Written By: - Date published: 9:44 am, February 19th, 2009 - 89 comments
Categories: national/act government, tenants' rights -
Tags: auckland property investors association, landlordism, phil heatley, tenancy tribunal
So, National has decided to scrap a raft of tenant protections proposed by the last Labour Government and tilt the deck back in favour of landlords. Clearly the new Government thinks tenants have had it too good for too long, and in hard times like these it’s the 8% of New Zealanders who own investment properties that need the most help.
Housing Minister Phil Heatley says he wants to remove limitations on tenant liability for damage to the property, even if the tenant did not cause the damage intentionally or recklessly.
That’s the clause that was inserted after four Dunedin tenants were held financially responsible for someone else setting their flat on fire while they weren’t even on the property. The judge in that case said the outcome “though in accordance with the law, is unjust.” But apparently Phil’s cool with that.
Heatley also wants to scrap the right to professional tenant advocates in Tenancy Tribunal hearings, thereby tipping the balance of power even further in favour of landlords and property managers. Oh, and he also wants to make sure real estate agents can keep charging those extortionate letting fees.
The Auckland Property Investors Association is said to be thrilled.
Good to know whose side they’re on.
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“f I own a house and I burn it down”
That’s right, if YOU burn it down. Not if someone else does it and you have no control over it – which is what the argument has been about the whole time. Under Labour’s bill tenants would still be liable if they caused damage “recklessly or intentionally” (for reference: http://www.nzherald.co.nz/politics/news/article.cfm?c_id=280&objectid=10557533)
“A month’s rent would have been the maximum penalty for any damage if the Tenancy Tribunal or a court decided the tenant did not cause it intentionally or recklessly. This was proposed after a tenant was held responsible for the actions of a flatmate in causing a Dunedin house fire.”
The Labour party legislation wouldn’t have protected tenants from paying for ‘malicious damage’.
From the Herald:
(emphasis mine)
It was solely about protecting tenants from paying for damage that was none of their doing. The aim, I assume, would be to make insurance wallahs go after culprits rather than convenient others…
Edit: Alex, snap.
Am glad that the government is looking at the provisions relating to tenants liability as Labour’s went too far. My only problem is with the all liable even where it is clear you had nothing to do with it. If liability can be established against someone – in the Dunedin case the frier, the others shouldn’t have to fork out, however where no clear liability exists then all liable is fair.
If people want to take the risk of not having personal liability while renting, that’s fine, but if the sh*t hits the fan, they made the choice..
Alex,
You’re missing the point. If I own and occupy a house, and the house gets damaged “on my watch”, I have a problem to deal with (even if the damage was not my “fault”).
In a lease, the house gets handed over to someone else lock, stock and barrell. The tenant gets posession of the house and the landlord has very limited rights of supervision.
The tenant WANTS to take on the benefits of living in a house. One of the responsibilities of living in that house is protecting it against damage (not just “don’t brun it down yourself”).
So again I say, if the house gets damaged “on the tenant’s watch”, why is it unreasonable for them to bear the costs? If the tenants believe that someone else is responsible, the tenants can “go after” that person.
In life, accidents happen, things get broken, damage occurs. At some point, you have to answer the question “Who pays for this accident?”. Normally, society answers that question with “The person who was best-placed to stop the accident occurring”. For a rental property, the occupiers are clearly best-placed to stop accidents occurring, are they not?
If you cap the tenant’s liability (i.e. if you force the landlord to take on additional liability exposure and risk), the you will simply increase the costs of renting (all other things being equal).
Certainly support Labour’s approach if you like, just don’t get angry when you find rents increasing and lease terms becoming more onerous. As I said before, rent rises and harsher lease terms would be inevitable.
PB,
“Intentionally” or “recklessly” are very high standards, way higher than negligence.
If a tenant is negligent in the way they look after a property, their liability should not be arbitrarily capped with the costs foisted onto the landlord.
Having been both a tenant and a landlord I’ve had one “bad’ landlord and 2 “bad’ tenants – not statistical more to make the point I’ve seen both sides.
ALL my other landlords and tenants were pretty good. The evil landlord was a lawyer interestingly enough. The law protected me quite well against the bad landlord as I bothered to check and the Tenancy boys were very helpful. Mind you, he still was a pain and I was glad to move away.
As a landlord I had no real recourse against the bad tenants and also had significant extra liabilities even with insurance. The insurance company wouldn’t even insure certain types of tenancy or of ANY visitors (invited or not) to the property’s behaviour.
I also had the case where the person’s name on the agreement got done over by fellow tenants and they were then liable for a bunch of damage. I didn’t get any recompense as the head tenant hadn’t any money. I had no recourse other than to sue the head tenant and they had to then sue the other tenants. This was not going to happen and I also felt it would be an act of malice to bankrupt the tenant despite their actions as they had brought in fellow tenants who were obviously unsuitable and I had warned the tenant of my concerns at the time. The agreement was phrased in such a way that the tenant could sub-let.
The other bad case was a bit similar in that I ended up out of pocket. I spoke to the Tenancy people who informed me that I would be unlikely to get more than the bond, which I had to work very hard to get and that nowhere covered the costs. The second case was deliberate. The Tenancy people were very helpful here as well. They do a good job in my experience.
I am no longer a landlord. It made me money, so no complaints there, except having done the sums I reckon there are less painful and risky way ways to invest.
As part of being a landlord I talked to a lot of other landlords and all have various horror stories but the horror stories tended to happen a lot more and were worse at the cheap and nasty end of the market. These were often poor quality housing, not well maintained etc with tenants who would fit the same description.
In terms of liability if you rent a car then you are then responsible for the car under law. I don’t see a difference here. I suggest there should be regulations around compulsory insurance to cover tenants’ liabilities.
Alex – GREAT selective quoting of me as well. Seriously, why bother if you’re gonna cut something totally change the meaning…?
As I said, if I own and occupy a house, I have a problem no matter who burns it down and irrespective of whether it’s my fault or someone else’s.
If I lease my house to you and you occupy it, I want you to take on board ALL those risks because you are the person best-place to deal with them (not just some of them and not capped at 1 month’s rent).
If you don’t want to take on all those risks, fine. I will have to raise my price (the rent) to compensate me for keeping certain risks and I’ll go spend the extra rent on more insurance.
NO government policy can magically change the relationship between risk and price…
Let’s face it, you basically want landlords to pay because they are “richer”.
Great stuff Nats – this is the sort of thing I voted for.
Why should the tax payer fork out to represent tenants and the landlords go into his own pocket.
Landlords are ordinary working kiwi’s just trying to get ahead
Jimbo, Landlords are not doing tenants favours, loaning them a house in return for a bit of dosh. It is a business, and the tenant is the customer. The landlord gets rent which often enables them to buy a property, gaining full rights of ownership, with someone else’s money. In return they wear some risks. Which they can insure against.
Rave:
They can’t simply because the tenants can’t afford lawyers.
If I ever become a tenant again (quite feasible) I hope I won’t be held accountable when hoodlums break in (extremely feasible) ransack the house and put holes in the walls. (quite feasible)
PB – I agree with you that “landlords aren’t doing favours”. What landlords do is take risks to try and make money. Bearing that in mind, landlords won’t simply roll over and accept increased risk as a favour to tenants out there. If a capping policy were put in place, rents would DEFINITELY rise for ALL tenants and rental terms would probably get more severe.
It’s a well-meaning idea to “cap” tenants’ liability, it just won’t get the desired result. I don”t like the policy because it hasn’t been properly thought through.
To deal with the “liable but not my fault” issue, a far better government response would be to work with insurance companies to make sure there is a product out there for tenants that would protect them against third parties doing damage to the property they occupy. Then if you educate tenants about that product, and the risks they face if they chose not to insure, you’ll have tenants who can decide whether to (1) take extra care of the house they’re in; or (2) buy the insurance. CHOICE will remain with the tenant. Careful tenants will continue to profit by effectively self-insuring (i.e. keeping the risk). Irresponsible tenants will at least have been reminded about the potential consequences of their behaviour.
The policy I describe above would “work”. It would incentivize tenants to keep undesirables out of the house.
As I said above, risk doesn’t bother landlords as long it gets priced properly. Give the landlord more risk, expect the price to go up.
rave, that is the most coherent ever. It almost makes complete sense.
Akldnut – but if you rent a car (quite feasible) and someone steals it (quite feasible) and sets fire to it (quite feasible) you would be held responsible\accountable. It’s in your care.
If you rent a DVD …… etc
The price certainly reflects risk jimbo. But nowhere like as hard and fast as you are sugesting. Rent is mostly determined by the market. This cost plus menatlity you are arguing may be fine for some point of argument, but in the real world the rent will be set by what tenants are prepared to pay. If that’s not enough to satisfy an individual landlords risk toleration, they’ll sell to landlords that can meet the market price. If what you are saying is true, landlords having problems letting a property at a set price, would never drop that price to help. And yet they do, all the time.
Jimbo
The bill would NOT have shifted all risk onto the landlord. It would simply have moved liability to the person who caused the damage, rather than onto all tenants no matter who was responsible.
Most tenants (or even landlords) are not aware that they are liable for damage caused carelessly by one of their flatmates. I can’t put it as well as the judge in the Dunedin case, so here’s what he said:
“Where tenants are not insured, they often have too few resources to be worth suing and are not sued for that pragmatic reason. Where not all joint tenants are insured, a claim may be brought against all to recover from the tenants who are insured. Whatever the situation, the entry of judgment against tenants is usually unjust because insurance premiums are factored into landlords’ costs when fixing rents and they are effectively paid by the tenants (emphasis mine). I note also that insurers accept the risk of leased residential properties knowing that tenants are unlikely to have liability insurance or other means to pay claims and that the recovery of substantial contribution to the insured loss from tenants must be relatively uncommon (emphasis mine). Putting aside these variables, I am of the opinion that, in general, the pursuit of substantial claims against tenants with respect to damage caused carelessly is oppressive in effect and I respectfully urge that the law be reformed.”
- Harrison v Shields, 25/9/02, District Court Dunedin, Judge MacAskill, NP435/00
The reality is tenants do not have the means to pay any substantial amount to a landlord or insurance company. They already effectively pay for the landlord’s insurance. MacAskill goes onto say a simple solution would be a change to the Residential Tenancies Act to require landlords to insure the interests of the tenants, unless the damage had been caused intentionally or carelessly. He notes that premiums would go up, but that the cost could simply be passed onto the tenants (which is what already happens).
Given that landlords take on insurance it’s obvious they are assuming risk of damage outside the control of the tenants (i.e. not caused carelessly or intentionally). If the landlord him/herself lived in the property their insurance would cover them for damage they did not cause carelessly or intentionally. What you are arguing for, effectively, is that insurance companies have the right to sue tenants for damage they did not cause even though this would not happen were it the owner living in the house, and even though they understand the risk they are taking on when they insure a leased property (i.e. that it is unlikely they will be able to recover any money from the tenants). It’s an unfair loophole in the law.
I hope my html stuff worked out properly and that this doesn’t look stupid.
“(i.e. not caused carelessly or intentionally)”
This should be “recklessly” rather than carelessly, which is what Labour’s bill said.
Alex / PB,
Certainly don’t 100% disagree with what you’re saying. Yes landlors “meet the market” and individual landlords will always lower price to fill one empty flat. That’s looking at it at the microeconomic level.
Stepping back though, if you pass this “capping liability” provision, you have just reduced the returns on the entire “landlording” industry. Which rents are most likely to increase? Not wealthy suburbs where the risk of tenants’ guests punching a hole in the wall in low, but “marginal” suburbs with poorer tenants and gangs sniffing around.
Why? Two reasons – (1) you’ve transferred to the landlord (rather than the tenant) the responsibility (and cost) of effecting recovery from the “person who was responsible for the damage” (and let’s be honest, in most cases that person is a licensee of the tenant – i.e. the tenant INVITED that person into the relevant property). (2) you’ve taken some of “risk” of looking after the property away from tenants, meaning that there will likely be more damage to properties than there was before.
Landlords have to deal with these increased risks/costs now. Yes, some will simply take out more insurance (cost increase). Others will do more inspections or change the terms of their leases (time commitment). But for the same number of landlords to stay involved in the industry, the income component (i.e. gross rent) needs to rise across the board, or else some landlords will simply quit and put their money in other investments.
My main objections to the policy are that it “does not work” as described above. I also don’t like it because the cap was comically low, which makes me suspect it was a policitally motivated stunt. A 1 month cap is just removed from reality and would drive all the wrong behaviours. In a furnished flat that might cover the cost of the oven, perhaps…?!
What happens if you pass this policy? Again, people “on the margins” suffer. Wealthy landlords simply shrug, take out a bit more insurance, ask their property managers to raise the rent by $10 a week, tell their property managers to do more detailed background checks. Maybe they take a bit more time to fill vacant properties because they’d rather have a tenant who is a teacher/lawyer rather than mechanic (or whatever).
Meanwhile, tenant who is well behaved but without prestigious job title, struggling to afford the rent anyway, living in poorer part of town, gets hit with increased rent and/or passed over for the vacant property because landlords are minimizing their exposure by only looking for certain types of tenants.
Who wins the most? the plonkers who invite lunatics into their landlord’s house…!
In summary – too many unintended consequences from a policy designed to *help* the wrong people….
Alex – also, I simply disagree with the way the Judge has cast around the word “unjust”.
If I invite someone into my rented property and they damage or destroy it, perhaps I should not be exposed to 100% of the liability. Perhaps my exposure should be capped at 50% of the damage he causes (or whatever). It should probably depend on the circumstances – inviting a priest into the house might be different from inviting 10 headhunters in for a party…
But if the typical yeild on a house is around 6% and the policy suggests a cap of 1 month’s rent FOR ALL CASES (i.e 0.5% of the property value), that is a ridiculous allocation. If I knowingly invite in the headhunters, why should my responsibility be assessed at 1/2 a percent of the house value?
That will DEFINITELY drive the wrong sort of behaviour.
Finally, the policy wasn’t just about 3rd party damage (as per the Dunedin case), it was about any damage that was not caused by my recklessness or wilfull default. That’s also crazy and will drive the wrong behaviours.