Damage versus wear and tear

Picture this: your tenants have just moved out of your investment property and you’re going over the final inspection. You spot a blemish you haven’t noticed before – but was it caused by  wear and tear or is it considered tenant damage? And what’s the difference?

Wear and tear

“Fair wear and tear” refers to normal deterioration that a property is expected to experience over time. It can be caused by ordinary daily use, exposure to the elements, such as rain or sun, or the building getting older. Carpets gradually wearing out, old light fixtures needing to be replaced or faded paintwork are common wear and tear examples.

Tenancy laws vary from state to state, but overall wear and tear is a business cost that landlords are expected to pay. Tenants aren’t liable as it is considered normal depreciation of an asset, and it isn’t covered by landlord insurance.

Kay & Burton spokesperson Carolyn Purnell-Webb says it’s a good idea to budget a portion of your rental income for maintenance in order to maximise that income and capital gain. Ensuring a property is in top shape before new tenants move in is the best course of action for everyone involved.

“If a property is not presented in good order at the start of the tenancy, the bar has been set low, which may result in tenants performing to the same standard,” she explains. “It can set the tone.”

Damage

Damage can fall under one of several categories. Accidental damage is damage that occurs suddenly from unexpected or unforeseen events, such as a glass of red wine spilled on the carpet or broken tiles due a tenant dropping a heavy piece of furniture.

Malicious damage is done to cause deliberate damage to a property, such as smashing a bathroom mirror, and then there’s intentional damage, which is also done deliberately but without malicious intent. This is when a tenant knowingly does something that will alter the property without the landlord’s consent landlord, like repainting a room.

Tenants are typically held accountable for damage, but insurance coverage will vary depending on your specific landlord insurance. Some providers will only cover certain types of damage, so it’s worth reading your policy closely. Make sure your tenants understand how it applies and what their responsibilities are, too.

“Tenants are required by statute to report any damage to the landlord or agent,” says Carolyn, “so it’s crucial to set the tenancy up well from the start. This means the landlord needs to honour their obligations, and also communicate the tenant’s obligations clearly.”

How can you tell the difference?

The easiest way to determine whether you’re dealing with wear and tear or damage is by looking at whether something has been caused by normal, everyday use of the property, or if it’s the consequence of human negligence, carelessness or vandalism. For example, benchtops that are faded and worn would likely be wear and tear, while large burn marks and food stains probably fall under damage.

If you’re uncertain which kind you’re dealing with, it’s a good idea to call your property manager for a chat.

Managing disputes

Difficulties sometimes arise when landlords and tenants disagree over whether damage has been caused by wear and tear or the tenant. A good way to minimise the chances of a conflict is by ensuring the property’s condition is thoroughly documented and updated when the tenants move in. Whenever the property is inspected, make certain that the lease agreement is being adhered to and that the property is well maintained and bears no signs of damage.

If a dispute ends up in VCAT, landlords are expected to have taken reasonable steps to mitigate loss, so preventative measures such as using washable paint, installing door stops and sealing natural stone are a good idea. If the landlord has not done these things, claiming compensation from a tenant is likely to be a lost argument.

VCAT typically works off the ATO’s depreciation guide in determining a landlord’s losses. This means that if an item – for example, carpet – is over a certain age, it’s unlikely you’ll be able to claim anything, even if the item was in good condition.  VCAT also prevents landlords benefitting from a tenant’s error so if there is existing damage, the tenant will not be expected to fund a replacement but instead contribute a portion, depending on the situation. 

Finally, cultivating a friendly, harmonious relationship with your tenants goes a long way to protecting your investment – Carolyn calls this “the rule of reciprocity”. Providing regular maintenance will not only keep your investment in top condition and prevent wear and tear, but help build a positive landlord-tenant relationship.


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