KEY POINTS:
Landlords want the cap on the amount of bond tenants must pay removed, saying it is not enough to compensate for damage done to rental property.
The amount of bond landlords can legally require from tenants is capped at four weeks' rent, but president of the Property Investors Federation Martin Evans says this is often not enough.
"Especially with furnished houses, four weeks' rent doesn't really cover theft - it really only covers rental arrears."
The federation is lobbying for a change to the Residential Tenancies Act Amendment Bill, which would remove the cap on bond amounts and instead allow landlords to apply for more in some circumstances.
But Helen Gatonyi of the Tenants Protection Association doesn't agree. "Four weeks' rent is, in all cases, a lot of money up front."
She says landlords need to manage their rental properties in a professional way: properly screening tenants at the outset, inspecting the property regularly, getting on to problems quickly and having appropriate insurance.
But Evans says the problem is particularly acute, with more high-quality houses being rented out now that the market has turned and it's difficult to sell. "If any damage is done to them, four weeks' bond won't go far towards repairing it."
Landlords are striking more damage problems as low-income tenants battle the rising costs of living and petrol, he says.
Scotney Williams, principal of the Tenancy Practice Service, says landlords also face the problem of tenants "derogating" the bond - giving notice and then stopping the rent, "running down" the bond instead.
Kevin Meekan, chief underwriting manager for Tower Insurance, sees a "significant number" of claims from landlords who are in the red because bonds are not enough to cover damage to rental properties.
"That's increased in the last few years, because a lot of people have come into the investment property market. They have, say, one rental property, and often don't insist on references.
"They don't inspect the property and they don't check that the tenant is paying them rent as often as professional landlords with numerous properties."
Very few landlords take out landlord risk insurance, says Williams, whose business offers this product. He says it will be even more critical for landlords to be properly insured if the Residential Tenancies Act Amendment Bill is passed in its present form.
The bill would limit tenant liability for damage to rental premises to four weeks' rent if the Tenancy Tribunal is satisfied that the tenant didn't cause the damage intentionally or recklessly.
The insurance industry has made submissions opposing this to the select committee. Terry Jordan of the Insurance Council says it takes away peoples' responsibility for their actions. It's difficult to prove deliberate, rather than negligent damage, and the onus falls on insurers, he says. The provision would drive up premiums, and ultimately rents.
When a bond is not enough to repair damage to rental property, a landlord has to apply to the Tenancy Tribunal for a money order, which is then pursued by debt collectors.
It's important that landlords do take out appropriate insurance, Evans says, and also that they collect the maximum amount of bond. However, the Department of Building and Housing says on average landlords are lodging only three weeks' rent as a bond.
Real estate agents generally collect only three weeks' bond, says Evans, as they charge tenants a letting fee as well. "We only collect three weeks' bond unless specifically requested by the landlord to collect four weeks," says Michelle Jones, general manager of Crockers Property Management.
Landlords also have to appreciate that tenants don't earn interest on their bonds and don't have the use of the money, Evans says.
Williams suggests another "very effective" way of covering damage. Landlords are entitled to have guarantors of the tenancy agreement - but he says very few do.
