The Government is looking at changing tenancy rules following recent court rulings which Housing Minister Nick Smith says have created confusion over how the Residential Tenancy Act (1986) and the Property Law Act (2007) interact.

This is resulting in uncertainty for landlords and tenants, and is affecting the effective functioning of the Tenancy Tribunal.

'The issue is tenant damage to a property through carelessness or negligence,” says Nick. 'The latest court rulings mean landlords cannot recover the costs of this damage where they have insurance, including for their costs such as the excess.

'The problem with this approach is that it reduces the incentive for tenants to take good care of the property they rent. It also reduces the landlord's incentive to have insurance as it lessens tenants' responsibilities.

'My concern about this new interpretation is that it will add to the overall costs of the residential sector, driving up insurance costs and rents. However, we do not wish to return to the situation where tenants may be sued by their landlord's insurance company for hundreds of thousands of dollars, such as with an accidental house fire.”

Nick says he's considering a proposal where tenants will be liable for damage caused by carelessness or negligence up to the value of their landlord's insurance excess, but not exceeding four weeks' rent, which is aligned with the standard tenancy bond.

A different amount could be mutually agreed if specifically provided for in the tenancy agreement and would enable the tenant, if they wished, to take out their own insurance.

'The tenant would remain fully liable for damage caused intentionally or caused by a criminal act, with no limitation,” says Nick. 'The landlord would remain liable for fair wear and tear, and any damage caused to the property by an event beyond the tenant's control, such as a storm or an earthquake.”

He's asked the Ministry of Business, Innovation and Employment to do targeted consultation with tenant and landlord organisations, and the insurance sector, on possible amendments.

'I am particularly interested in views on what is an appropriate limit on tenants' liabilities,” says Nick.

'New Zealand has 450,000 tenanted properties, and both tenants and landlords need certainty about their rights and responsibilities. I am looking for a practical solution that will work for both tenants and landlords.”

The issues arose following landmark Court of Appeal decision earlier this year that ruled in favour of a couple who accidently burned down their rental home.

The Court of Appeal ruled in favour of the couple who were pursued by their landlord's insurer for the cost of the fire, caused by an untended pot on the stove.

The court sided with the couple, Kenji and Tieko Osaki, and now the Tenancy Tribunal has put out a note to help clarify the ruling for landlords and tenants, reports Catherine Harris on Stuff.

It confirms that tenants cannot be held liable for unintentional damage if the landlord is insured.

However, principal tenancy adjudicator Melissa Poole's note says tenants or their guests can be held liable if the landlord has no insurance, or the damage is found to be deliberate.

Landlords are also not allowed to seek the excess on their insurance policies, or use 14-day notices to get tenants to repair damage. Instead they must go through the tribunal.

Insurance Council chief executive Tim Grafton said many people would be "offended by the idea that those who have negligently caused damage don't have to face the consequences of their actions".

However, he noted that those who acted deliberately would remain liable.

Scotney Williams, a director of tenancy services firm Tenancy.co.nz, said it would be interesting to see how the new rules played out, as the tenant had to prove the damage was unintentional and that meant showing up at court.

'If this is the case, most disputes would be awarded to the landlord because the majority of tenants fail to turn up to their hearings."

Williams said the Osaki decision had been a radical change from the previous understanding, which was that tenants had to pay for even careless damage.

"This is a get-out of jail free card for tenants."