New Zealand: Reform of the Residential Tenancies Act granted royal assent

Last Updated: 8 August 2019
Article by Aaron Sherriff

What do these changes mean for landlords and tenants?

On 30 July 2019, the Residential Tenancies Amendment Act 2019 was granted royal assent. The Act significantly impacts on the rights and obligations of both landlords and tenants in three areas:

  • liability for careless damage to rental premises caused by a tenant;
  • management of methamphetamine contamination in residential rental premises; and
  • the use of "non-residential" premises for residential use.

The amendments will take effect on 27 August 2019.

Tenant liability for careless damage to rental premises

This amendment ameliorates the effect of the Court of Appeal's decision in Holler v Osaki.

Until April 2016, landlords could seek to recover from residential tenants who carelessly or negligently caused property damage. That changed after the Court of Appeal's decision in Holler v Osaki when the Court applied the exonerating provisions of the Property Law Act 2007 (for commercial tenancies) to create a bar on recovery action being taken against residential tenants, in circumstances where the landlord has insurance.

The Court of Appeal's decision essentially barred insurers from pursuing subrogated recovery actions where a residential tenant had carelessly or negligently caused property damage.

The new legislation declares that, for each careless act or omission of a tenant (or someone for whom the tenant is responsible) that causes destruction or damage to the premises, the tenant's liability will be limited to the lesser of the landlord's insurance excess (if applicable) or four weeks' rent. Where the cost of the damage is less than the landlord's excess, the tenant will be liable only for the lower cost. This effectively re-opens the pathway for landlords to recover against tenants for such damage, albeit on a much more limited basis than was the case before Holler v Osaki.

The rationale for placing limited responsibility for unintentional damage on residential tenants is that tenants should enjoy the benefit of their landlords' insurance cover because, by paying rent, they contribute to funding landlords' premiums. The amendment attempts to incentivise tenants to take care of rental premises, while also protecting tenants from excessive risks and costs.

The amendment also requires landlords to disclose insurance information (as it relates to a tenant's liability for damage to the premises) to tenants on request at any time during the tenancy. Relevant information will include whether a landlord is insured and the level of excess payable if there is a claim. A landlord who fails to supply requested information within 14 days may be liable for a fine of up to $500.

The amendment will be of particular interest to the insurance market because of the limitations it imposes on insurers' subrogation rights. The Act as amended will generally prevent insurers pursuing subrogated claims against tenants who have caused unintentional damage. Limited exceptions are included where tenants have intentionally caused damage or where tenants' acts or omissions which have caused damage are criminal offences (carried over from the Property Law Act 2007).

Methamphetamine contamination in rental premises

The Amendment Act allows landlords a specific right of entry to rental properties (on notice and during specified hours) to sample and test for methamphetamine contamination. The Act also provides rights for tenants and landlords to terminate a tenancy if testing shows methamphetamine present at unsafe levels in accordance with the regulations.

Standards New Zealand has developed a standard for testing and remediating properties where methamphetamine has been manufactured or used (NZS 8510:2017 (approved on 22 June 2017)). That standard provides definitive safe levels to guide testing for contamination, subsequent decontamination procedures, and to ensure the quality and integrity of methods used during that process. A landlord who tests in accordance with the standard must notify the tenant within seven days of receiving the results.

The Amendment Act provides that, where methamphetamine contamination is established, the minimum notice period will be seven days (for the landlord) and two days (for the tenant) to terminate the tenancy. The ability to terminate is not fault-based. Unless the tenant is responsible for the contamination, the rent would abate.

Under the Amendment Act it will be an unlawful act, with a maximum level of $4,000 in damages, for a landlord knowingly to provide premises at the start of a tenancy that are methamphetamine contaminated and the premises have not been decontaminated in accordance with the prescribed regulations.

Rental premises not lawful for residential purposes

The Amendment Act responds to the High Court decision in Anderson v FM Custodians Ltd [2013] NZHC 2423.

In Anderson, the High Court found that, where a property is not lawfully able to be used for residential purposes and is therefore not a "residential premises" as defined under the Act, the Act does not cover the tenancy. Consequently, the Tenancy Tribunal does not have jurisdiction. Remedies open to the Tribunal in such cases have been limited to ordering a refund of rent and bond, and ordering an award of exemplary damages limited to $1,000 (as the tenancy would be viewed as a prohibited transaction).

That has left tenants living in unlawful residential premises in an unenviable position, as they have been left without the protections and minimum requirements afforded them by the Act, including bond lodgement requirements, rent increase obligations, termination rights and the right to quiet enjoyment.

The new legislation grants the Tenancy Tribunal full jurisdiction over premises occupied or intended to be occupied for residential purposes, regardless of whether such occupation is lawful or not under the Act. Once the Tribunal has found a rental premises to be an unlawful residential premises, the new legislation allows the Tribunal to give specific remedies. These include making a work order requiring the landlord to remove or rectify the legal impediment to lawful occupation or to comply with building, health or safety requirements that apply to the premises. The Amendment Act also allows the Tribunal to adjudicate on the circumstances and merits of each case.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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