, in principle, there is no essential difference between commercial and residential tenancies and no reason why the immunity for commercial tenancies should not apply to residential tenancies.

Comments

The High Court’s approach recognises the view there is no principled distinction between commercial and residential tenancies. The decision can be seen as a ‘just’ one for residential tenants on that basis.

Conversely, the High Court’s approach is difficult to reconcile with ss40 and 41 of the RTA which put responsibility on tenants for their actions and the actions of others. The decision is also inconsistent with the long-settled, and well-understood, position there is no immunity for residential tenants in those situations.

It is arguable the High Court’s approach ignores Parliament’s treatment of those issues. In 1991 and 1994, the Law Commission proposed law reform. In 2006 and 2008 Bills were tabled in the House that included clauses which, had they been adopted, would have limited residential tenants’ liability for property damage. Those Bills did not pass.

By recognising immunity for residential tenants in Holler v Osaki the High Court has recognised an immunity for residential tenants that Parliament has chosen not to implement.

The Court of Appeal is to consider these issues in November. Time will tell whether the High Court’s approach is upheld or whether the position will revert to the previous position. Either way, it seems likely the case will see calls on Parliament to re-visit residential tenant immunity.

Record damages award in ‘leaky building’ case

The High Court has just released its decision in Body Corporate 326421 & Ors v Auckland City Council & Ors [2015] NZHC 862. The decision concerns the Nautilus apartment complex, north of Auckland. The High Court has awarded the apartment owners more than $25 million in damages. It is understood to be the largest damages awarded by a NZ court in a residential and commercial mixed-use ‘leaky building’ case.

Only two of the original defendants have been treated by the High Court as being solvent defendants; the local authority that issued the consents and code compliance certificates, and the company that applied a waterproof membrane and installed tiles on the building’s decks. Unlike Australia’s proportionate liability approach to multi-respondent party claims, the financial consequences for the two parties in the Nautilus case are substantial because of NZ’s joint and several liability regime.

The Law Commission has recommended NZ retain the joint and several liability rule, but has recommended introducing caps on liability for building consent authorities (Liability of Multiple Defendants NZLC R132, June 2014). The Nautilus decision is likely to bring that recommendation sharply into focus for the government, which is considering the Law Commission’s recommendations and is due to report back by the end of the year.