Who pays when your residential tenant damages your property?

Published by Tony Savage on April 28, 2016

Landlords and insurance companies have been dismayed to learn that the Court of Appeal has decided that residential tenants don’t have to reimburse their landlord (or insurer) where their rental property is damaged.

This means that even though residential tenants don’t pay for insurance they get the benefit of the landlord’s insurance.

The case went through a lengthy court process. The original fire (unexpectedly caused by the tenant leaving a pot of oil on high heat) was in 2009. The tenancy agreement said that the tenants had to “take all reasonable precautions against the outbreak of fire.”

The difficulty was the different provisions of the Residential Tenancies Act 1986 (“RTA”) and the Property Law Act 2007 ( “PLA”).

The landlord was insured with AMI. AMI paid out $216,413.28 to fix the house . AMI went after the tenant to get repaid, because AMI thought the tenant had been careless.

Despite the RTA having exclusive jurisdiction over residential tenancies, the Courts decided certain sections of the Property Law Act (s268-9) meant the Tenant did not have to pay AMI anything.

The difficulty was the different provisions of the Residential Tenancies Act 1986 (RTA) and the Property Law Act 2007 (PLA)

Tony Savage — WRMK Lawyers

The Court originally sent the matter to the Tenancy Tribunal (beyond the Tribunal monetary limit of $50,000). The Tenancy Tribunal found in favour of the Landlord.

The Tribunal decision was appealed to the Court. The answer came down to deciding what the RTA and the PLA really meant.

The PLA says it does not apply to residential tenancies. The RTA also says that the PLA “does not apply” to residential tenancies (s142 RTA), but it goes on to say that the PLA can provide “a source of general principles”. It was those general principles the Court thought were important. The Tenancy Tribunal had to have regard to “general principles of law”.

The Court of Appeal said that the tenant was indeed “responsible” for the damage they caused. The landlord can apply to end the lease. Importantly though, the landlord does not have to repair damage caused by the tenant and there is no provision in the RTA requiring the tenant to make good the damage or requiring the tenant to compensate the landlord. So the Court said although the tenant is responsible for the damage they cause, if the Landlord is insured then the landlord cannot make the tenant pay the costs.

Importantly though, the landlord does not have to repair damage caused by the tenant and there is no provision in the RTA requiring the tenant to make good the damage or requiring the tenant to compensate the landlord

Tony Savage — WRMK Lawyers

What does this decision mean for you?

Until this decision most commentators understood that tenants could be sued in these situations. Now insured landlords and their insurers can no longer recover the loss from the tenants. As a result the cost of insurance may increase and change the risks insurance companies choose to insure. Insurance companies will likely also want landlords to provide more details about tenants.

If a landlord is not insured and the damage was caused by fire, flood, explosion, lightning, storm, earthquake, or volcanic activity the landlord cannot recover the loss unless the tenant’s caused the damage on purpose or in the course of a serious crime.

This clarification highlights that landlords needs to be comprehensively insured. The consequences of under insurance may be very serious for landlords.

This update is brought to you by the property team at WRMK. If you require any advice on your particular circumstances, please contact us directly.

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