Depreciating chattels in rental properties
Often when tenants cause damage to chattels at a rental property or if something goes missing, it is expected that the tenant will pay for the replacement of the item. While this seems reasonable, this is not entirely accurate, and the fact is that a tenant will only be liable for the depreciated value of the chattel. Using the example below, the most appropriate method for calculating a depreciable amount for a claim for a household chattel, is by establishing the age of the item and the estimated useful life of the item.
Scenario
At the end of a tenancy, the landlord applied to the Tenancy Tribunal for the cost to replace the living room and bedroom curtains, which were missing at the end of the tenancy. The landlord claimed a depreciated sum of $479.00, reasoning that the amount to purchase new curtains was $576.00. The tenant accepted liability for the missing curtains but disputed the claim of $479.00 stating that the curtains were older than six years and were not in good condition when the tenancy commenced in January 2017. The tenant provided photographic evidence in support of their claim. After taking into consideration betterment and depreciation, the Tribunal awarded just $40.00 to compensate the landlord for the missing curtains. So, how did the Tribunal arrive at this figure?To calculate the sum to be deducted from the cost to replace items such as curtains, betterment or depreciation must be considered. This requires taking into account the age and condition of the curtains at the start of the tenancy and their likely useful lifespan. In this case, the Tribunal held that curtains were expected to last for 8 years before requiring replacement.Considering the estimated useful life of only 8 years and the tenant’s evidence that the curtains were over 6 years old and not new at beginning of tenancy, the Tribunal held that the sum of $40.00 would be reasonable to compensate the landlord for the missing curtains.
The IRD’s website provides the estimated useful life of chattels in a residential property. Landlords and Property Managers should retain copies of receipts when purchasing chattels so that there is a record of when the item/s are purchased. The condition of the chattel should be documented on the ingoing condition report, including photographs at the commencement of a tenancy.These articles were featured in Property Management Focus Issue 2, 2023
