This is a common question we receive in property management. It comes down to how the Tenancy Tribunal defines tenant liability for damage: deliberate, careless, or accidental.

Deliberate damage – If a tenant intentionally damages the property, they are responsible for the full cost of repair.

Accidental damage – Landlords are expected to carry insurance to cover genuine accidents. In these cases, the landlord is responsible for the cost of repair or the insurance excess.

Careless damage – This is where the rules become more specific. If damage is caused by tenant carelessness, the tenant is responsible for the landlord’s insurance excess. If no insurance is in place, the Tribunal has set liability at the equivalent of four weeks’ rent.

Because tenants may be liable for your insurance excess in the case of careless damage, you are required to disclose the excess amount in the tenancy agreement. This ensures tenants are aware of their potential liability before they move in.

Defining between careless and accidental is done on a case by case basis due the complexity of the definition.

What should your insurance excess be?

That decision comes down to your own risk tolerance and financial circumstances. Some landlords initially thought setting the excess at four weeks’ rent was best, but not all claims relate to careless damage, so a “one size fits all” approach doesn’t work. A lower excess might mean higher premiums, but it could provide better cover for issues where you, as the landlord, are liable.

The right balance will vary from landlord to landlord. We recommend discussing options with your insurance broker, other property investors, and your wider network.

If you’d like further guidance around tenancy agreements, insurance obligations, or handling tenant damage, feel free to reach out to me, Jules, at Kōwhai Coast Property Management.