Introduction – tenants' liability
The Court of Appeal in Holler v Osaki [2016] NZCA 130, [2016] 2 NZLR 811 confirmed that a residential tenant who damages their landlord's property carelessly can not be sued by their landlord in respect of the damage. Under the Property Law Act 2007, where the property is insured, and the damage caused was accidental or negligent, neither the landlord nor their insurance company can claim the cost of repairing the damage from the tenant. The situation is different when a tenant causes damage intentionally.
Holler v Osaki has been reported widely, and has caused a great deal of discussion amongst lawyers, insurers, landlords, and tenants. In November 2017, the High Court released a new judgment on tenants' liability, in Linklater v Dickinson [2017] NZHC 2813.
Facts – damage, Tenancy Tribunal, and District Court
Briefly, Ms Linklater owns a residential property in Christchurch which was leased to a group of students. The lease was ended early, by agreement, because the tenants damaged the property, graffitiing walls, breaking spouting, damaging curtains, changing a lock, smoking inside and burning the carpets with cigarettes. Ms Linklater made insurance claims in respect of some of the damage, paying a $1,100 excess for the claims.
The Tenancy Tribunal awarded her some damages in respect of the damage caused, but Ms Linklater appealed to the District Court, claiming that the tenants should also pay her:
- The insurance excess she had paid;
- The cost of replacing two carpets which were insured, but where the excess would make it uneconomic to claim on insurance; and
- More than the $100 awarded by the Tribunal in exemplary damages in respect of the tenants changing the lock.
Ms Linklater lost in the District Court, and she appealed to the High Court. She argued, amongst other things, that the District Court was wrong to apply the Holler v Osaki decision when the damage was not accidental, but caused by the recklessness of the tenants, and where some damage was caused by intentional breaches of the tenancy agreement, e.g. smoking inside the house.
The appeal - High Court decision
Justice Nation heard the case and upheld the District Court's ruling, finding that Ms Linklater was not entitled to recover from the tenants.
The Court reasoned that to make tenants liable for insurance excesses was contrary to the purpose of sections 268 and 269 of the Property Law Act, which were designed by Parliament to transfer risk from tenants to the landlord's insurance company. Justice Nation pointed out that if tenants were liable for insurance excesses, landlords could shift risk on to their tenants by increasing their excess payable in return for a lower premium.
Ms Linklater had sought to support her case by reference to Tekoa Trust v Stewart [2016] NZDC 25578, where the District Court held a tenant was liable for allowing her dog to urinate repeatedly on the landlord's carpets. The District Court said this amounted to 'intentional' damage. Justice Nation cast doubt on this decision too, saying that he did not think the term 'intentional' was applied properly, considering the rights, obligations, and protection granted by the Property Law Act to tenants.
Discussion
This will not be a popular decision with landlords, or insurers. However, the High Court's decision in Linklater v Dickinson is consistent with the reasoning of the Court of Appeal in Holler v Osaki, and the way the Property Law Act was interpreted in that case.
It seems that the only way tenants will be liable for insured damage is where it can be proved that the tenant's damage was intentional, rather than accidental, or even reckless. The Courts have applied a high threshold for proving intentional damage, even where the tenants directly breach the terms of their tenancy agreement, e.g. by smoking in the house, or keeping dogs in the house.
As the High Court concludes in Linklater v Dickinson, the costs of landlord's insurance, and the knowledge that residential tenants are not normally liable for damaging rental properties, are considerations for investors thinking of buying in rental properties. The reality is that these costs will likely be passed on to tenants in rent increases.
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