As a property owner or manager renting out to tenants, you are always burdened with the thought of seeing the condition of the property once rent or term contracts have ended and tenants have to vacate the area.
You could be surprised to find out that the state of the area is not as pristine as it was when they first occupied the property and decide to forfeit the bond to pay for damages caused. But what if your tenants claim the damages were due to wear and tear and not due to accidental damage and demand that the bonds returned to them? Tensions could flare up and arguments could ensue, later ending up in a legal battle.
This is a scenario that many property owners are always faced with and one that sometimes does not end up well for both parties.
Situations like these, can, in fact, be avoided and could always end up peacefully and professionally.
Problems such as the ones discussed earlier are often the result of failing to set expectations or without specifying conditions that clearly define “Accidental Damage” and “Wear and Tear” on term or lease contracts.
In Australia, it is a generally accepted rule that unless it is stated in a contract, tenants are not liable to pay damages caused by fair wear and tear to the property. The tenant is only obligated to settle payments or should repair costs for damage caused by irresponsible and accidental or intentional damage to property.
Wear and tear are defined as damage caused by the normal deterioration of a property being used ordinarily over time. Fair wear and tear can also be caused by constant exposure to the elements, daily living, and time.
But while real estate policies vary from state to state, there are general and acceptable definitions to regard as wear and tear.
Here are some examples which can help guide property owners with their rental units and preparing contracts, as well as avoid arguments that may arise from a dispute such as the one pictured above.
For fully-furnished rental units, here are some of the generally accepted industry samples of fair wear and tear.
On the other hand, Accidental Damage is defined as damage resulting from an unexpected, in-deliberate or accidental external action and the standards are basically similar across all insurance policies.
With regards to home insurance, it is commonly interpreted to include physical damage to an item or something that caused an item in a property or home that resulted in a loss of function. To deem an action accidental, the action that caused it must be sudden and resulted from a visible, external, and violent cause.
Home insurance policies also do not cover damage caused by scratching, tearing, or chewing by animals in the home.
There are insurance policies that stipulate tenants are not responsible for irresponsible, negligent or intentional actions that result in damage to the premises, but conditions vary with insurers and insurance policy.
However, accidental damage must never be confused with Deliberate Acts, Vandalism or Malicious Damage.
Deliberate acts are defined as an action made without permission but without malice, spite or vindictiveness and with the full knowledge of the action that alters the current state of the property, while Malicious damage or vandalism means a wrongful act done with vindictiveness, malice or spite with the intention of causing damage to property.
Here are some of the insurance industry standards that insurers often regard as damages for which tenants are liable for;
Documentation is critical before and after executing a lease contract agreement between both parties. These may be done by taking photos or videos of the property and its condition prior to the contract agreement. Stating all these conditions in the contract may be able to help avoid unwanted disputes by the end of the term contract or lease agreement.
It is for the best interest of both the tenant and property owner to agree on periodic inspection of the property to ensure that everything is in order. This could help raise concerns early on regarding property damage and whether property owners may need to conduct repairs or that the property is properly used and cared for by the tenant.
Here are some of the common considerations to look for when having inspections conducted on rented property.
Make sure that contracts are properly reviewed and the insurance policy product disclosure statement to know its details, inclusions, and limitations. One example is reduced value for claims based on the depreciation of fittings and fixtures inside the property.
Having these expectations could definitely prevent disputes in the future and help reduce the stress for both the property owner and the tenants.