by Miriam Bell
The long-running case involved a dispute between landlords, Andreas Holler and Katherine Rouse, and their tenants Kenji and Tieko Osaki.
Back in 2009, the Osakis left an unattended pot of oil on the oven of the house they rented from Holler and Rouse.
It started a fire which led to extensive damage and repairs costing $216,413.28.
Holler and Rouse’s insurer, AMI, claimed the fire repair costs from the Osakis.
But they protested, claiming that the Tenancy Tribunal had exclusive jurisdiction and that the claim made was barred by sections in the Property Law Act.
AMI has been fighting the case ever since and now the Court of Appeal has found in the tenants’ favour.
The Court of Appeal found that residential tenants are immune from a claim by a landlord when a rental property suffers loss or damage caused intentionally or carelessly by a tenant or the tenant’s guests - to the extent provided in sections 268 and 269 of the PLA.
Auckland District Law Society vice president Joanna Pidgeon said the decision clarified the PLA’s prohibition on landlords pursuing tenants for reparation from tenant-caused accidental damage extended to residential tenancies.
Previously the PLA’s prohibition was thought to be restricted to commercial tenancies.
Pidgeon, who specialises in property law, said the decision will also apply where a landlord does not have their property insured.
This means a landlords will be prevented from recovering compensation for unintentional damage from residential tenants in that situation also.
“Most residential tenants would not have had personal liability insurance to protect them from a situation where they unintentionally caused damage.
“And most would have presumed that the property was insured and that they have some protection from that insurance, so the decision puts that assumption into effect.”
The decision increases the need for residential landlords to make sure they are insured, Pidgeon said.
“It will lead to an increase in insurance premiums as insurance companies will not be able to pursue tenants for the costs of damage unintentionally caused.
“It will probably also lead to landlords being more careful in assessing prospective tenants and their potential to cause damage – which could have a particular impact on prospective tenants with children and pets for example.”
Further, the decision could also impact on a landlord’s ability to deduct damage to properties from bonds at the end of a tenancy, she added.
“Landlords with bonds may not have quite the same protection against property damage they once thought they had, as the issue between intentional and unintentional damage becomes more debated, where tenants try to get out of responsibility for damage on lease termination.”
However, Myles Noble, who is head of claims at insurer Crombie Lockwood NZ, didn’t think the decision would have as big an impact on landlords as suggested.
He said the Court of Appeal has applied the “general principles” of the PLA to residential tenancies so as to apply a similar immunity to residential tenants as exists for commercial tenants.
“In doing this it gave effect to the Law Commission’s recommendation that a landlord could not be able to recover from a tenant who has caused damage if the landlord was insured or had covenanted to insure the dwelling.”
But Noble said he doesn’t think it means landlords will need to do anything differently.
“It just means residential tenants are on the same footing as commercial tenants and landlords, or more usually their insurers, can't recover against tenants who cause damage.
“We also don’t believe that this will alter current market rates for insurance as, presumably, insurers already price on the basis that tenants could cause damage and accordingly they charge for the higher risk of tenanted properties.”
He said the decision may not be the end of the matter and he is waiting to see if AMI has further appetite to appeal to the Supreme Court.
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