Changes to the Residential Tenancies Act 1986 – it’s not all puff and fluff!

The Residential Tenancies Amendment Act 2016 has made changes to the Residential Tenancies Act 1986 (Act). These changes introduce new obligations for landlords and tenants, and flow from a 2015 Ministry of Business, Industry & Employment regulatory impact statement and from associated initiatives to reduce fire-related injuries and deaths. They also aim to make residential properties safer and more habitable for tenants, thereby improving health outcomes, etc.

Mark Robinson

According to the Building and Housing Minister, the measures around smoke alarms “will affect 120,000 homes and are expected to save three lives per year, or 30 during the next decade, as well as reducing fire-related injuries and tens of millions of dollars in property damage”, and the measures around insulation are “expected to lead to 180,000 properties being insulated by 2019 and to save 129 lives per year”.

Smoke alarms

These requirements came into force on 1 July 2016 for all residential tenancies. These changes mainly relate to the new requirement of there being a minimum of one working and “qualifying smoke alarm” in the sleeping place or otherwise within three metres of an entry to the sleeping place. In multi-storey units, there must be one smoke alarm on each level in the habitable space or in at least one of the habitable spaces (as the case may be). In properties with no existing smoke alarms, long-life photoelectric smoke alarms have to be installed. Hard-wired smoke alarms are acceptable.

Landlords are now responsible for making sure that smoke alarms are in working order at the beginning of every new tenancy or upon installation (if that occurs later) and that the alarms initially have working batteries. Landlords also have the accompanying responsibility of installing and replacing these alarms in accordance with the manufacturers’ recommendations and generally to comply with any applicable standards. Failure to comply with the regulations is declared to be an “unlawful act”, and the landlords may, upon such a finding, be liable for a fine of up to $4,000. This fine is also potentially applicable to non-compliance by landlords with the insulation regulations discussed below.

Conversely, tenants also now have a responsibility for ensuring that compliant batteries for alarms are installed during their tenancy, should the need arise. For boarding houses the tenant is responsible for replacement batteries in the tenant’s room, however the landlord is responsible for replacement batteries in common areas. The tenant’s responsibility does not extend to reserve batteries such as those contained in hard-wired systems. A breach of the tenant’s obligations to comply with all requirements in respect of smoke alarms is not expressly declared to be an “unlawful act” but causing or permitting any interference with, or rendering inoperative, any means of escape from fire is.

While at first glance it is a moot point as to whether a smoke alarm is a “means of escape”, the Building Act 2004 extends the definition to include “all active and passive protection features required to warn people of fire…” (together with the more obvious “continuous and unobstructed routes”). However, the Act (as amended) states that the requirements imposed on tenants are limited to the requirements in respect of the replacement of worn-out batteries. While the landlord remains responsible for the alarm per se, the tenant while having replaced the batteries when required could still make the alarm inoperative by interfering with it.

It is therefore suggested that the Act should make this clearer and also that Tenancy Services’ template for Tenancy Agreements should expressly mention the responsibility not to render the alarm inoperative in its outline of the tenant’s responsibilities. Tenants who render alarms inoperative by not replacing the batteries may, upon such a finding, be liable for a fine of up to $3,000. It should be noted that the modifications to the Act do not in any way override other legislative obligations regarding smoke alarms. Prospective vendors of residential property should be made aware of the warranty at General Term 7.2(1) of the latest edition of the Agreement for Sale and Purchase. That term provides for an undertaking and warranty by the vendor that the chattels and all systems and devices, etc are delivered as at settlement in reasonable working order.

Prospective vendors should also be advised and warned about the far reaching extent of the warranty in General Term 7.1 and in particular about the need to disclose any outstanding notice from a tenant, especially where the vendor has been advised of a defective alarm and this has not been remedied on or before the date of the Agreement. A notice from a tenant is expressly anticipated by 7.1(1)(c) of that Term.

Insulation

There are changes which require landlords to ensure, as far as practicable, that throughout any tenancy, ceiling and subfloor insulation is installed over and under the habitable spaces at the property. Such insulation is to be “qualifying insulation” i.e. when installed it had a suitable R-value for the location of the property, is compliant with the NZ Standard (if installed post 1 July 2016) and is in a reasonable condition. The regulations contain some non-exhaustive and common sense pointers in determining what a reasonable condition is. Income-related tenancies must be insulated by 1 July 2016, and all other tenancies (including all boarding house tenancies) have to meet the new insulation requirements by 1 July 2019.

Tenancy Services’ template for Tenancy Agreements now contains a statement for landlords to provide information about the location, type and condition of all insulation in the premises. Any insulation work undertaken during the tenancy in terms of the ceiling and subfloor must be carried out in accordance with NZS4246.2006. Landlords are banned from installing or repairing conductive insulation (such as foil) and those landlords who own properties that have this type of insulation should ideally replace this type of insulation. This will minimise the risk to personal safety and in terms of fire. In some cases, where the foil has been punctured by a wayward fastener (typically a staple), the whole foil can become “live”. Such insulation is also now banned in residential homes as well. It is an offence under the Building Act to breach this ban and anyone who breaches it may be liable to a fine, upon conviction, of up to $200,000.

Prospective buyers of residential properties should also be advised that, if they commission a building report as an express condition of an agreement or as part of their due diligence, the inspector should be asked to address any issue with the insulation at the property. The presence of conductive insulation in particular may give rise to an ability to exit the agreement. Should a buyer wish to proceed after any such issues are brought to their attention, then the costs of a complaint remedy should be factored into any potential further negotiations with the vendor. Additionally, while the Regulations stipulate that the ceiling of the habitable space at the premises must be fully covered by approved insulation, appropriate clearances should still be maintained. This aspect is especially relevant to the situation where downlights (not those downlights having an ‘IC” or “IC-F” rating per AS.NZS60598.2.2 Amendment A) have been retro-fitted. In this case the lack of suitable clearances from the insulation (especially when paper-based insulation is in situ) can create a fire risk.

Non-compliance/remedies

If tenants have concerns about the performance of the smoke alarms or the insulation and they are unable to resolve these concerns with their landlord, then they have the option of mediation and/or escalating the matter to a hearing at the Tenancy Tribunal. The Tribunal has the ability to issue a work order for compliance purposes. Other general changes to the Act also extend to the nature of orders from the Tribunal. If a landlord does not comply with a work order from the Tribunal, then the tenant may set off the cost in carrying out any required work (up to the amount specified by the Tribunal) against rent payable by the tenant. Conversely if a tenant does not comply with a work order, then the cost incurred by the landlord (again up to the amount specified by the Tribunal) is treated as rent in arrears and is enforceable accordingly.

Insurance cover

It is essential that landlords maintain and potentially update their insurance cover for their rental properties. It is also important that they liaise with their insurer or broker and make sure that their general systems and inspection regimes are satisfactory to the insurer, thereby better securing their cover. Tenants should also be informed and made aware of the existence of insurance cover and that they may be entitled to immunity where they (or their invitees) cause a fire through carelessness and the landlord has cover – however, this does not absolve them of responsibility when a fire is intentionally caused, the result of a criminal act or where the tenants have caused the landlord’s insurance to be irrecoverable.

Tenants therefore need to regularly check the smoke alarms and promptly report any faults. In particular, tenants should be made aware that they may face significant liability to either their landlord or to the landlord’s insurer for a negligently caused fire if they, or their invitees, have compromised the insurance cover by tampering with and causing the smoke alarm to be inoperative. This is especially the case if the alarm had a monitoring facility which, if activated, could have minimised damage.

Conclusion

While the new changes have laudable objectives, some capital expenditure will be required by landlords to comply with the new insulation requirements. Broadly speaking, in a tax context, the costs of replacing or repairing the existing insulation would be considered repairs and maintenance while the installation of new insulation would be considered a capital item.

Landlords and their agents will also need to be more thorough with their systems and inspection regimes in terms of smoke alarms; indeed some may look at outsourcing such services to a third party. These additional costs may not be readily absorbed by the landlords who are invariably looking to increase yields (especially if capital gains have plateaued in their market) which will in turn create upwards pressures on rent. Tenants need to adopt a pro-active mindset about their own safety given the various changes which are largely focused on their welfare. Vendors and purchasers of rental properties and their lawyers will also need to be aware of these new requirements when undertaking their due diligence inquiries and when trying to ensure compliance with the various warranties under the Agreement for Sale and Purchase.

This topic (and other concerns for landlords and managers of residential properties) will be covered more fully at ADLS’s Property Law Pot Pourri 2016 which takes place on Thursday 22 September at the Ellerslie Event Centre. For more information or to register, please visit www.adls.org.nz/cpd/cpd-calendar/.

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