‘Damage to my property’ is the last statement or conversation that any investor wants to read, hear, deal with, or discuss. However, the reality is that damage to a property is a fact and reality that every investor needs to be aware of.
Damage to the property can relate to several different concepts, such as:
Malicious damage (such as deliberate holes in walls or ripping out property fixtures or fittings) is something that every investor wants to avoid happening. Malicious damage can be minimised by ensuring that your property is kept in a well-maintained and presented condition to attract quality tenants, as well as having current landlord insurance to protect you from the unexpected event of malicious damage.
Accidental damage (such as a spill or stain on the carpet, a burn mark on a bench top from a hot pan or hair curling iron or dropping an object and cracking a tile) in most circumstances may feel like malicious damage, but without the intent – ‘It was an accident’. However, despite it being an accident, the tenant will more than likely still be held accountable.
Fair wear and tear damage (such as stains and marks in high traffic carpet walkway areas, generalised spots on walls, and cracked fittings or fixtures due to age) will often, be considered a normal expense or cost that is the investor’s responsibility.
As an investor, it is important to know that the fixtures and fittings within a property have a depreciable lifespan. There are ATO guidelines stating that investors are responsible for the replacement cost of an item every 5-10 years, depending on the asset.
The ‘grey area’ of damage that all parties (the investor, tenant, and property manager) must navigate and negotiate is predominately ‘accidental damage.’
For example; A tenant vacates the property after six years. The property manager carries out a final inspection, and it is noted that:
What can you claim from the tenant’s bond?
The answer is: ‘It is a grey area’ that often comes down to compromise, mediation, or a court decision if a mutual agreement cannot be reached between all parties.
However, there are factors taken into consideration to determine the outcome.
A real hypothetical consideration of the above matter/s if taken to court:
If any parties dispute a cost, expense, or decision, the matter will generally end up in court for a magistrate or registrar to determine the outcome, which is always unknown.
The moral of this article is that it is good to have an educated understanding of anything that you invest in. It is good to fairly and reasonably compromise towards a win/win outcome. It is good to budget to upgrade your rental property fixtures and fittings in accordance with the ATO depreciation guideline schedules.