Even good tenants can accidentally damage something in the home and every investor at some stage has to work with their property manager to decide what deductions to try to claim from the tenant’s bond.
Factors affecting the amount include:
- The extent of the damage. Is the item still usable or does it need to be replaced?
- The area of the damage. Does it affect the whole area, such as a broken window, or is it only part of an area like a stain in a carpeted room?
- The age of the item. Assets within the property have an ‘effective life’ determined by the Australian Taxation Office. For example, carpet has an effective life of ten years. (for more on this, see our article ‘Effective Life and how to take advantage of it’)
- The original condition of the item/how much the new damage has reduced the property’s appeal or value.
There is not always a concrete calculation for what a tenant must pay in damages. A broken window would generally require the tenant to pay the full cost of repair. As the property owner you may choose to claim this on your insurance and charge the tenant for the excess if that will be less expensive.
But for items that are not completely damaged, you’ll work with your property manager to determine an amount you would be happy with, and you should be prepared to negotiate with the tenant. If the matter goes to the Magistrate’s Court, they will always try to achieve a result through negotiation first, plus the claim will be subject to the same factors as described below.
We make our recommendations based on the full cost of replacing the item, then reducing that amount by roughly the area damaged (ie the stain affects around 15% of the room) and the age of the item (ie this carpet is only 12 months old). Contrary to common belief, you can’t charge a tenant to replace an entire room of carpet because they have caused one stain, even if the carpet was brand new when they moved in and even though you feel that the stain detracts from the appearance of the whole room. If, for example, the carpet in the property is quite old, has numerous stains and is in need of replacement regardless of whether this tenant had added one more stain or not, then the recommendation for damages will be a lot less. In most cases, the situation falls somewhere in the middle – carpet that is not new but not too old, and without a lot of stains originally.
Simply by living in the home each tenant will cause some wear and tear. Claiming costs for each item of damage over and above ‘fair wear and tear’ is considered to give you contributions over several years towards the eventual replacement cost of items in the home.