NZILA President's message
Jonathan Scragg

Reform Bill in progress

In the December issue of Resolve I discussed the potential for legislative reform of the Residential Tenancies Act 1986, following the Court of Appeal’s decision in Holler v Osaki [2016] NZCA 130.

I also commented on the development of methamphetamine testing and remediation standards for properties. Both issues have now found their way onto the legislative agenda in the Residential Tenancies Amendment Bill (No 2).

The Bill passed its first reading on 4 July 2017, and has been referred to the Local Government and Environment Select Committee. The Bill addresses three issues:

• liability for careless damage to rental premises caused by a tenant (Holler v Osaki)
• management of methamphetamine contamination in residential rental premises
• use of “non-residential” premises for residential use.

Tenant liability for careless damage to rental premises

The Bill would ameliorate the effect of the Court of Appeal’s decision in Holler v Osaki. 

The Bill proposes that, for each careless act or omission of a tenant (or someone for whom the tenant is responsible) that causes destruction or damage to the premises, the tenant’s liability will be limited to the lesser of the landlord’s insurance excess (if applicable) or four weeks’ rent. Where the cost of the damage is less than the landlord’s excess, the tenant would be liable only for the lower cost.

The Court of Appeal’s decision in Holler v Osaki essentially prevented an insured landlord from recovering against a tenant for the cost of careless or negligent damage caused by the tenant. The Bill would re-open the pathway for landlords to recover against tenants for such damage, albeit on a more limited basis than was the case before Holler v Osaki. 

The rationale for the Bill placing limited responsibility for unintentional damage on residential tenants is that tenants should enjoy the benefit of their landlords’ insurance cover because, by paying rent, they contribute to funding landlords’ premiums. The proposed amendments attempt to incentivise tenants to take care of rental premises, while also protecting tenants from excessive risks and costs.

The Bill also proposes that landlords be required to disclose insurance information (as it relates to a tenant’s liability for damage to the premises) to tenants on request at any time during the tenancy. Relevant information will include whether a landlord is insured and the level of excess payable if there is a claim. A landlord who fails to supply requested information within 14 days may be liable for a fine of up to $500.

The Bill will be of particular interest to the insurance market because of the proposed limitations on insurers’ subrogation rights. The Bill would generally prevent insurers pursuing subrogated claims against tenants who have caused unintentional damage. Limited exceptions are proposed, including where tenants have intentionally caused damage or where tenants’ acts or omissions which have caused damage are criminal offences (carried over from the Property Law Act 2007).

Meth contamination in rental premises

The Bill proposes to provide landlords a specific right of entry to rental properties (on notice and during specified hours) to sample and test for methamphetamine contamination. The Bill also would provide rights for tenants and landlords to terminate a tenancy if testing shows methamphetamine present at unsafe levels in accordance with the regulations.

In the December issue of Resolve I said Standards New Zealand was developing a standard for testing and remediating properties where methamphetamine has been manufactured or used. That standard has now been released: NZS 8510:2017 (approved on 22 June 2017).

The standard provides definitive safe levels to guide testing for contamination and subsequent decontamination procedures; and seeks to ensure quality and integrity of methods during that process. A landlord who tests in accordance with the standard must notify the tenant within seven days of receiving the results.

The Bill provides that, where methamphetamine contamination is established, the minimum notice period would be seven days (for the landlord) and two days (for the tenant) to terminate the tenancy. The ability to terminate is not fault-based. Unless the tenant is responsible for the contamination, the rent would abate.

The Bill also provides that it would be an unlawful act, with a maximum level of $4,000 damages, for a landlord knowingly to provide premises at the start of a tenancy that are methamphetamine contaminated and the premises have not been decontaminated in accordance with the prescribed regulations.

One consequence of the Bill, if implemented, and the new standard NZS 8510:2017 for landlords and insurers alike is they will want to understand the scope of cover available for rental premises which turn out to be contaminated by methamphetamine.

Rental premises not lawful for residential purposes

The Bill seeks to respond to the High Court decision in Anderson v FM Custodians Ltd [2013] NZHC 2423.

In Anderson, the High Court found that, where a property is not lawfully able to be used for residential purposes and is therefore not a “residential premises” as defined under the Act, the Act does not cover the tenancy. Consequently, the Tenancy Tribunal does not have jurisdiction. Remedies open to the tribunal in such cases have been limited to ordering a refund of rent and bond, and ordering an award of exemplary damages limited to $1,000 (as the tenancy would be viewed as a prohibited transaction).

That has left tenants living in unlawful residential premises in an unenviable position, as they have been left without the protections and minimum requirements afforded them by the Act, including bond lodgement requirements, rent increase obligations, termination rights, and the right to quiet enjoyment.

The Bill would give the tribunal full jurisdiction over premises occupied or intended to be occupied for residential purposes, regardless of whether the occupation is unlawful under the Act. Once the tribunal has found a rental premises to be an unlawful residential premises, the Bill would allow the tribunal to give specific remedies, including making a work order requiring the landlord to remove or rectify the legal impediment to lawful occupation or to comply with building, health or safety requirements that apply to the premises. The proposed amendments will allow the tribunal to adjudicate on the circumstances and merits of each case.

Click here for the Bill.