Landmark court ruling: Landlords responsible for damage that tenants cause

Yeah, I know.  Have a read first before you go “that can’t be right?”

AMI Insurance has been fighting a $216,413.28 repair bill since March 2009, after a house it had insured was gutted by fire when a pot of oil was left unattended on high heat.

The insurer – which acted in the name of the landlords – claimed the massive cost from the tenants, Kenji and Tieko Osaki, and won in the Tenancy Tribunal.

However, the District Court reversed the decision – which was upheld by the High Court – and ruled the Osakis were not liable.

Under commercial property law, tenants have immunity if there is inadvertent damage.

The Osakis argued the same should apply to residential tenants – and the Court of Appeal agreed.

So accidental damage caused by tenants will not make them liable.  Somehow the owner of the building, who wasn’t there, who didn’t put the pot of oil on, who didn’t walk away from the pot of oil negligently, is responsible.  

The ruling could also hit tenants as well, according to the executive officer of the Property Investors Association, Andrew King.

“A lot of landlords may not want to have parents with children in their properties for instance, or students – the types of people they deem to be a little more irresponsible.

“Insurance companies may want to know what type of tenants landlords have and they’ll apply premiums which they deem to be appropriate.”

He said it set a dangerous precedent.

“It relieves tenants of responsibilities and it could mean that they’re a little more lacklustre around rental properties and accidentally cause more damage through carelessness.

As if Housing New Zealand isn’t already picking up more bills than it should, now it is clear that the tax payer – as the landlord – will have to pick up all the accidental repair bills, no matter that the damage would not have occurred if the tenant had not acted, or failed to act in some way.




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  • michael1954

    as a landlord I think I’m now going to look at demanding a much higher bond….something on the order of $5k perhaps,

    • Disinfectant

      That being the case, your potential pool of tenants will drop to nearly zero.

      • WBC

        But it won’t. People need to live somewhere and the landlord is not there to make a loss and subsidise other people’s lives. There will be a trade-off, the tenants get less responsibility at the cost of higher rentals.

        Edit for extremely poor spelling.

        • Disinfectant

          I’m not advocating for or against responsibility.
          I am merely stating a fact that many cannot afford a $5,000 bond.
          And if they can’t afford such a high bond, then the property may not secure a tenant.
          And for the record, I have been a flatmate, a tenant, numerous property owner, a landlord with tenants and at the moment a tenant again.

          • willtin

            Let’s see if your landlord is aware of this crazy situation.

          • WBC

            Fair enough, I agree the bond is already prohibitive to many people (I know from experience). I meant to suggest incorporating it into the general rental cost just as insurance, rates etc already is but sort of forgot to mention that… So easy to put the wrong point across in short comments!

      • willtin

        As a once landlord, I suggest $5,000 is too light and you would be inundated with enquiries because anyone in their right mind (in light of the Kafkaesque decision) will be asking at least twice that.

        • Disinfectant

          Then the tenancy market will come to an end.

          • willtin

            In short, Yes.
            Otherwise; Would you be prepared to invest your hard earned money into a rental whereby, apparently, the tenant can destroy any value of your investment and leave it to you to fight out with your insurance company?

          • Disinfectant

            I have been a long time operator of vehicles.
            If any of my employees damage any of my vehicles I am covered by insurance.
            However I did introduce a policy whereby any employee would need to make a set $value contribution towards the excess in the event of a claim where they were responsible for the damage.
            This one policy change resulted in a dramatic drop of damage incidents and I only had to impose the policy once. And that came about due to the employee lying to me.

          • willtin

            Has your Employee Responsibility clause ever been challenged in a court of any kind? Because to my knowledge, it wouldn’t mean any more than the paper it might be printed on.

          • Disinfectant

            Well then you are wrong.
            Responsibility is a two way thing for both employer and employee.

          • biscuit barrel

            No. Bonds max 4 weeks rent and paid to government departemnt

    • Cadae

      Bonds are limited by law to 4 weeks rent.

      • biscuit barrel

        And they are paid to MBIE, so landlord cant hold any back for other stuff.
        Disinfectant , make sure its in your employment contracts because non wage holdbacks are very tricky

  • Second time around

    The fact that this case has taken 7 years to go through the court system suggests that such claims against tenants are quite rare. Most insurance policies already protect the landlord from damage to the property, and many tenants would not be worth the insurance company pursuing in court. The main concern I have is that a tenant may contrive a real accident to cover up for the sort of damage that would normally be deducted from the bond- although 3 weeks rent hardly covers real damage anyway.

    • WBC

      This is true. I worry about the whole Meth thing of course, but try to ensure tenants are well vetted. Yes that does mean that I must discriminate on background, criminality, gut feeling etc. Not Race or Culture though, good people are good people wherever they are from but not all people are good and if I don’t feel 100% comfortable that I can trust them then I don’t extend them the privilege to occupy, it’s just not worth the stress and the inevitable clean up.

      Insurance rates vary depending on situation so the passdown of that expense will vary accordingly.

  • WBC

    I agree with Michael. Rentals are about to get much more expensive. The ast of renting must cover the same responsibilities as the act of inhabiting your own home. If this is not taken on by the renter in enforceable recompense then it will be front loaded onto the rent.

    Boy, that rental market just keeps getting more expensive.

  • Sally

    Could a landlord draw up a contract that says any damage caused by tenants neglect the tenants are responsible for all costs and repairs? Would that cover the above scenario?

    • Mrs_R

      A standard clause commonly used is;

      “The Tenant shall be liable for any intentional or careless damage to the intent that any insurance policy taken out by the Tenant should include Personal Liability cover. Any insurance cover taken by the Landlord will not cover the Tenant’s liability.”

      Based on this ruling, and the fact there appears to be a grey area of responsibility if there is a genuine accident, I would probably reword this clause to make it compulsory for the Tenant to have their own insurance in place before moving into the property.

    • Tracy

      I don’t believe so as they are not allowed to contract out of the law. It has to do with an act (Property Law Reform Act) that was changed some time ago and was supposed to apply tot he Landlords right to recover for damage off tenants or leaseholders in commercial premises. It was not intended to apply to residential tenancies. I have printed out the Appeal Court decision but it is too late in the day for my brain to make sense of it all.

    • WBC

      Unfortunately even if it did, court ordered fortnightly recompense would probably end up at something less then the interest the landlord would be paying on the repair bill.

  • cows4me

    This country is fast becoming a one way ticket to oblivion. It’s all about arse covering and getting someone else to cough up, from insane H&S laws to this type of nonsense. Not only do many expect a dwindling product sector to pay pay pay they now expect this dwindling productive sector to be responsible for all the possible woes that befall the country. This place is looking more like a sad joke everyday.

  • Tracy

    If the Landlord is insured and the damage is accidental and not deliberate (or if he has taken a separate cover to cover deliberate damage by tenants) then the insurance will cover the loss or damage to the house. The kicker is that previously the insurance company could then seek recovery of their costs from the tenants. If the tenants had contents insurance, this has legal liability cover and they would in most circumstances be covered for any accidental damage so they claim, the insurance companies nut it out amongst themselves, end of story. In this case I am confused as to why the owners and not their insurance company are taking the legal action, I understand the claim was accepted and paid so the insurer would be the one seeking reimbursement of their costs as they paid for repairs.

    No doubt the insurance companies will be having conniptions and seeking legal opinions left right & centre & looking at their policy wordings and rating structures since this decision seems to have taken away any right of recovery against a tenants causing damage to a property.

    • Abjv

      Insurance companies have the right to take the claim in the name of the insured party. So it looks like the owners claiming. Reduces the bad press for insurance companies and difficult to work out how often a particular one might sue.

  • Golden Teapot

    If this was an accident then there never was liability at law. There has to be negligence for liability to arise. How sure are we that this is being accurately reported in terms of the circumstances? If the defence is that this was a non-negligent accident then there’s no news here. If we’re talking about non-liability having established negligence then this is a news story.

  • Elmwood

    There is a difference between accidental damage and intentional damage,

    • RightofSingapore

      Why shouldn’t the insurer have a claim against the negligent tenants?If you’re negligent you’re liable and you should pay (or your insurer if you have cover). I understand one of the Judges was Winkelmann, no surprises such a silly decisoin has been made.

      • TriGeekNZ

        You hit the nail on the head ‘if you’re negligent’

        Were the tenants negligent or was it an accident? If an accident then there is no liability.

        • RightofSingapore

          You can still be negligent if the damage was accidental. Classic example is car crashes, they are accidental but you are still negligent for not paying attention, following too close etc. If you leave cooking unattended or leave the sink to overflow, that is a breach of the duty of care to the property, ergo that is negligent.

        • Miss McGerkinshaw

          In my world leaving a pot of oil on a stove unattended is negligent, and I say that having left a pot on a stove (not oil) but still feel I was negligent. Luckily no damage.

  • Dave

    And the net effect, investors will think twice about purchasing a residential property, insurers will put the insurance rates up and the rent will be lifted to cover the costs, and the number of properties will shrink, further pushing rental rates up, more whinging from the socialist parties.

    • TriGeekNZ


      Most tenants buy contents insurance which includes liability insurance. But liability is only applicable if there is negligence. Sometimes accidents happen.

      • Muffin

        Good tenants do this, I’ll be making it a condition of their tenancy agreement from now on with a annual cert to be provided

      • Dave

        That’s rubbing Tri Geek,I thnkyouwouldfind if you asked the professionals most tennants do not have contents insurance, we do a lot of work on the industry! As Muffin says, good tenants do!

  • Totara

    In this case the damage was accidental. But when any person whom the owner allows to occupy a property (i.e. a tennant, or a flat-mate, or even family member) deliberately damage a property, it’s goodbye to any insurance.

    In the Brent Garner case, where he burnt his own house down and then claimed he was attacked by a Satanist, the insurance company quite rightly held that they shouldn’t have to pay out to his wife. They only backed down because of the media storm of bad publicity.

    This sort of risk, together with the risk from methamphetamine contamination, should make anybody think hard before investing in rental properties.

  • Oh Please

    I cannot understand how so many cretinous decisions can be made by those in authority. Is there some sort of competition going on between judges? 18 months for murder, ignoring 3-strikes, and now this. Serious overhaul required – there is no commonsense being applied any more.

    • TriGeekNZ

      It was an accident. Now if there was negligence, yes the tenants would be liable.

      • Oh Please

        “a pot of oil was left unattended on high heat.” Was it John Key’s fault??

      • Skydog

        Leaving a pot of oil on high heat is no accident. It is negligence like those who leave kids in the bath unsupervised. Very few events are ever an accident and most events are preventable.

  • Orca

    There isn’t anything else for it, rents must now increase, and landlords must be more strict on their tenants, in a nutshell, they just worsened the housing crisis, thanks judge!

  • Sceptic59

    In the commercial world, tenants are most often liable for any insurance excess (typically capped at $2,000), there is also a “tenant not to void landlords insurance” clause to shift liability if the tenant operates improperly

    Seems to me the Residential Tenancy Act might need an upgrade or there may need to be more case law

    Either way, this is not a crisis, and hardly newsworthy as MSM make it out to be

    Landlords with crap tenants will get slammed on their premiums, others may pay an additional price over time, Ultimately things will settle down, and as is usual, the cost will be reflected in the retail rate to the consumer.

  • Kiwiracer

    Bit of a misleading headline in the newspaper, if I have read it right the landlords are not out of pocket, this is a prime example of why we have insurance, and insurance is all about risk, I am sure there are a number of premiums paid that don’t have claims against them.
    This is more about insurance companies than landlords.

    • digby

      I disagree. The landlords pay the insurance. If the landlord becomes liable for the actions of the tenants, then insurance premiums will skyrocket.

      • Kiwiracer

        I would expect the insurance premium to be covered by the rent, the insurance company has already paid out, they are the ones taking the tenants to court. . . . . . . . . .

        • digby

          Ok, I guess I was referring to the wider picture going forward as opposed to the articles headline. In future, insurance companies will charge more for their premiums to landlords to cover the added risk. It should then be that that tenants will be charged less for their insurance but I doubt that will happen.

          • Kiwiracer

            I get what you are saying, having a rental should be a business decision, money coming in and money going out, as landlords we pay the insurance company a premium to take on the risk

      • biscuit barrel

        Wrong. The current situation is contents are tenants problems, building is landlords, and the tenants mistakes are still covered by your insurance. I suppose this case was was really about gross negligence by tenant
        Check with your broker, he will confirm

  • Mr_Blobby

    Given that rental returns have dropped from a high of about 10% down to in some cases 3.3% or less.

    And given the capital growth there could be a case for just leaving a property vacant.

    Less risk.

    • Disinfectant

      Plenty of absent Chinese owners have been doing this for years in Christchurch.

  • JLS

    More entrenchment of state endorsed abdication of personal responsibility- the start of the decay of a developed and thereby potentially complacent society, and more proof of the unfitness for purpose of some of our judges as ‘Those who cannot remember the past are condemned to repeat it’.
    To minimise the risk of this happening to me I’ve followed Sir Roberts sage advice of ‘Quality attracts Quality’, and found my gut is usually dead on when it comes to selecting tenants, which I have at times ignored at my peril.

  • D-Rad

    As a tenant, my insurance only covers my contents and thats the only coverage available to me. The landlords insurance covers the building and thats the only insurance available to them. I think all the court is doing is enforcing what your insurance policies already state. Or am I wrong?

    • biscuit barrel

      You are right. Its been like that for a while now. The rationale was the landlord had the insurance policy but it was paid for by the rent from tenant,

      This case isnt really changing the broad rules, but just seems to have been attempt by insurance company to push the boundaries on the tenants negligence