23-09-2008

Two recent events have reinforced the need for rental property providers to be well organised and vigilant when managing their property.

The first was the loss of $185,000 by Housing New Zealand through having tenants manufacturing methamphetamine (P) in one of their properties. By the time these criminals’ activities were discovered, the contamination of the property was so bad that it was beyond repair and had to be demolished.

The tenant and nine other individuals were convicted for the crime and are now in prison, however Housing NZ is still out by $185,000. Imagine if that was you!

With deeper pockets than most landlords in New Zealand, HNZ are taking the matter to the District Court, suing six of the offenders to recover their loss. We applaud Housing NZ for taking this stand and appreciate that if they are successful then it will set a strong precedent for all landlords to be able to recover costs from all contributors to damage, not just tenants.

This case emphasises the problem with a section of the Residential Tenancies Act Amendment Bill which seeks to limit tenant’s liability for damage. The tenant in this case could simply claim that they didn’t know anything about the activities of the others and therefore could pass the majority of the cost back onto the landlord.

This is a totally unjust situation and sends a wrong message to tenants regarding responsibility for their rental property. The NZ Property Investors Federation is arguing strongly against this inclusion to the Bill and hope that it will be removed before the Bill becomes law.

With the election now announced as being on November 8, the RTA Amendments Bill will not be passed this year, which gives rental property providers a good opportunity to prepare an case against its inclusion.

The second occurrence of interest to landlords is a report from The Press in Christchurch of a tenant that let their rental property get into such a state that neighbours called the Council for health reasons.

The property was being managed remotely by the overseas based owner. It appears that they lost control of the property and eventually engaged a Property Manager. The place was in such a state that the Manager applied for eviction, however the process took 8 weeks, with the tenants eventually abandoning it.

These two cases of P and tenant damage emphasis the utmost importance of actively managing your rental property. Especially important are regular property inspections to ensure your tenants are looking after the premises.

Failure to conduct these inspections can lead to large losses. In the case of a P-lab, if regular inspections were not carried out, the insurance company could make a claim that the landlord was not carrying out their responsibilities to the property and refuse a claim.

As it is, there is a grey area around P-labs and insurance. Companies may consider the situation malicious damage and refuse a claim because you as the landlord have granted a legal right for the tenant to occupy the property. While the Insurance Council advises that most insurers will pay out to clean up a rental property used as a P-Lab, it is not always clear that they are obliged to. It may pay to check with your insurance company on their policy.

On a brighter note, the 2008 Property Investors Conference in Rotorua is nearly upon us and looks set to be an excellent occasion as always. There is a wide range of speakers on a wide range of topics that are sure to provide plenty of thought provoking information. The two evening events are a great way to meet other investors and discuss their perceptions of speakers, topics and how they are handling changes to the property and rental markets.

I look forward to seeing many of you there.