Appeal Court rules against pursuing tenants for fire damage

The Appeal Court had to consider if the Property Law Act allows for pursuit of tenants.

The Appeal Court has ruled tenants cannot be pursued for insured damage to a landlord’s house.

Whether the ruling creates a precedent is unclear given the paucity of similar cases before the courts.

The appellant, AMI, has yet to decide whether to appeal further to the Supreme Court

The case involved landlords Andreas Holler and Katherine Rouse, who own a house insured by AMI, which they rented to Kenji Osaki and Tieko Osaki.

In March 2009, Mrs Osaki left a pot of oil on high heat and unattended for five minutes. Fire broke out, causing substantial damage to the house.

AMI indemnified the landlords for the costs of repairs of $216,413 but then exercising rights of subrogation, issued summary judgment proceedings in their name in the High Court, claiming the fire repair costs from Mr and Mrs Osaki.

The Appeal Court had to consider whether sections 268 and 269 of the Property Law Act allow for the pursuit of the tenants.

The Appeal Court examined relevant sections of the Property Law Act concerning damage, the intention of Parliament, Law Commission reports and earlier rulings of the Tenancy Tribunal and High Court.

For example, a Law Commission report says in the case of fire and flood, owners and tenants assumed the tenants would have the benefit of landlord cover.

The Law Commission considered this understanding was more in keeping with the economic reality that, if the landlord has a property it wishes to be insured, to do so it needs to pay premiums and the source of the money it uses to pay those premiums is the rent obtained from the tenant.

The commission report identified case law which had imposed the liability for loss on the tenant as “problematic, often turning upon fine and probably unintended nuances of the wording of individual leases, and with strong dissenting judgments in appellate courts.”

“The commission made no mention there, or elsewhere in the report, of an intention to exclude residential tenancies from the protection of the exoneration provisions,” the Appeal Court ruling says.

“It is true that in a residential tenancy the landlord is obliged to pay the premiums and cannot levy the tenant for them. But the economic reality is that the landlord’s cost of insurance will be factored by the market into the rent for residential premises,” the ruling says.

“If the premises do not attract a sufficient return, then it can be assumed that they will not be on the residential tenancy market.

“Tenants of residential property seldom have the assistance of lawyers when entering  a lease. Commercial tenants will often, if not usually, obtain legal advice as to their rights and obligations in respect of lease documentation and leased premises. Confusion as to rights and obligations is, therefore, likely to be even more pervasive in the residential market than in the commercial lease market,” the Appeal Court says.

The main question for the court was – whether residential tenants are immune from a claim by the landlord where the rental property suffers loss or damage caused intentionally or carelessly by the tenant or the tenant’s guests?

The court says – “Yes, to the extent provided in sections 268 and 269 of the Property Law Act 2007.”

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