Room-by-room rentals insurance issue

[Jaimie]

Hi all

I thought I might bring something to investors’ attention. I’d be curious to see if others have had a similar experience.

Over the past year, I have been battling with my insurance company (State) regarding the contents policies I have on two 5 bedroom townhouse units that are rented out on a room-by-room basis.

The policies have been in place for a number of years. This year, though, State refused to renew the policies as they were insured under a "personal" policy. I was being forced to change to a commercial policy.

The initial reason given was that State believed my units were boarding houses. This sparked a protracted debate with them over definitions contained in the Residential Tenancies Act. During this time State also involved EQC, as their interpretation of both the RTA and Unit Titles Act was seen as pivotal to State's position.

What emerged from this was interesting, and something that none of us, including State, really expected.

It transpires that:

..." in order for contents to be covered by the Earthquake Commission, they must be kept in a dwelling as defined in the Earthquake Commission Act 1993. The EQC has advised us that in order for a building to be covered, it must be fully self-contained and the whole of the dwelling is made available for the use of the occupants. EQC will not consider a building rented out on a room by room basis to be a “dwelling” for EQCover purposes, even where the building itself is fully self-contained, if the entire building is not available for use by all of its occupants. This is because each part of the building rented to each tenants is not fully self-contained in its own right. Where the building is not considered a “dwelling” in accordance with the Act, then the contents will not be covered either".

So, my townhouse units are not a dwelling in their eyes, nor for that matter is any other property that is rented out room-by-room – regardless of the number of bedrooms. If it is not defined as a dwelling, then it won’t be covered by EQC. If not covered by EQC, then commercial policies at commercial rates must be applied.

State informed me that, had I claimed under the policy I had, any claim would more than likely have been declined. Likewise, any claim a tenant had made under their own personal policy.

In terms of what it means to me financially, premiums went up 135% for the same level of cover.

So, anyone with a property that is rented room-by-room should check their policies and make sure it is appropriate and that they are covered. I’m not sure what it means for building insurance, and whether a separate policy might be needed, as our building insurance is covered by body corp fees.

I’d be curious to know if anyone else has encountered this in what seems to be a rapidly changing insurance/EQC policy environment!

Cheers

[lawt]

..." in order for contents to be covered by the Earthquake Commission, they must be kept in a dwelling as defined in the Earthquake Commission Act 1993. The EQC has advised us that in order for a building to be covered, it must be fully self-contained and the whole of the dwelling is made available for the use of the occupants. EQC will not consider a building rented out on a room by room basis to be a “dwelling” for EQCover purposes, even where the building itself is fully self-contained, if the entire building is not available for use by all of its occupants. This is because each part of the building rented to each tenants is not fully self-contained in its own right.

So for the sake of clarification, do each of the tenants have access to common bathrooms, toilets, kitchen and living space please?

[Jaimie]

There is a communal kitchen/dining area. Each room has its own small en suite and shower.

[lawt]

There is a communal kitchen/dining area. Each room has its own small en suite and shower.

So how would it materially differ from mom and pop letting a room to a boarder or 2?

[Jaimie]

If mom and pop rented a room that room that had a en-suite attached, and a tv on the wall, I don't see it would differ. During my many discussions with the insurance company, I suggested to them they were opening a can of worms........

[lawt]

So the ensuit and TV were pivotal? I rent a couple of rooms out in my house to boarders. They don't have ensuits, but each has their own TV (which they have supplied). Their bedrooms are not available for communal use.

[Jaimie]

No. The pivotal thing was that they were rented by the room. That's all. As I said earlier, I think it caught State by surprise too. It's a significant policy stance that I don't think many are aware of. I got the impression that if I had one tenancy agreement covering all rooms, that would be fine. But the fact that each tenant has a seperate agreement - that's the issue.

[Xav]

What is required for contents to be covered is that the insured property comes within the definition of personal property in the Earthquake Commission Act. Personal property is defined as "property that is located in or on a residential building".

Residential building is defined as "any building in New Zealand which comprises or includes 1 or more dwellings, if the area of the dwelling or dwellings constitutes 50% or more of the total area of the building".

A dwelling is "any self-contained premises which are the home or holiday home... of 1 or more persons".

It appears from your post that EQC have taken the view that your property does not contain any dwellings, as the exclusive area leased by each tenant is not fully self contained (as it is bedroom + ensuite but no kitchen). Essentially it requires EQC to ignore any common area which is included in all of the leases (ie. the kitchen).

In my view that interpretation has to be wrong. The ordinary use of the word "premises" does not exclude shared areas (that term is not defined in the Act so the ordinary usage applies). It is reasonably common in commercial leases for example for there to be shared facilities, especially toilets and the like. Those would always be included in any normal usage of the word premises.

Moreover, the definition of residential property is also used in the sections relating to material damage so if EQC applies its view consistently then it would also refuse a claim in respect of damage to the building, not just contents. I have not bothered checking Hansard or similar but I think it is safe to assume that the intention of the Act was that it cover all buildings where at least 50% of the building is used for residential purposes.

Obviously it is up to you whether you choose to fight this but you should bear in mind that the logical outcome of EQC's position is that the building would not be covered for earthquake damage by EQC, in addition to the contents. Obviously that is concerning. I think at the least you need to put both EQC and your insurer on notice that you do not accept their position notwithstanding any payment by you of the increased amount of the premium.

[123Loto]

The question for us is: "Would EQC pay out on a rent by the room house, in the event of a earthquake damage?"

But we don't need to make a hypothetical as there has very recently been a major earthquake in Christchurch... so...

Maybe a better question could be: "Has anyone on this website, who has a rent by the room residential property, been paid out by EQC due to earthquake damage?"

[beno]

Initially EQC were not concerned with room by room properties. I know someone who had all their repairs done by Fletchers then another earthquake redamaged all the repairs. The next time EQC visited they refused to do any more repairs because the owner occupier had five boarders.

The question for us is: "Would EQC pay out on a rent by the room house, in the event of a earthquake damage?"

But we don't need to make a hypothetical as there has very recently been a major earthquake in Christchurch... so...

Maybe a better question could be: "Has anyone on this website, who has a rent by the room residential property, been paid out by EQC due to earthquake damage?"

[hawkeye]

In our experience the EQC haven't even begun looking at properties with multiple dwellings that have been damaged in more than one earthquake.

We are still waiting in the same EQC "Priority Queue" that we have been in for 21 months. It is called the too hard basket.

Also from personal experience EQC will now make whatever interpretation of the Act and any other legislation to pay out the minimum possible under any claim.

I'm sure most of NZ think it is all coming right in Christchurch now. For us it is more waiting. We used to have 14 tenancies, a commercial holiday house and our own PPOR. Not one of these claims is settled.

People are being screwed out of their legal entitlements in every imaginable way. Think the retrospective changes to the EQC Act and the Building and Housing standards. There is also the problems of compulsory purchase of property by the government and the rezoning of land into various Technical Categories that make some land virtually worthless at the moment. (This may change if you can weather the next five years and we can) Don't get me started on the incompetency of EQC and the cynical evasion of the insurers.

Even having said all that we are strong and will endure and ultimately overcome these obstacles, Christchurch will be rebuilt but we will remember the organisations that failed us in our time of need.

[kapitibeanman]

State informed me that, had I claimed under the policy I had, any claim would more than likely have been declined. Likewise, any claim a tenant had made under their own personal policy.

So State (& EQC) have taken the premiums ok, and State say they probably wouldn't have provided cover had a claim eventuated.

I know it's a silly question, but has anyone offered a refund of money taken under what looks like false pretences. It would be nice to at least be offered a credit towards the next commercial? premiums they are now going to charge.

[Xav]

The High Court has now ruled on this issue, in favour of the property owner - see here.

As noted in my post above, the legal terms used are the same for both property and contents claims so this should resolve both issues (assuming it is not appealed).

[Perry]

Thanks, Xav. It's of inestimable value to the PT Forums and it's members
to have the perspectives like those you and Winston graciously provide.