The NZPIF has had meetings with Housing Minister Dr Nick Smith. He understands our problems with the Osaki case and agrees that something needs to be done and soon.
At the NZPIF Conference in Taranaki, Minister Smith outlined advice he had had on a possible solution to the Osaki problem. This was to return liability for damage they cause back to tenants, but limit it to either the landlord’s insurance excess or four weeks rent, whichever is lower.
The limitation would apply to each case of damage. So in theory a landlord could use their insurance and have tenants pay the excess or excesses if this is the case. This would be a good improvement on our current situation, but may not be the best solution.
The Insurance Council is not keen on the proposal as they see it removing their right of subrogation against tenants and therefore increasing their risk. (Subrogation is their right to take over a claim from a rental property owner once they have paid out on the claim, and this allows them to chase the tenant). They have said that this will see insurance premiums increase for rental owners. It is difficult to say if this will happen or not, as they very rarely use their right of subrogation, indicating that their risk should not increase significantly if their right was removed.
While the proposal to fix the Osaki problem will work, it is complex and could lead to unintentional consequences. If the proposal becomes law, it will mean that rental owners will need to seek their insurer’s opinion on the damage (specifically how they view the number of incidents of damage) before making a claim to the Tenancy Tribunal. This information will become part of the owner’s evidence in trying to get the Tenancy Tribunal to agree with the insurer regarding the number of incidents and therefore the excesses that apply to the damage.
A potential problem is that the Tribunal may not agree with the insurance company, which means that the owner could still be covering some of their tenant’s damage costs.
There are also issues because of different rent levels around the country. High cost rent areas (such as Auckland and Queenstown) will be able to have higher insurance excesses. However the cost to replace items, such as carpet in a similar sized property, may be the same for all properties.
The Ministry of Business, Innovation and Employment held three meetings recently in Auckland, Wellington and Christchurch, to get stakeholder feedback on the proposal.
In general, tenant groups understood that the current situation is unfair for rental property owners. They also feared that there would be a loss of rental properties over time and that certain tenants would find it nearly impossible to find accommodation because they would be seen as being of a higher risk of causing damage. There was a sense from both landlord and tenant groups that something had to be done and that the current proposal would help the situation.
However there was also general agreement that, while not perfect, the system worked well before and would not need to change if an insurance company had not sought recompense from the Osakis.
The NZPIF has also held meetings with Labour, Act and the Greens to discuss the Osaki situation and the current proposal to address it. All parties agreed that something needed to be done and that in the absence of something better, the current proposal would be a good outcome.
The NZPIF appreciates the speed with which Government is addressing the problem caused through the Osaki case court ruling. If the proposal makes it into law then this will be positive for the industry.
However the NZPIF believes that the proposal is complicated and does not address all the concerns of all parties involved. The Osaki case was a reaction to a once in ten years event. The NZPIF believes that there are other solutions that are simpler and fairer to all participants.
If section 142(2) was removed or amended so it was clear that the Property Law Act does not take precedent over the Residential Tenancies Act, then tenancy law regarding damage could revert to where it was before the Osaki case ruling.
If this occurred, tenants could be better protected by other means, such as:
1. landlords being required to inform tenants of their responsibility for damage, which could amount to the entire cost of the property, and of insurance that can protect them from this risk.
2. a requirement for tenants to hold a minimum amount of contents insurance.
3. a law that prevents insurance companies from using subrogation above an established level of damage.
Option one would return us to a pre-Osaki situation, which would be good for everyone except tenants without contents insurance. However these tenants would be better informed of their risk and how they can protect themselves. This means they could make an informed decision about contents insurance.
Option two would return us to a pre-Osaki situation, but would force those tenants who don't have contents insurance to take it out.
Option three would again return us to a pre-Osaki situation, but would protect tenants from high cost for the damage they may cause. Insurers may increase rental property insurance costs, which will lead to higher rental prices for tenants. Tenants with contents insurance would not get the full benefit of their insurance. Tenants without contents insurance would still risk being responsible for small levels of damage they cause, but they would be protected from major damage.
The situation of who is or shouldn't be responsible for damage, the level of damage and who should get the use of insurance cover is complex. It is unlikely that there is a solution that will work for all parties.
Once a final proposal has been devised, it will be drawn up into a policy paper to present to Cabinet, then to a Bill for Parliament, onto Select Committee consideration and public consultation before going back to Parliament and finally passed into law.
It is excellent that all political parties we have met with agree that a solution is required. Hopefully this will speed up the process.
The NZPIF will be discussing this issue at their next meeting. They will be seeking an option that is fair and reasonable for as many parties as possible and is simple to administer with low potential for unintended consequences.