The Tenancy Tribunal has released a practice note on tenant liability for damages and it makes such situations much tougher on landlords.

It follows on from the Court of Appeal decision in the Holler & Rouse v Osaki case, which has left residential landlords liable for accidental damage caused by tenants.

The practice note states that if it is established that damage to a rental property was due to carelessness and the landlord has insurance, the tenant does not have to pay for the damage.

If the damage was intentional the tenant does not receive the protection of the landlord’s insurance.

However, the tenant does have to establish that the damage was not intentional or due to criminal behaviour.

Auckland Property Investors Association (APIA) president Andrew Bruce said the new rule, which came into effect this week, is outrageous and means there is no liability for the tenant.

Auckland landlords will now have to pick up the tab for drunken parties which result in accidental damage like holes punched in walls, curtains set on fire, and spilt red wine on the carpet, he said.

“To give tenants exclusive possession - and therefore full control of how the properties are being used - but not financially disincentivise them when they fail to be responsible is tantamount to arming a child with a livewire and a lighter and shrugging your shoulders when the bomb goes off.

“The new rule has created a fundamentally inequitable disjunction between the ability to control (whether damage occurs) and ultimately, financial responsibility (for when damage does occur)."

The end result is that landlords will rethink who they’ll rent their properties out to, Bruce said.

“As a landlord I’ll now be even more vigilant about reference checking potential tenants…

“Certainly anybody with a half questionable track record as a tenant will find it very difficult to obtain a tenancy once this starts filtering through the industry.”

He added that the ultimate consequence of the new rule is that costs will again have to be passed on in higher rentals.