Tenant Liability for Careless Damage - Residential Tenancies Amendment Bill (No 2)

Lucy Doherty

April 2018. . . The Government has confirmed that it will carry on with the Residential Tenancies Amendment Bill from the previous government which puts some liability back on tenants who carelessly damage their rental properties, in an effort to mitigate the effect of the decisions in Holler v Osaki (2016) and Linklater v Dickinson (2017). These two cases essentially made tenants immune to liability for damage caused by carelessness or negligence.

Prior to Holler, residential tenants were liable for the full costs of careless damage to rental premises they intentionally or carelessly caused beyond fair wear and tear, regardless of a landlord’s insurance arrangements.

In Holler, a residential tenant who damaged their landlord’s property carelessly (a pot of oil was left on high heat unattended for a few minutes and a fire broke out and caused extensive damage to the house) was held not liable for damages on application of the provisions of sections 268 and 269 of the Property Law Act 2007 (PLA). Those sections of the PLA provide that where the damage caused was accidental or negligent, a landlord must not require a tenant to meet, or indemnify the landlord for, the costs of repair for damage or to pay damages when a landlord holds insurance that would cover that damage. Nor may the insurance company seek reparations from the tenant. The landlord claimed under their insurance policy with AMI, and AMI exercised their right of subrogation to pursue the tenant as the party that they claimed caused the damage. AMI claimed that the PLA didn’t apply to residential tenancies and on the basis of the alleged carelessness of the tenant, claimed against them for the full damage to the property. The claim was heard by the Tenancy Tribunal, appealed to the High Court and appealed again to the Court of Appeal. The Court referred to the Residential Tenancies Act 1986 (RTA) which states that the Tenancy Tribunal may look to the Property Law Act “as a source of the general principals of law”, and decided that the principals of s268 and 269 applied to residential tenancies. Accordingly the tenants were protected from the claim.

In Linklater, where damage found inside a rental property included graffiti, damaged curtains, changed locks, and cigarette burns in the carpet, the High Court followed Holler and reasoned that sections 268 and 269 of the Property Law Act make it clear that risk should be transferred from tenants to the landlord’s insurance company. It reasoned that contradicting this may lead landlords to shift risk to their tenants in exchange for higher excesses and lower premiums.

These rulings have been met with criticism as they demonstrates a high threshold for what is considered intentional damage, even when the damage is in direct breach of the tenancy agreement, and also a disconnect, as on one hand tenants are responsible for the properties they live in but on the other not financially liable for a breach of these responsibilities if they are careless or negligent.

In an effort to balance the interests of landlords and tenants, and address the confusion as to whether the insurance provisions under the PLA apply to residential tenancies or not, the proposed position under the RTA Amendment Bill means tenants will be liable for each incident of careless damage up to the value of their landlord’s insurance excess (if applicable) but no more than four weeks’ rent.

‘Careless damage’ is not defined in the RTA but is generally characterised as negligence, lack of care, or lack of forethought. The question has been expressed by the Tenancy Tribunal as, “Was the tenant exercising that degree of care and attention that a reasonable and prudent tenant would exercise in the circumstances?”

‘Incident’ of damage is also not defined under the RTA, and it is foreseeable that when damage is caused in a tenancy a key issue will be whether damage is caused from one or multiple incidents. It has been suggested that if a tenant held a party where wine was spilt on the carpet in two different rooms, the tenant would be liable for the cost of the repair of the two occurrences of damage, each up to the liability limit.  So, while there are limits on tenants liability under the proposed amendments, establishing successive incidents would result in cumulative liability with multiple capped claims, and the proposed limit on liability might not be so effective.

A tenant will still be fully liable for the whole cost of damage if the damage was intentionally caused, or the damage was the result of an act or omission by the tenant which constitutes an imprisonable offence, or insurance money is irrecoverable because of the tenant’s act or omission, and insurance companies will retain a right of subrogation for these exceptions.

In addition to the above, the RTA Amendment Bill requires disclosure of insurance information on request. That is, tenants will be able to ask their landlord for insurance information which relates to their tenancy and the landlord must provide the requested information within 14 days’ of request. The landlord must also notify the tenant if any of the provided information changes.

The Amendment Bill is currently at Select Committee with their report due later this month.

Please contact one of our Commercial Team if you would like to discuss any of the above further.