NZILA President's message
Jonathan Scragg

Holler v Osaki revisited

In the September 2017 issue of Resolve I discussed potential amendments to the Residential Tenancies Act 1986 that are on the horizon in the wake of the Court of Appeal's decision in Holler v Osaki.

This article updates readers on the law reform's progress and highlights some potential unintended consequences of the Court of Appeal's decision.

Background to Holler v Osaki

Until April 2016, landlords could seek to recover from residential tenants who carelessly or negligently caused property damage. That changed after the Court of Appeal's decision in Holler v Osaki when the court applied the exonerating provisions of the Property Law Act 2007 (for commercial tenancies) to create a bar on recovery action being taken against residential tenants, in circumstances where the landlord has insurance.

The Court of Appeal decision has effectively barred insurers from pursuing subrogated recovery actions where a residential tenant has carelessly or negligently caused property damage.

Proposed law reform

The Residential Tenancies Amendment Bill (No 2) aims to rebalance the law in the wake of Holler v Osaki. The Bill proposes a tenant (or any person for whom a tenant is responsible) who carelessly or negligently causes property damage will be liable for the lesser of either the landlord's insurance excess or four weeks' rent. The change is designed to incentivise residential tenants to take better care of rental premises.

The Local Government and Environment Select Committee has, since the change of government, released a report scrutinising the Bill before it returns to the House for a second reading this year. The report recommends two key amendments to the provisions relating to tenant liability for careless damage:

• Making it compulsory for landlords to include relevant insurance information as part of the tenancy agreement; instead of only providing such information at the tenant’s request; and
• Inserting a new provision to clarify the evidentiary thresholds to be met respectively by landlords and tenants in some situations involving property damage, such as when a tenant’s illegal act constitute an imprisonable offence.

Holler v Osaki's market impact

For now, Holler v Osaki isthe leading authority on whether recovery action can be taken against residential tenants for carelessly causing property damage. The broad nature of the Court of Appeal's reasoning has caused some in the insurance market to wonder whether the decision could lead to unintended results.

For example, a tenant negligently reverses his car into the front porch and garage door of a residential rented property.

Before Holler v Osaki, the landlord (or their insurer) could have brought a claim against the tenant to recover the cost of repairing the damage. Arguably, Holler v Osaki would now prevent such a claim. If the damage was insured, the landlord would be required to pay the excess and the insurer  to meet the cost of the damage. Unfortunately for the landlord, and their insurer, the door to pursuing the tenant for recovery could be closed, leaving the tenant able to escape liability for the loss, despite their negligence.

If the Bill is enacted as currently drafted, that situation would play out slightly differently: the tenant would be liable to pay the lesser sum of either the landlord's excess or four weeks' rent. The landlord (or their insurer) would meet any costs that exceeded that sum. The Bill would not, however, enable the insurer to bring a subrogated recovery claim against the tenant, so that consequence of Holler v Osaki would remain unaffected.

Consequently, while the proposed Bill would bring some welcome changes for landlords, it would not be a significant change for insurers, who would continue to face difficulties in pursuing subrogated recovery claims against tenants for accidental property damage.

Consideranother situation: an insured homeowner goes on an overseas holiday. She asks a house sitter to look after her property while she is away. The house sitter accidentally causes significant fire damage to the kitchen.

Holler v Osaki does not directly apply to this scenario as it does not involve a residential tenancy. However, the broadly reasoned decision could enable an argument to be made that the house sitter should not face a recovery action by the homeowner (or their insurer), just as would have been the case had the property been rented. The Bill, if enacted as drafted, would not apply to this scenario either, potentially leaving the house sitter immune from recovery action.

But what if the house sitter throws a party and a careless party guest damages the property? Could Holler v Osaki be extended to prevent any form of recovery action being taken by the homeowner (or their insurer) against the party guest? Again, it would seem possible.

The point to emerge from these scenarios is that the impact of Holler v Osaki may be felt far and wide, and potentially further afield than the Court of Appeal intended.

NZILA Conference
Christchurch in the spring, 19-21 September 2018

The 2018 NZILA conference will be a significant event because it is the first time, since the 2010/2011 Christchurch earthquakes, NZILA has returned to the city for the annual conference. 

Christchurch-based national committee members plan to put on quite a show, with education and networking opportunities mixed with a little fun. 

The conference theme is Beyond Adversity. While there will be some reflection on what has occurred in Christchurch, the presentations will primarily be forward looking covering Christchurch City's future, emerging risks for the NZ and wider regional insurance market, developments in cyber fields, and legislative reform. 

As a first for NZILA, three concurrent sessions will be held on the first day, covering workplace health and safety, recent developments for financial advisers, and fire investigation and liability.

The social program starts with a welcome function in the new Transitional Cathedral. The dinner will be at a bespoke location with a guest speaker. The conference will end with the traditional long lunch. The tradition started in Christchurch, so it is time to celebrate and indulge in the best of Canterbury hospitality and fare.

All NZILA members are encouraged to look for emails confirming opening of online registrations, which will occur close to this issue of Resolve being distributed. 

Australian colleagues also are invited to visit Christchurch in the spring and the nearby ski fields. Go to www.nzila2018.co.nz in early June to register.