Tenant liability for negligent damage following Holler v Osaki

Abstract

Prior to the enactment of the Property Law Act 2007 (PLA 2007) both commercial lessees and residential tenants who were responsible for negligently caused damage to premises ran the risk of being sued by the landlord, or the landlord’s insurer, in a subrogated claim. This potential liability was not widely appreciated by lessees and, where such a claim was brought, often had serious financial consequences for them. The PLA 2007 reformed the law in this area by providing limited immunity from such liability for commercial lessees. It was initially thought that these reforms did not apply to residential tenancies subject to the Residential Tenancies Act 1986 (RTA 1986). The Court of Appeal in Holler v Osaki held that the exoneration provisions do extend to residential tenants. In coming to this conclusion the Court traversed a number of complex legal matters, including the interpretation of the meaning of specific sections in pt 4 of the PLA 2007 and in the RTA 1986, and the Tenancy Tribunal’s extended jurisdiction under s 85 of the RTA 1986. The consequences of the decision are far-reaching. It has shifted the balance of power in the landlord–tenant relationship with significant economic and practical consequences as landlords deal with the effects of the decision. It also has implications for long-established principles of insurance law, including insurable risk, and insurers’ rights of subrogation. This article will examine the historical background to the issue, the law reforms provided through ss 268–271 of the PLA 2007, the decisions of the Court of Appeal and of the lower courts in the Holler v Osaki saga, and the impact of the outcome on landlords, tenants and insurers. Recent law reform proposals by the government are also considered.