MARYAN STREET (Labour)
: I move,
That the Residential Tenancies (Damage Insurance) Amendment Bill be now read a first time. It is my pleasure to introduce this bill, and at the appropriate time I intend to move that the bill be considered by the Social Services Committee.
This bill has arisen out of a perceived unfairness in the application of the current Residential Tenancies Act 1986. The bill contains three small, but significant, amendments. The first amendment is to insert the following clause into section 45(1) of the principal Act, after paragraph (d): “(da) insure the interests of the tenant against liability for damage to the premises;”. The second amendment is to amend section 45 of the principal Act by inserting after subsection (4) the following two subsections: “(4A) Subsection (1)(da) does not apply where the damage is intentional and the tenant is personally responsible for it.” and “(4B) Except as provided in this Part, no tenant is liable, whether to the landlord, any insurer of the landlord (whether acting by way of subrogation or otherwise), any other tenant, or any other person, in the event that the landlord fails to take out insurance as provided in subsection (1)(da).”
The purpose of these amendments is to protect innocent tenants against liability for damage to premises that they did not cause, through providing for the extension of landlords’ insurance cover. The current situation is that, under the Residential Tenancies Act 1986, tenants are liable for any damage that they or their invited guests cause intentionally or carelessly. In multiple-tenant tenancies, tenants usually have joint and several liability. This means that tenants can be held liable for a breach of the tenancy agreement, regardless of which tenant committed the breach. If a tenancy agreement is breached through careless or wilful damage to the property, then the tenants are jointly and severally liable for costs of repairs under common law, regardless of which of them caused the damage.
Under the current law, landlords are responsible for the payment of all insurance premiums payable in respect of the rented premises. Although landlords are not required to obtain insurance or to insure premises for the benefit of their tenants, it is most likely that landlords do, in fact, have their properties insured as a matter of good business practice.
A tenant’s liability for careless or intentional damage to a property is not affected by the fact that the property is insured. If an insurance company believes that a tenant is liable for damage, it may step into the shoes of the landlord, pursuant to the rights of subrogation, to seek compensation from the tenant. Subrogation rights impart to the insurance company the right to take action against any party in the name of the insured. The amendments in this bill extend the provision to insure the interests of the landlord to insuring the interests of the tenant as well.
Under the existing law, tenants can insure themselves against the risk of being held liable for damage by obtaining personal liability insurance. Personal liability insurance is often part of normal household contents insurance, or can be added to it. As I understand it, some insurance companies will consider personal liability insurance without the contents policy attached. Policies may contain a number of exceptions or provide limited cover. The key point about that, however, is that very few tenants have such cover. That leaves most tenants engaged in tenancy agreements, which, under common law and in line with the Residential Tenancies Act, leave them jointly and severally liable for damage to the property they rent, regardless of whether they caused the damage. It seems to me to be unfair to insure landlords’ interests but not tenants’ interests. That is the unfairness that this bill seeks to address.
In the end, this bill does not absolve tenants from their contractual obligation to not damage the rented property, either intentionally or carelessly. Further to that, it is explicit that when damage is intentional and the tenant is personally responsible for it, his or her protection under the amendment does not apply.
The reason for this movement to insure the interests of tenants comes from some incidents in recent years in which innocent tenants were found liable for compensation when a house was damaged. One of the clearest and most definitive judgments on this issue came in the case of
Harrison v Shields and others andThe presiding judge was Judge MacAskill.
The case involved six flatmates at an address in Dunedin. Five of the tenants had signed a common written tenancy agreement. The sixth tenant had not signed it. On 11 June 1999 the only tenant at home at the time left some bacon cooking on the stove and went next door. While he was away, the place caught fire and considerable damage was done. None of the man’s flatmates were home at the time of the fire. The other four signatories to the tenancy agreement did not intentionally, or carelessly, damage the flat by fire. As they were not present in the flat, they had no knowledge of, and were unable to control, their flatmate’s actions.
The flat was damaged by the fire. Some of the contents were destroyed or irreparably damaged. The landlord had insurance cover and the property was restored, with a consequent loss of rental income while the repairs were being carried out. The insurer stepped in to recover the costs from the tenants, as it was entitled to do under the rights of subrogation. In the event, the judge ruled that the four flatmates who were signatories to the tenancy agreement, as well as the flatmate whose carelessness caused the damage to the property, were jointly and severally liable for the net recoverable loss of $67,381.07 plus interest.
When issuing the judgment, the judge had these comments to make: “The outcome of this proceeding, though in accordance with the law, is unjust. It is unlikely that the defendants were ever aware that their landlord (or the landlord’s insurer acting by right of subrogation) might sue them for major damage to their flat, even if caused by the carelessness of one of them. I have no doubt that while most residential tenants assume (almost invariably correctly) that their landlords insure and will be indemnified against damage to, or the destruction of, the insured property, they have little or no understanding of the insurer’s right of subrogation.” Judge MacAskill continued—
Sandra Goudie: Abrogate responsibility then, why don’t we!
MARYAN STREET: A little bit like the member opposite. She is welcome to take a call.
Judge MacAskill continued: “They assumed that if a landlord is insured, they, the tenants, are not at risk. Few tenants insure against their potential liability.” He went on to say: “Where the tenants are insured, the insurers usually settle between themselves. Where the tenants are not insured, they often have too few resources to be worth suing, and are not sued for that pragmatic reason. Where not all joint tenants are insured, a claim may be brought against all in order to recover from the tenants who are insured … Putting aside all these variables, I am then of the opinion that, in general, the pursuit of substantial claims against tenants with respect to damage caused carelessly is oppressive in effect, and I respectfully urge that the law be reformed … A simple and effective solution would be for the legislature to amend the Residential Tenancies Act 1986 to require landlords to insure the interests of tenants.” That is exactly what the bill is designed to do. That is exactly the injustice that this bill is designed to address.
Nothing in this bill prevents the landlord from passing on any consequent increase in premiums to the tenants in rent. It simply seeks to place liability where it should lie, and not where it should not lie.
I suggest that the consideration of this bill is most appropriately addressed in the context of the current wide-ranging review of the Residential Tenancies Act.
PHIL HEATLEY (National—Whangarei)
: I rise to put the National Party’s view on the Residential Tenancies (Damage Insurance) Amendment Bill. The bill amends the Residential Tenancies Act. It provides for landlords to insure the interests of a tenant against liability for damage to the premises that they took no part in causing. It is designed to protect “the innocent tenant” from liability. The bill does not prevent the landlord from passing the costs of insurance on to the tenants as an increase in rent, and it would not apply if the damage were intentional. National opposes the bill.
The member who introduced the bill put up the case where six flatmates in Otago witnessed $67,000 worth of damage to their flat because one flatmate had a fry-up while the rest of them were out. I wonder whether they were scarfies—six flatmates in Otago, five were out, and the other one was having a fry-up on the stove. I do not think they were scarfies; I think they were 45-year-old, middle-aged men and women. Five of them were out working late that night and the other one had not eaten for days and was having a fry-up. I do not think they were scarfies. Anyway, one of them was having a fry-up at night while the other five were out. That flatmate started a fire that caused $67,000 worth of damage, and do members know what the Labour Party member says? She says it is the landlord’s fault! She said five scarfies were out boozing, one came home for a fry-up and caused a fire, and it is the landlord’s fault and he should pay.
But the Labour Party member does not stop there. It is not just the landlord’s fault. She wants us to pass legislation, because she said it is 20,000 landlords’ fault. She wants 20,000 landlords in this country to pay insurance so that their tenants will be covered when they cause damage or vandalism, or have fry-ups and burn the house down. That is absolutely absurd.
I ask whether the member has done any study on this issue, because my understanding is that there is no widespread tenant dissatisfaction with current insurance arrangements. If there is minor damage, a bond is paid, and that can be uplifted. We know that landlords today insure their homes against being burnt down, seriously damaged, or anything like that happening. We know that tenants generally insure the property they have within a home. But in this bill we have a situation that if a tenant invites a guest in, and that guest decides to take an axe to the door, kick a hole in the wall, or spill wine on the carpet and causes damage, it is the landlord’s fault. Did the landlord invite the guest? No. Did the landlord invite the flatmate to share the tenancy? No. But the landlord will pay.
There are two hooks in the bill. One is the issue where apparently tenants, first of all, have to prove that it was not them but a flatmate or a guest who did the damage. If that is in dispute, how will the landlord or insurance company establish whether it was the guest, flatmate, or tenant who did the damage? How will the landlord or insurance company prove that?
The second little fish-hook is that, in many instances, it will be difficult to prove whether the damage was deliberate or accidental. This bill says that recovery will take place when it is accidental damage. If that is in dispute, and the tenant, guest, or flatmate says it was an accident, how will we ever prove whether the hole in the wall was accidental or deliberate? I will tell members—the bill says it is the landlord’s fault he or she is not there 24 hours a day assessing who comes into the house and who does not, and looking over the shoulder of everyone to see who causes deliberate or accidental damage.
This bill makes it the landlord’s fault. In the case of the six tenants in Otago—
Chris Tremain: The 45-year-olds.
PHIL HEATLEY: —the 45-year-old, middle-aged men and women flatting together, where five were out working late and the other one was hungry and had a fry-up, it was the landlord’s fault because the landlord was not there watching over the stove and the fry-up. The landlord did not know whether it was deliberate or accidental. The landlord never stopped other tenants coming into the house, and never checked whose shoes were under the bed. That is right. What if a lover visits, and we see some sort of foul spillage on the carpet or whatever, who is to prove whether that act was an accident or deliberate? How will we prove whether that damage was caused by a tenant or guest—a guest whom the landlord never invited in the first place?
It is currently possible for an innocent tenant to recover the cost of damage or insurance from a guest or flatmate, is it not? If a guest comes into a home and causes deliberate damage, and the tenant has to pay the landlord, can that tenant not go to the courts and seek some sort of redress from their guest? One can do that by law now. Why do we need to bill 20,000 landlords when an opportunity for redress already exists?
We also have an opportunity for redress through the bond system, if the damage is minor. Landlord-tenant negotiations can allow an insurance agreement to be made, if people really want one, in individual cases. Why do we have to legislate that it must happen for everyone? Why do we have to legislate that every landlord must go through this with every tenant? We should not have to. If landlords and tenants want to come to an agreement, let them do so. Let them have freedom of choice. A fourth opportunity for redress is that a standard tenancy agreement may be drafted to contain a clause requiring tenants to obtain their own insurance for the careless acts of their guests—not the landlord’s guests but the tenant’s guests.
Those are the opportunities to fix this problem, however minor. We can help the scarfies in Otago in four ways. We have the bond, which is paid now. Tenants can get redress from a guest—they can send the bill on to the guest. The landlord and the tenant can make an insurance agreement between themselves. And the tenants themselves can get insurance. There is no need for legislation affecting thousands and thousands of landlords throughout the country.
I note that the Housing New Zealand Corporation is a landlord and will now, because of this legislation, have to pick up the bill for all vandalism and damage done to its properties. I will reveal a bit more about that in the next month or two. I know that Minister Clayton Cosgrove is nervous because he knows how much vandalism is happening in Housing New Zealand Corporation homes.
This bill is absolutely irresponsible. There is no need for it whatsoever. National opposes it on the basis of our principle of personal responsibility. It is not the responsibility of landlords to assess who comes into a home and who does not 24 hours a day. It is not the landlord’s responsibility at all to decide who puts shoes under the bed at night and who does not. This issue is about personal responsibility, where a tenant needs to look after the property he or she is in. National opposes this legislation.
PITA PARAONE (NZ First)
: I preface my contribution to this debate on behalf of New Zealand First by asking what the last speaker’s view would be if he were one of the five flatmates referred to in the judicial decision cited by the sponsor of this bill who now find themselves responsible for the damage caused by another flatmate.
Phil Heatley: I seek leave to answer the member’s question, which he has asked me directly. [Interruption] No, I seek leave. I am entitled to seek leave.
The ASSISTANT SPEAKER (Ann Hartley): The member seeks leave to interrupt. Is there any objection? [Interruption]
Phil Heatley: So it wasn’t a serious question—you don’t want to know the answer, Mr Paraone?
The ASSISTANT SPEAKER (Ann Hartley): I was putting the leave question. The member should not engage across the floor while I am putting that question.
Phil Heatley: You put—
The ASSISTANT SPEAKER (Ann Hartley): If the member wants to remain in the House, he had better stand, withdraw, and apologise—and make no further comment.
Phil Heatley: I withdraw and apologise. I raise a point of order, Madam Speaker—
The ASSISTANT SPEAKER (Ann Hartley): I am seeking leave on the member’s behalf. The member has asked for leave. Is there any objection? There is.
Phil Heatley: I raise a point of order, Madam Speaker. I want to clarify the record for members in the House. You put the leave, and the member denied leave. Leave was denied. That is when I commented. I was not engaging you or any member of the House while leave was being requested. You asked for leave, the member denied leave, and I commented. I would never interrupt the Chair. It is not my habit to interrupt the Chair, and I will never interrupt the Chair.
The ASSISTANT SPEAKER (Ann Hartley): The point is that I was still speaking. The member is just lucky to remain in the House.
PITA PARAONE: Speaking to this bill, I reiterate its intent. It requires landlords to ensure the interests of tenants, notwithstanding the arguments against that position, as the last speaker mentioned. The bill is meant to provide some form of protection for those tenants who are not directly responsible for any damage caused by a fellow tenant, and therein lies the crux of this bill.
It is also intended to address the issue of tenants mistakenly believing that the landlord’s insurance will cover such damage. In reality, insurance companies seek to cover their costs in such claims from all the tenants, regardless of direct responsibility or otherwise. However, it is important to note that this bill does not absolve tenants from responsibility where there has been intentional damage—they remain liable.
Of further note is an article in the
New Zealand Herald last week, for which an executive member of the New Zealand Property Investors Federation was interviewed, which claims that landlords have indicated strong opposition to this bill on a number of points—and I want to highlight some of those points. First is the transient nature of group flatting situations that can involve tenants coming and going without the knowledge of the landlord. Second, the likely consequence of this in the event of a claim could see insurance companies insisting that the landlord not only find the departed tenant but also prove that that tenant was the one who caused the damage in the first place. Third, tenants could also blame visitors to the property. These potential situations would make renting to groups a high-risk undertaking and could lead to groups finding it difficult to secure rental accommodation.
Clearly, this bill would impose some extra costs for landlords in terms of their insurance premiums. Landlords believe, of course, that their tenants and not themselves should be meeting the costs associated with their premiums. Obviously, tenants would be paying indirectly through their rent anyway, so this is an issue that ought to be examined.
I understand that the sponsor of this bill has indicated that the Government intends to undertake a general review of the Residential Tenancies Act 1986. She feels that it might be appropriate to have this bill included in that process. New Zealand First has always stressed the importance of the people of New Zealand having their say, notwithstanding the reported comments that I alluded to earlier and the judicial example given by the sponsor of this bill.
New Zealand First will support this bill going to the select committee so that the people of New Zealand and, in particular, the parties who will be immediately affected by it have the opportunity to have their say. Having indicated our support for the bill going to the select committee, I want to make the point that I cannot guarantee that we will support it beyond that.
CHRIS TREMAIN (National—Napier)
: Growing up in this country, my mother and father taught me a few values like do-it-yourself, giving it a go, “Hard work is actually good for you.”, and “You’re there to compete to win.”, and they taught me that self-responsibility was something one should be proud of. Gradually, we have seen these values dissipate in our nation. The new Building Act has taken care of the do-it-yourself attitude, the occupational safety and health legislation is busily taking away the give-it-a-go attitude, and Working for Families is quietly taking away the incentive to work in this country. Now self-responsibility is further under threat with this bill. The Residential Tenancies (Damage Insurance) Amendment Bill is an attack on personal responsibility. As a result, and as Phil Heatley quite rightly said, National will not be supporting this bill.
What does this legislation set out to do? It sets out to protect tenants against personal liability for major damage to premises that they played no part in causing. There are two key phrases: “major damage” and that “they played no part in causing” the damage. I will come back to those.