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Waikato Times – Rental Owners warned of ‘serious legal loophole’; 26/05/2011

By Maryanne Twentyman

A Waikato insurance specialist is warning of a “serious legal loophole” for property owners who may not know potential tenants are on home detention.

The managing director of online property insurance company Initio, Rene Swindley, said the recent case of a North Shore woman who faced charges after burning a neighbouring property, highlighted a serious issue for home owners who could “fall short” of insurance requirements.

“As things stand, there is no legal responsibility for tenants to disclose to their landlord that there is anyone living at the address that is serving home detention,” he said.

Mr Swindley believed that non- disclosure could cause complications for for property owners if they tried to claim on their insurance.  “Material non-disclosure is one of the leading reasons why insurance claims are declined”

The matter was a “grey area” according to Mr Swindley, who said every claim would be considered on a case by case basis. “not every insurer would decline the claim – it comes down to a question of additional risk.  And while the issue was yet to be tested, the Auckland case had attracted global attention with property investors and insurers alike left pondering the “what if” scenario.

“If the details weren’t declared for an insurer, it could prejudice a client’s claim and make it difficult to get a speedy settlement at least.  The onus is on the person to disclose.  Its about doing all your checks, including doing regular property inspections”

Mr Swindley agreed with comments from Property Owners Federation President Andrew King, who believed information about home detention orders should be made available online so that property owners were able to protect their investment.

“This is certainly not something we hear about a lot, but it is something that can have devastating consequences,” Mr King said. He believed owners should be notified if a potential tenant was on home detention to help “effectively manage” the tenancy.  But the corrections department said there was no legal requirement for home detainees to tell property owners about their situation.

Mr Swindley said property owners had an obligation to inform their insurer of any information that may affect the insurance, but it was almost impossible to do this if information regarding tenants on home detention was withheld.  “We suggest that landlords incorporate this notification process into their regular property inspection and review programme”