Auckland, New Zealand – Initio media release
New tenancy legislation comes in effect today under the Residential Tenancies Amendment Act 2019 (RTAA). Among other things, the RTAA attempts to clarify liability for property damage between tenants and landlords.
As a specialist online landlord property insurance provider, Initio handles landlord property damage claims on a daily basis. Initio asserts the RTAA’s approach to property damage is misconstrued, creating uncertainty for both landlords and tenants.
Intention of the act
For property damage, the Residential Tenancies Amendment Act, seeks to:
- Make tenants liable for ‘careless damage’ caused to the rental property; but
- Allow tenants to share in and receive protection from the landlord’s insurance policy; and
- Limit tenant liability for careless damage to the amount of the landlord’s insurance policy excess or 4 weeks rent (whichever is less).
- Re-open the ability for the landlord to recover against the tenant for damage, albeit on a very limited basis.
Practical reality of property damage
Determining who pays for the cost, or insurance excess, of property damage is going to lead to disagreements between landlords and tenants.
“Many landlords have misunderstood the changes to the RTA and believe that the tenant will be responsible for the insurance excess on all types of claims,” said Rene Swindley, Initio CEO.
“The reality is that the tenant is only responsible for the excess on careless damage claims, which are uncommon. Over the last 12 months only 7% of our claims would be considered careless, meaning that for the remaining 93% it is the landlord who will be funding the insurance excess.”
The type of damage determines who pays
Initio has analysed its last 12 months of claims and determined that there are five broad ways a rental property can suffer damage:
- Damage (g. storm damage to the roof, or a leaking pipe). These account for 55% of Initio’s rental property claims. If the landlord is insured, the landlord pays the excess.
- Accidental damage by tenant (e.g. tenant slips and spills a glass of red wine on the carpet). This loss type accounts for 14% of initio claims. If insured, the landlord pays the excess for this damage.
- Careless damage by tenant (e.g. tenant leaves a pot cooking on the stove and goes to bed). Only 7% of initio claims are considered careless, meaning that the tenant is rarely responsible for the excess.
- Intentional damage by tenant (e.g. tenant smashes holes in a wall, meth contamination). Due to meth still dominating this damage type, 16% of initio claims are considered intentional. Landlords can obtain insurance for this type of damage. A landlord or their insurer can hold a tenant fully liable for this type of damage, but historically it is a difficult and lengthy process recovering costs (or an excess) from the tenant for intentional damage.
- Damage by a third party (e.g. a third-party vehicle impacts the fence). Only 8% of initio claims fall into this category. The landlord is responsible for the excess, but the landlord’s insurer has the right to recover the excess from the third party for the benefit of the landlord.
Accidental or careless? Arguments to come
While the RTAA assumes that the landlord and tenant will agree on the damage, there are many subjective damage scenarios where this may be unclear. For example, a glass of wine dropped on the carpet or hot pot burn on the kitchen bench can be construed as either ‘careless’ or ‘accidental’. As the classification of the damage has financial implications to tenant and landlord alike, it is inevitable that disagreement will arise.
Given that the cause of the damage determines who pays, Initio expects disagreements between landlords and tenants as to responsibility. If the landlord and tenant cannot agree on the type of damage the parties can apply to the Tenancy Tribunal for the mater to be resolved.
Change of insurance excess
Initio is a digital insurer that allows landlords to make on-demand policy changes.
“As Initio’s digital insurance offering makes it so easy for landlords to change an excess our technology has become a landlord sentiment barometer,” said Initio CEO Rene Swindley.
Initio does not recommend that landlords increase excesses as a reaction to the RTAA, as the higher excess will apply to all claims, not just the rare situation in which the tenant can be held responsible for payment. Swindley says that initio is watching its ‘barometer’ with interest.
When deciding on a policy excess, landlords need to think about the insurance excess in terms of both their own and their tenants’ ability to fund and cope with the excess. Given that it is a requirement for the landlord to provide details of insurance to a tenant, it’s clear that the level of insurance excess will form part of a tenant’s decision to rent a property.
In coming weeks as real-life damage to rental properties meets the new RTA, it remains to be seen how much tension is put on the landlord-tenant relationship.
Initio is a New Zealand based online property insurance provider. Founded in 2011 by a couple of Kiwis, Initio set out to change the broken insurance industry by using technology to put control back into the hands of the customer.
Covering landlord insurance, short-term holiday rentals and home & contents, Initio specialises in tailored online property insurance, including an all-in-one landlord insurance with loss of rent, and cover for damage by the tenant.
Initio’s market-leading policies can be quoted, bought and amended online – all in an instant. Initio is underwritten by NZI, a business division of IAG New Zealand Limited.
For more information on landlord insurance see https://initio.co.nz/landlord-insurance/