Where damage was deliberate, tenants remained liable for the full cost, while landlords still had to pay for reasonable wear and tear or damage from events such as a natural disaster.
The court in the Holler and Rouse v Osaki case had ruled the tenant did not have to pay because it was unintentional, and the landlord's insurance covered the cost.
The Property Investors' Federation called for change after the Osaki case, claiming it was unreasonable for landlords to foot the bill for damage caused from carelessness, and had prompted a string of decisions in the tenants' favour, including landlords paying for damage caused by dogs left inside and a drunk person falling through a skylight.
Andrew King, executive officer of the Property Investors Federation, said he was pleased some action was being taken to hold tenants responsible for accidental damage, but it did not go far enough.
"The general principle of the bill is that tenants are still not liable for accidental damage they cause and this is very disappointing."
He said it did not safeguard the interests of either tenants, rental property owners or insurance companies.
"Insurance companies can no longer hold accountable the person responsible for the damage and this, they say, increases their risk."
He said because tenants were responsible for the excess for each case of damage they caused they could be liable for many thousands of dollars of repair costs and would still need to insure themselves.
Also if the insurance company and Tenancy Tribunal could not agree on how many incidents of damage were involved, an owner could still be liable for a majority of the cost for their tenant's damage.
"Deciding what is accidental and what is careless damage could be very problematic."
Smith said the changes would ensure tenants had an incentive to take good care of their rental properties, and landlords to get insurance.
He said there was also a need to clarify the law when it came to the growing problem of methamphetamine contamination. Standards NZ was working on contamination thresholds which would be the thresholds used for meth contamination cases in the Tenancy Tribunal.
"We want homes to be safe but we also don't want properties being vacated when the risks are low."
It would be unlawful for a landlord to rent out a property which he or she knew was contaminated, with maximum damages set at $4000.
Landlords would have to disclose the relevant insurance information or the fact they did not have any insurance if the tenant asked, and it would be unlawful to refuse.
The bill will also provide for easier prosecution of landlords who rent out unsuitable properties, such as unlawfully converted garages, warehouses or industrial buildings.
Smith said the Tenancy Tribunal only had jurisdiction over residential properties, which allowed landlords renting out other spaces to avoid accountability.
