The NZ Property Investors Federation has praised the decision, saying it is a positive move in the aftermath of the Holler and Rouse v Osaki case, in which the Court of Appeal ruled in April a tenant did not have to pay for damage caused after leaving a pot of oil on the stove which started a fire.
This morning, Smith said the Government was now considering changes to the Residential Tenancy Act, specifically in relation to when property damage costs can be reclaimed from tenants.
"This review has been prompted by recent court decisions and Tenancy Tribunal rulings, which have sparked confusion over how the Residential Tenancy Act (1986) and the Property Law Act (2007) interact," he said in a statement.
"This is resulting in uncertainty for landlords and tenants, and is affecting the effective functioning of the Tenancy Tribunal.
"The issue is tenant damage to a property through carelessness or negligence. The latest court rulings mean landlords cannot recover the costs of this damage where they have insurance, including for their costs such as the excess."
The problem with this approach was that it reduced the incentive for tenants to take good care of properties they rent, Smith said.
It also reduced the landlord's incentive to have insurance as it lessened tenants' responsibilities.
"My concern about this new interpretation is that it will add to the overall costs of the residential sector, driving up insurance costs and rents," he said.
"However, we do not wish to return to the situation where tenants may be sued by their landlord's insurance company for hundreds of thousands of dollars, such as with an accidental house fire.
"The proposal I am considering is that tenants would be liable for damage caused by carelessness or negligence up to the value of their landlord's insurance excess but not exceeding four weeks' rent, which is aligned with the standard tenancy bond."
A different amount could be mutually agreed if specifically provided for in the tenancy agreement and would enable the tenant, if they wished, to take out their own insurance, Smith added.
"The tenant would remain fully liable for damage caused intentionally or caused by a criminal act, with no limitation. The landlord would remain liable for fair wear and tear, and any damage caused to the property by an event beyond the tenant's control, such as a storm or an earthquake."
Smith has asked the Ministry of Business, Innovation and Employment to undertake consultation with tenant and landlord organisations, and the insurance sector, on the possible changes.
"New Zealand has 450,000 tenanted properties, and both tenants and landlords need certainty about their rights and responsibilities," Smith said.
"I am looking for a practical solution that will work for both tenants and landlords."
