Landlords can’t recover from negligent tenants

HOLLER & ROUSE v OSAKI & ANOR [2016] NZCA 130, 15 April 2016.

In 2009, a tenant of a house, Mr Osaki, negligently caused a fire that substantially damaged the house he was renting. His landlords were indemnified by AMI for the cost of repairs to the house. AMI exercised its subrogation rights to claim the repair costs from the tenants.

The tenants argued that sections 268 and 269 of the Property Law Act (PLA) applied. These sections prohibit landlords from requiring tenants to meet the costs of repairs where the landlord is insured for damage. There are exceptions where the damage was intentional, or as a result of a criminal act, or where the landlord’s insurance monies have been rendered irrecoverable.

In the Court of Appeal it was argued by AMI that ss 268 and 269 apply only to commercial and not residential leases. Further, s 8(4) of the PLA provides that where there is an Act which conflicts with provisions of the PLA, that other Act will take precedence. The Residential Tenancies Act (RTA) sets out tenants’ responsibilities to pay for damage, so AMI argued that the RTA overrode the contrary provisions in the PLA. The Court of Appeal held, however, that there is no conflict between the two Acts. Because none of the provisions of the RTA directly conflicts with the exoneration provisions in the PLA, s 8(4) of the PLA did not apply.

The Court of Appeal also referred to the 1991 Law Commission’s report on the 1952 version of the PLA.  The report identified the need for reform of the 1952 Act and in doing so, said that both owners and tenants assumed that tenants would have the benefit of the landlord’s insurance cover. Through this statutory analysis and looking at the legislative history, the Court found that Parliament’s intention in enacting the PLA, including the exoneration provisions, was not for there to be radically different positions for commercial as opposed to residential tenancies. Therefore, residential tenants are also absolved from responsibility for negligently caused damage, in the same way as are commercial tenants

It is important to appreciate that s 269 applies, even when negligence on the part of the tenant, is the cause of the damage to the landlord’s property. Where a tenant negligently causes damage, the landlord cannot even recover the excess from the tenant. Landlords’ insurers are also barred from pursuing their subrogated rights of recovery from negligent tenants.