Depreciating Chattels in Rental Properties: Understanding Tenant Liability

When tenants cause damage to or misplace chattels in a rental property, it is often assumed that they must pay for the full replacement cost. However, tenants are only liable for the depreciated value of the chattel, not its full replacement value. To determine the depreciable amount, landlords must account for the age, condition, and useful life of the item.

Example Scenario

In a recent Tenancy Tribunal case:

• A landlord sought $479.00 for missing living room and bedroom curtains, claiming the replacement cost was $576.00.
• The tenant accepted responsibility but argued the curtains were over six years old and in poor condition at the start of the tenancy in January 2017.
• The Tribunal considered depreciation and betterment, determining the curtains had an 8-year useful life. Given their age and condition, the Tribunal awarded the landlord only $40.00.

This calculation demonstrates the importance of factoring in betterment and depreciation when assessing tenant liability.

Tips for Landlords

1. Understand Chattel Lifespan: Refer to the IRD’s guidelines on useful life for residential chattels. For example, curtains have an estimated lifespan of 8 years.
2. Document Chattel Condition:
   • Include the condition of chattels in the ingoing condition report.
   • Use photographs to create a detailed record at the tenancy’s commencement.
3. Retain Receipts: Keep purchase receipts for chattels to confirm the date of purchase and original cost.

Why Depreciation Matters

Depreciation ensures a fair resolution for both landlords and tenants. While landlords cannot claim the full replacement cost for older items, they are compensated for the remaining useful value of the chattel. This method prevents overcompensation (betterment) and ensures tenants are not unfairly burdened.For more insights, visit Harcourts' guide on depreciating chattels.