The residential tenancy bond in New Zealand

Abstract

Bond-taking is a long established practice in the New Zealand residential tenancy scene. It is arguably a vestige from the days when premiums were outlawed in New Zealand, a vestige moulded to fulfil a role today for which it was not originally intended. In any event, it is a practice which is productive of much argument and little satisfaction. There is little satisfaction for a tenant who must raise a bond before entering a tenancy, and little satisfaction for a landlord who finds the amount of the bond held to be insufficient to repair damages or cover rent arrears at the close of a tenancy. Prior to February 1987, arguments over the insufficiency of the bond or the allegedly unfair retention of it by a landlord were usually dealt with by the Small Claims Tribunal; since February 1987 they have been the domain of the Tenancy Tribunal, established under the Residential Tenancies Act 1986. The resolution of those disputes leans heavily on matters of fact and the credence of the individual parties, largely to the exclusion of matters of law. The evidence upon which decisions are made often leaves much to be desired, with the consequential impression of there being a lack of control over these disputes and a lack of justice in their results. The general feeling amongst landlords, tenants and others involved in the residential tenancy business is that at best the bond is better than nothing in the form of security, at worst it is iniquitous, useless and serves mainly to prevent certain groups of tenants from entering rented premises. Accordingly, there is a need for alternative methods of obtaining security for rental premises. One such alternative exists in the form of insurance policies designed specifically for the residential rental market. The adoption of an appropriate form of rental insurance would retain those (few) positive features of the bond system (e.g., the debatable proposition that the bond is an effective deterrent against property damage), while at the same time ending the bond-taking practice itself. This would be achieved by prohibiting bond-taking and substituting it with rental insurance. As this would in effect make insurance compulsory, the state would necessarily adopt some role in this area. By involving itself in this manner, the state would be directly honouring its commitment towards full housing in New Zealand.