Andrew King: Proposed tenancy bill a pointless exercise

The NZ Property Investors Federation and the Auckland Property Investors Association have made verbal submissions to the Social Service Select Committee on the Residential Tenancies (Damage Insurance) Amendment Bill. So have the Real Estate Institute and the Insurance Council.

The purpose of the bill is to make it compulsory for landlords to arrange and pay for insurance to protect tenants in a joint tenancy situation.

A primary motivation for the bill involved a group of Otago students flatting together in 1999. One of the students caused a fire that burned down the rental property.

The insurance company compensated the landlord, but it then sought compensation for itself from the tenants.

As the tenants were joint and severally liable for the property (meaning they are held jointly responsible for the property), the insurance company sought payment from each tenant, not just the fire starter.

Labour MP Maryan Street said it was unfair for those tenants not responsible for damage to a rental property to be held accountable.

Insurance companies said that in hindsight they regretted the action they took in 1999 and it was no longer their policy to seek compensation from tenants in this manner. Based on this it would appear the threat to tenants that the bill aims to address no longer exists.

NZPIF president Martin Evans pointed out to the select committee there were many practical problems with the bill. Young people, especially, come and go from these flatting situations and it was impossible to know who lived at a property at any one time.

Under this Bill tenants and their guests will be covered by insurance paid for by the landlord. These tenants would quite rightly assume that as they were covered by their landlord's insurance they had no responsibility for any damage that they, their flatmates or their guests may cause.

This Bill would make it too easy for tenants to pass the blame for damage on to someone else and claim on the landlord's insurance policy. Evans believed this removal of responsibility would cause an increase in damage to rental property.

In addition, if landlords could not keep track of the comings and goings of their tenants, this could provide insurance companies with reason to refuse a landlord's claim.

Insurance Council CEO Chris Ryan said despite the potential for new policies, his members were against the proposed bill.

Ryan said making landlords responsible for insuring the interests of their tenants would make them joint parties to the policy.

A consequence of this would be that landlords could be refused insurance cover if, for instance, their tenant committed fraud, such as a fraudulent insurance claim.

Through no fault of their own, landlords could find themselves unable to insure their rental property, which would effectively put them out of business.

Ryan also pointed out there would be a substantial administrative requirement to keep up with tenants moving around different rental properties, taking them off previous rental property policies and setting up new policies.

He said this extra management effort would increase the insurance companies' costs and push up premium prices.

I believe that although the aim of the bill is admirable, the problem it addresses no longer exists and the application of the bill is wrong.

Insurance companies have already said their historical decision to seek compensation from joint and severally liable tenants was wrong and this is no longer a policy.

This effectively means the problem this bill seeks to address no longer exists. The bill will involve landlords when they don't need to be and the administrative tasks and risk for insurance companies will mean that insurance premiums paid for by landlords will be higher than if tenants took out the policies themselves.

Many tenants already have cover through either contents insurance or the cheaper option of third party liability insurance.

This bill will mean a double-up of insurance premiums and more expense for tenants.

While we don't endorse any compulsory insurance scheme, a simpler and fairer method of achieving the aims of the bill would be to make tenants responsible for taking out their own insurance.

Landlords could then check to ensure tenants have insurance as a requirement of gaining a tenancy.

This would eliminate double-ups of tenants' insurances, tenants could take their cover with them when they move to new rental properties, insurance premiums would be kept lower, and tenants who don't make claims could be rewarded with lower premiums.

Advocates for the bill say that some tenants may cancel their policy after obtaining the tenancy. At least they will be aware of the risks they face and that the option of insurance is available to them.

If they choose to accept the risk and not take out insurance, shouldn't that be their choice? At least they will be making an informed choice, which is more than they are making today.

This is an overly complicated bill that will introduce expensive and duplicated insurance cover, organised by, paid for and ultimately recovered from tenants by landlords.

It will be applied to many tenancies when only a few have been affected in the past and whom insurance companies say will not be affected in the future. In other words, it is expensive, duplicated, unfair insurance to cure the risk of an event that no longer exists. What is the point?

* The Social Services select committee report is due out on November 2.

* Andrew King is president of the Auckland Property Investors Association, which represents residential landlords.