Residential Tenancies Amendment Bill (No 2)

It’s a pleasure to speak in this Part 1 debate on the Residential Tenancies Amendment Bill (No 2). This is a technical bill and it deals with quite a lot of the minutiae that is between both a tenant and a landlord, especially, in this case, in Part 1 when we’re talking about liability for damage that is done to a rental property. The bill, and Part 1 specifically, aims to clarify that law in respect of tenant liability for damage and, secondly, in Part 1 it also looks to make sure that the Residential Tenancies Act applies to all premises intended for residential use, even if they are for unlawful residential purposes. Part 2, and we’ll get on to that, speaks to contaminants and methamphetamine, but I’m sure we’ll get to that at some stage.

Just speaking again to the tenant liability portion of Part 1, the bill clarifies liability for careless damage to rental properties. I understand that this came about because of a Court of Appeal decision in 2016, which I believe has become known as Osaki, where the Court of Appeal ruled that tenants are immune from a claim by the landlord for damage caused carelessly or negligently by the tenant or a tenant’s guest, under sections 268 and 269 of the Property Law Act, and, as a result of that ruling by the Court of Appeal, landlords are now bearing most of the costs of tenants’ careless damage, including insurance excess payments.

This bill and the liability settings in this bill strike a balance between keeping landlords’ costs neutral as much as possible, under this bill, incentivising tenants to take care of rental properties, and protecting tenants from excessive risks and costs, and the provisions in Part 1 should go to encourage cost-effective insurance arrangements. Under the bill, a tenant is liable for destruction or damage caused by a careless act or an omission of the tenant, or someone that the tenant is responsible for, up to the value of the landlord’s insurance excess, if they have an insurance policy, but not more than four weeks’ rent. Public housing tenants are liable for up to four weeks’ market rent, not the income-related rent subsidy (IRRS) that they pay if they do. Obviously, this is because the IRRS fluctuates depending on the employment of the tenant and the income status of a tenant, which would make it difficult to quantify what the liability around four weeks would be. Tenants will also remain liable and no cap will apply for intentional damage or damage caused by an act or omission that constitutes an imprisonable offence, and I think that goes without saying.

There are also obligations on landlords as a result of Part 1, in terms of the liability around tenancy agreements. Landlords are required to inform tenants in new tenancy agreements if their premises are uninsured and, if the premises are insured, the amount of each relevant excess for each policy that may pertain to the property and a tenant. And they must inform the tenant that a copy of the policy is available to that tenant upon request, unless the landlord has already provided the insurance policy to the tenant. Also, a landlord must provide a tenant who requests it with a copy of the relevant insurance policy. Or, if policies of more than one are relevant to the tenant around damage and liability, obviously they will have to supply that.

In the select committee process, submitters pointed out that tenants do have a right to know the level of their liability for careless damage, and the bill continues the current situation in barring insurance companies from exercising rights of subrogation in relation to a tenant’s liability for careless damage if covered by insurance.

That covers the tenant liability parts of Part 1 of this bill. There are also, as I mentioned earlier in my contribution, some parts around unlawful residential premises, which I think I’ll get to at some stage, but I’m sure there’ll be some contributions in terms of tenant liability that the committee would want to hear.

Thank you for the opportunity to speak in support of this bill. This was a bill that was first introduced under the National Government in May 2017 and had its first reading in Parliament in July of the same year. The select committee submissions closed in August 2017, and it’s taken this long for the matter to come back to Parliament after the second reading in November last year. So it’s probably an indication of the lack of legislation that the Government has been able to cobble together that it’s having to come back with a National Party bill with a few amendment.

Look, apart from that, you know, the Minister in the chair, Kris Faafoi, has correctly read out the notes on it, and the bill itself, I think, is one that does deal with a very difficult situation. I’m very pleased that the Minister referred to the Osaki case, because if ever there is a law of unintended consequences that is it. When we have a court that has decided according to the law—and obviously that was correct, because it would have to be—that a tenant was not at all liable for careless damage or damage caused in a property, I would have to say, “On what planet?” And the planet would be here in New Zealand, on Planet Earth, where, by the way, there are consequences. The consequence is that insurance company premiums go up, and the consequence is that it’s harder to get insurance for tenants of properties. So the consequences are that costs then go up for the tenant, and when we’re looking for some of the reasons why the average rental cost in this country has gone up by $50 a week in the last 18 months, we can look at the fact that Governments, courts, Parliament, and others are always looking to shift the cost on to the landlord. The trouble is that the landlord then has to shift that cost again and it ends up back with the tenant. But, in this case, we’ve got situations where we have very good tenants having to pay more, often because of the behaviour of a few very poor tenants—poor not in economic terms but in terms of their behaviour.

I think there are some very good things in this bill, and that’s why the National Party is continuing to support it, particularly around the issues around sorting out some compromise solution to the Osaki case, but, as with all compromises, there are some people who would think that it maybe didn’t go far enough.

There are some issues that I think are important for tenants to know, about their liabilities under the law. They need to know about what is an obligation—the obligation here that tenants who destroy properties or cause excessive damage could end up paying a maximum four weeks’ rent for each instance of damage caused by carelessness. That does really require a landlord to keep a close eye, or a property manager to keep a close eye, on a property, because four weeks’ rent can be sucked up pretty quickly when it comes to repairing damage. For those, again, who say, “Oh, but they’ll be insured.”, well I’ve just dealt with that issue. All of this costs money. In addition, it is important that tenants do understand what their liability is, because it is only right that for people, if they wish to have wild parties—which I think from memory was the case in the Osaki case—and have properties destroyed, there is actually a consequence, and the consequence should not just be on the owner of the property.

It is tough being a landlord, and it is tough being a landlord because of the fact that there are a lot of costs on landlords and also a lot of liabilities that people don’t always understand. I’m also very aware it’s tough being a tenant, particularly if you can’t keep a rental property because the landlord has decided to sell it because it’s too much of a pain to be a landlord, and it’s also tough if you can’t pay the extra rent that you now need to pay because of many of the changes that have happened in the last 18 months, particularly attacks on landlords. But, in essence, we support the bill and we’re happy to see it go forward.

Mr Chair, thank you for the opportunity to take a call on the Residential Tenancies Amendment Bill (No. 2). I do wonder how much of this bill is associated with meth—and I know that, in Part 2, it is certainly alluded to—and also the aspects around insurance, because the rising use of methamphetamine is a huge challenge in our society. I look forward to—once we, I assume, get to Part 2—a discussion on that. We’ve also heard from the Hon Judith Collins, examples of parties, examples of challenges where tenants haven’t looked after property, and the importance of providing certainty as an aspect of protection around that.

I have been both a landlord and a tenant, so I feel like I’m able to speak from both sides of the spectrum here. As a landlord—my wife and I at one point had a couple of rentals there—it can be challenging at times; often you can, sort of, lay awake at night because you are thinking about that investment. It is important that there are consequences if the tenants don’t look after that building. At the same time, the majority of tenants are law abiding, the majority of tenants look after the buildings; the majority of landlords are law abiding, the majority of landlords treat their tenants in a proper fashion. However, obviously, we need laws where there are disparities. This is a common-sense piece of legislation that deals with that disparity that sometimes happens.

I’ve got a question for the Associate Minister Kris Faafoi, if he wouldn’t mind addressing it. I am interested in how this bill strikes the balance between keeping landlords cost-neutral and incentivising tenants to take care of their properties. If a bill leans one way too far, then we can have unintended consequences. So I am interested in how this bill does strike that balance, because it is quite a delicate balance—

💬 Andrew Bayly: Put some passion into it.

—that needs to be struck. Ha, ha! I could increase the volume like the member opposite does.

If we have a look at the insurance aspect here—if there is no insurance, what happens in that case? Who pays if damage is caused to a property if the property isn’t insured? The bill clearly outlines the fact that the landlord must talk to the tenant about their insurance policy so that the tenant is quite clear on that, outlining those terms—and that’s common sense; it’s important for the tenant to understand that, to appreciate that. But what happens if there is no insurance and damage is caused to a property? What happens in that case?

This bill provides an aspect of certainty for landlords, and it also provides an aspect of certainty for tenants, because everybody knows the ballpark that they’re playing in, everyone knows that there’s certainty, there’s clarity. Certainty is absolutely important in our society—to have a strong rule of law, we need certainty.

💬 Hon Member: Are you sure?

I was recently over in the UK—and I can give you an example of uncertainty, dare I mention Brexit to the member opposite, who will understand that, I know. Where uncertainty exists, there is a lack of confidence—and so hence the importance of certainty; and this bill provides that certainty. But, if the Minister could just elaborate on how the bill strikes the right balance—the right balance between landlords having the aspect of cost-neutral and incentivising tenants to take care of the property.

Another question I have for the Minister is: how does this bill link in to the wider reforms that the Government’s undertaking around housing? I’m thinking of banning letting fees and progressing reform of the Residential Tenancies Act. So how does this bill link in with that aspect there and that wider reform? The Healthy Homes standards preventing thousands of children from going to hospital—how does this bill link in with the wider reform? Because bills don’t stand in isolation; they’re always linked to a wider suite of policies.

So just a couple of questions there for the Minister, and I look forward to his response. Thank you.

Tēnā koe, Mr Chair, and thank you for this opportunity. I stand with conviction on this particular bill, and I want to, in my time on the Governance and Administration Committee, consider some of the submissions that were made to this particular bill. Given we’re on Part 1 right now, if I can bring the Associate Minister Kris Faafoi’s attention to clause 6(2B) of Supplementary Order Paper 254 here, and it talks about “The landlord of premises that are insured may at any time, and must within a reasonable time after receiving a request from the tenant for a copy of the insurance policy, provide to the tenant under a tenancy agreement a copy of each insurance policy that is relevant to the tenant’s liability for destruction of, or damage to, the premises.” It doesn’t take a genius, when they read that, to ask the obvious question that is: “What does a reasonable time look like?” I ask that with respect to, as it goes on further into the bill, it talks about specific areas of damage. I wonder if the Minister, in making this bill more robust, has considered what a reasonable time looks like.

I myself have dealt with insurance companies, and the service hasn’t always been service of a timely fashion. I have also had other cases that have come into my office, as a local MP, talking about insurance issues which have dragged on for years. Now, while that sounds relatively simple that a landlord or an insurance company can simply provide a policy, I wonder whether, with respect to the rest of the bill, that makes it quite clear around some of the time frames of what liability is for—around four weeks—amongst other things, whether or not there is a stronger consideration here on what “reasonable” means in subclause 2B.

Look, that might be something that can be fleshed out as more cases are brought to the attention of the body that will look after this stuff. But I’m just curious, for the purposes of those who are engaged in tenancy agreements with landlords and other things, what a “reasonable time” looks like. Because one of the things we have heard talked about—and this, I think, strikes to why this bill is here—is the power imbalance between landlord and tenant. That was always a big driver and motivation for this particular bill, and the power imbalance often is things like withholding information or, simply, visiting property without the proper kind of notification that’s required by law, which is why I think it would be, dare I say, reasonable to expect that in this particular piece of legislation we are able to be far more definitive with the term “reasonable” here. That’s just the first question I have for the Minister in the chair at the moment.

The other one is around the general principle of responsibility for damage. It says here under clause 49A(1) “Except as provided in section 49B, a tenant has no liability or obligation, and must not be required to—(a) meet the cost of making good any destruction of, or damage to, the premises; or (b) indemnify the landlord against the cost of making good the destruction or damage; or (c) pay damages related to the destruction or damage; or (d) carry out any works to make good the destruction or damage.” There are a number of questions I have on that one—and the reason being is that, while I get the intention of it, there seems to be a case to be made on the part of tenants with regard to damage, damage more broadly speaking and damage more defined. I say that with, in recent times, a case that made it into the paper, where a tenant was responsible for improvements to the house, sought compensation, and it wasn’t acknowledged. They put a shed on—is the example that was in the media recently. They put a shed on, they looked for compensation, and weren’t eligible for any of it.

So now, if we apply that same thinking to the way that damage is measured and qualified in this particular legislation, I have just got some concerns that I think we might be able to flesh out, because I know there are parts later on in the bill that require some more of the specifics. But I just wanted to park that with the Minister, to see if he and their team can give it some thought. But I do want to bring it back to that first case around exactly what is a reasonable time frame.

Thank you. Look, it’s certainly an honour to speak to this and I want to acknowledge Minister Faafoi and his elevation to Cabinet, also previous Minister Twyford for shuffling this through and getting this to the Governance and Administration Committee and making sure that we now enact and can deliver on this policy. We’ve heard what the main aims are, and, if we look at Part 1, I just want to endorse the comments made by my previous two colleagues around that tenant liability. It is important to clarify that law with respect to what the liability for tenants is, and I do often get this concern raised in the electorate office. Just spending a bit of time there in the last three weeks, there’s often confusion over “Look, this is the situation. Who pays and what’s our portion of the damage?” or “Who pays, or whose role is it to pay for that, and whose role is it to pay for this?” So I’m personally really happy that we’ve got some clarity there. I’ll be able to communicate that a lot more easily to constituents who raise it, and I’m glad we’ve got that clarity in Part 1.

The Minister talked about Osaki and what there is and also clarified what the situation is for public housing tenants, and when I think about the hundreds of people in our public homes or public housing in my electorate too, this will be a welcome clarification for them. A lot are asking about that income-related rent subsidy and how that then relates to this bill, and it’s interesting when you talk them through it. I’ve used some of the wording from here because I do sit on this select committee and it’s been good to get their feedback and just get some simple comments around, “Look, that’s really clear.” and they understand now what that would mean. So I’m really “stoked”—I guess is the word—that this will clear it up for them.

Also in terms of getting that balance right, for giving landlords some clarity over what they need to then do to inform their tenants and new tenancy agreements, that’s a lot clearer too particularly when those premises are uninsured. There’s some clarity now around excess and making sure that the tenant is kept informed by ensuring that there’s a copy of the policy available to them on request. And I know, from being located next door to a property management company, they’re already encouraging their landlords and tenants to have copies available to them so there’s no secrecy, there’s a free flow of information to allow that clarity to take place.

I know during the select committee process that submitters did point out that tenants have a right to know, and I’m still surprised that there is—I use the term “secrecy” but, I guess, maybe a lack of willingness to share some of the information to ensure that tenants know what their rights are. And I think that’s, I guess, the underpinning of my speech here.

I haven’t got any questions for the Minister, because I think this is clear in terms of Part 1, and I certainly look forward to talking further on this bill.

Thank you, Mr Chair. I thought I might take this opportunity to respond to some of the questions from my colleagues and thank my friend and the MP for Rongotai for answering some of them for me.

In terms of the question put to me by the Hon Peeni Henare in terms of what a reasonable time for the production of an insurance policy is, so that the tenants have the ability to know exactly what their level of coverage is, I guess that will come over time through decisions of the Tenancy Tribunal itself. These are new amendments to the Residential Tenancies Act (RTA) and I guess the obligation of the landlords to supply insurance policies that are pertinent to the tenancy of the tenant is new, and I’m sure that we’ll get an instance where there may have been some damage done to a property where a tenant hasn’t been supplied with the appropriate documentation in terms of the insurance policy and will have some beef with the landlord if those policies haven’t been supplied. So I think, over time, the casework or the caseload or the case decisions of the Tenancy Tribunal will come to a point where they will say what is reasonable, and I don’t think I want to pre-empt that by making any judgment on that here in the Chamber.

Jamie Strange asked in terms of balance—in terms of striking the balance on this within Part 1—between both the tenant and the landlord, having been a landlord himself. I think my colleague Paul Eagle’s already mentioned the obligations have been clearly made in terms of what the landlord has to do in terms of supplying details of insurance policies. But, really, I think at the heart of the changes to Part 1 is the rebalancing of the decision of 2016—Osaki—where that Court of Appeal decision, I understand, has put a lot of the onus on landlords to carry the costs of any tenant liability or damage done by a tenant, and now, under Part 1 as it stands, there are some pretty clear obligations from both the tenant and the landlord, and specifically to the tenant will be the amount of the landlord’s excess, which is why, obviously, we should be making moves to ensure that the tenants know exactly what that excess is, or four weeks of the rent of the tenant. I think it’s probably whichever is the largest. But, hopefully, that answers some of the questions in terms of the balance that was trying to be struck here with tenant liability.

I also mentioned earlier that there was another aspect of Part 1 around unlawful residential premises, which Part 1 does address. The problem here was that there was uncertainty about what happens to tenants who have rented premises that are unlawful. I’m going to have trouble saying that word for the rest of this debate I think, but let’s see how I go. I think the most obvious example of that is anyone who has been struggling to find a place to live and has been living in the likes of a converted garage and that wasn’t necessarily the purpose of the building at the outset but it might have been the only ability for a tenant to find somewhere to live. My understanding at the moment is that the Tenancy Tribunal doesn’t have any ability to rule in their situation, and I think another situation that was pertinent to this was after the Kaikōura earthquakes, when it was discovered that, I think, a family was living in a commercial space or an office space just down the road here on Molesworth Street and the ability for them to have any rights under the RTA also wasn’t available to them.

So what this does here I think is, after a couple of High Court decisions known as Anderson and Parbhu, clearly clarify a conflict between two court cases or court rulings there around unlawful residential premises. So I guess, in a big way, seeing as there are only 15 or so seconds to go, Part 1 does go towards clarifying a lot of uncertainties both in the space of tenant liability but also around unlawful residential premises, which—here we go again—I hope this clarifies.

Thank you, Mr Chair. Can I thank the Minister Kris Faafoi for his timely response. I do agree that there is space in the future—as is the case that he’s building—for a far better determination to be made, and I respect that in Part 1 we are trying to achieve something rather considerable here.

I’ve got just a couple of points that I want to make quickly, to see if we can get a bit of clarification, at least for my purposes. The Minister in the chair talked briefly about that ability for tenants to terminate residency by giving no less than two days’ notice to the landlord. I recall hearing the submissions on this and why this kind of thing is done—because of the kinds of slums that have been seen in places like South Auckland and, dare I say, in other places around the country. This one is perhaps a little bit more operational and can hope to flesh out: well, how do we look to support both the tenant as well as the property owner?

The reason I say that is because, in the housing shortage, who in their right mind with a family would look to leave a residence? We might accept by law that this residence is unlawful and that these aren’t healthy conditions for a family to live in, but I’m curious as to whether or not support or other mechanisms are considered by the Minister to put in place to make sure that perhaps we can remedy the unlawful aspects of the residency by supporting the tenant in one way, shape, or form—giving some guidance perhaps, not just around the legislation but around how they might be able to bring a place that has minor legal issues to make it a lawful residence for families or for a tenant. So that’s one side.

On the other side is for the tenants about whether or not there is support there, because two days’ notice to shift from one place to another in somewhere like Auckland and other places around the country where it’s difficult because of the shortage in the housing market—where are we going to house these people? What are we going to do with these people and their families when they recognise that this shed, or whatever it might be—this unlawful premises—might not be the right place for them and their family at this point in time? So I’ll park that one there.

The other one—and I’m seeking a bit of guidance from the Minister and perhaps even others in the House, in particular because of the Minister’s work in Christchurch. In section 49C, in clause 7, it talks about the “Landlord, not insurer, to benefit from tenant liability for careless damage”. I get that. I wonder if, in the cases of Christchurch, where there have been issues with insurance and things like that—not just from the earthquake event itself but off the back of it—there are any exceptional circumstances here that might actually give, say, Christchurch, for example, I don’t know, a different look on what insurance might look like for them. I’m not too sure, which is why I leave that one with officials and the Minister.

While I get much of this bill in respect to my electorate of Tāmaki Makaurau, I know there are issues in places like Christchurch around insurance, the relationship around tribunals, and property in general after the tragic event of the earthquake all those years ago. So, look, I’ll just park that one there, and, if the Minister either can at least give some sort of thought or direction that might help my understanding of what that looks like, then I’d find that hugely beneficial.

The other one was just around the support and what that might look like for both tenant as well as landlord in the ability to terminate residence or tenancy in an unlawful property.

My colleague Peeni Henare raises a very timely issue in terms of insurance in general. I just wanted to ensure that the House is aware of substantial work that the Government has in the insurance space—whether it be personal insurance, contents insurance, or insurance experiences in the likes of Christchurch, and I’ll get to that.

The Government is currently undertaking a rather large review of insurance contract law in order to give consumers more certainty around what they are covered for and, I guess, more certainty in terms of what they might get in terms of claims—I think that’s one piece of work—but also, after some work by the Reserve Bank and the Financial Markets Authority, looking at both the conduct of the financial sector and the insurance sector.

A separate piece of work is being undertaken—by, I think, Minister Woods, but that may have transferred now to Minister Robertson as the Minister responsible for the Earthquake Commission—around the insurance experience of Christchurch. Having visited Christchurch, I think earlier this year, and initially having gone down to listen to general insurance experiences, it’s clear that the experience of Christchurch residents post the 2011 quakes, in a lot of instances—and I’m not sure if it’s the majority, so I want to caveat that—has been, in the parlance of Treasury, suboptimal. So I think we will learn a lot from that experience and that review about how insurance, especially in those kinds of instances, can be made better for consumers.

I also wanted to make sure I responded to Jamie Strange, who asked how these reforms within the Residential Tenancies Act amendments fit into the wider scope of changes that the Government is making around tenancies. I think one of the harsh realities of the housing crisis is that a lot more New Zealanders are going to be facing being in rental accommodation either for a lot longer than they would hope or for, in some instances, their entire lives. Making sure that we have some clarity both for those tenants and, in many cases, landlords is, essentially, what this bill does, but also there are a lot of other measures that the Government is taking to ensure that those people who are in rental accommodation can do so in an effective manner for them and their families.

One obvious thing that the Government is doing is the healthy homes standards, which will prevent thousands of children from going to hospital. I think that’s a no-brainer. I think most New Zealanders, as taxpayers, would see the benefit of making sure that people who are living in rental accommodation are in healthy, warm, safe homes. We’ve also banned letting fees and we’re progressing this piece of legislation, and we’ve also—as someone who grew up in a State home—stopped the sell-off of Housing New Zealand properties and committed to building, over four years, 6,400 homes. We’ll have a very good update for the public about that very soon.

In the wider context of what’s happening in this space, this is another important piece of the puzzle to ensure that New Zealanders are looked after in rental accommodation. I also want to note that we’re striking that balance between the rights of both tenants and landlords and, again, going back to that Osaki case where that imbalance around the tenant liability and the landlord liability that the previous Government and this Government certainly feels was out of whack.

The question was put that the amendments set out on Supplementary Order Paper 254 in the name of the Hon Kris Faafoi to Part 1 be agreed to.

Amendments agreed to.

Part 1 as amended agreed to.

Part 2 Amendments relating to methamphetamine and other contaminants