Q

I have a property that was baseline meth tested 10 days after my old tenants vacated and six days before the new tenants took over the tenancy. During the 16-day period between tenants only my property manager had access to the property. Now the “new tenants” have moved out and the property has failed a meth test. Am I able to hold my “new tenants” liable in this situation?

A

Tenants who smoke, sell or manufacture meth in a rental property are using the property for an unlawful purpose and are in breach of the Residential Tenancies Act. This also breaches a tenant’s obligation not to intentionally or carelessly damage the premise.

A landlord will need to apply to the Tenancy Tribunal if looking to hold tenants liable for contamination of a premise. Before deciding to take a meth-related claim to the Tribunal, a landlord would need to be able to provide clear evidence that satisfies the Tribunal that the premises are contaminated.

The landlord will also need to provide clear evidence that the contamination was caused by the tenant and that the premises were not contaminated before the tenancy started. This could include the baseline test before the tenancy started and the test results at the end of the tenancy. It is also recommended for a landlord to seek independent legal advice and speak to their insurance company about additional options.

Please note, these responses apply under normal circumstances. Under the current Covid-19 crisis, you must continue to comply with any applicable lockdown rules and guidelines. That includes recent changes in tenancy legislation, like the freeze on rent increases and protections against tenancy terminations. - Jennifer Sykes

Loan Structure Split

Q

We currently have a home and income property. We live in the three-bedroom flat and rent out the two-bedroom flat. Based on the floor area, the rental is about 36% of the whole property. Can we structure our home loan based on its market value at 36%/64% ratio?

We’d set the 34% at interest only and the rest with fixed/offset so we can pay off the main house where we live faster. I understand we can claim expenses including interest rates in the rental but not with the house we live in.

A

No I don’t believe that arrangement would stack up as all the lending was used to buy the entire property. The arrangement may have worked if there was shared ownership with a tenants in a common arrangement but not where one loan originally was used to buy the entire property. You can claim the interest in relation to the percentage of the rented portion, along with other costs like rates and insurance. - Mark Withers

Fixed To Periodic Tenancy

Q

When a fixed-term tenancy rolls over onto a periodic tenancy, how much notice must the tenant give to vacate? My property manager says tenants can give 21 days’ notice to leave at any time from 21 days before the end of the fixed term tenancy. Is this correct?

My reading of the law is that unless, between 90 and 21 days before the end of the fixed term tenancy, the parties have agreed to either extend/renew the fixed term tenancy or terminate it at expiry, then the tenancy becomes periodic on expiry of the fixed term. This implies that the rules for periodic tenancies, including tenant’s right to give 21 days’ notice to vacate, only apply from the date it rolls over.

A

Between 90 and 21 days before the end of a fixed term tenancy the landlord must advise the tenant whether the tenancy is available for renewal. Then, at least 21 days before the end date, the tenant must give notice that they do not intend to continue the tenancy. These are the means by which either party can terminate the tenancy on the scheduled date.

If the landlord does not advise the tenant within the designated “window”the tenancy becomes periodic on the expiry date. If the landlord notifies the tenant that a fixed term extension is available but the tenant does not bother to reply, the tenancy ends on schedule (because the landlord’s offer has not been accepted).

Once a tenancy becomes periodic, the normal rules about notice will apply. That means that on the chosen departure date the tenant must have previously given 21 days’ notice. (In other words, notice may be given within the 21 days before the fixed term end date, and the tenancy ends in the expiry of that 21-day notice.) - Bernard Parker

Re-Ordering Portfolio

Q

I have a number of properties and businesses which I’ve sporadically acquired over the years and I want to get them more ordered. I currently have our family home with a minor dwelling in our own names. Another two rental properties (already past the bright-line test) are in our own names. A third rental is in a limited liability company (and I will elect to change it into an LTC once current losses are used up).

Our strategy is to buy and hold positively geared multi-unit rentals. We’re not looking at trading or selling. I assume it’s best to transfer the two rentals in our name to the LTC? I also own three separate limited companies. How can I protect my own family home and rental properties from any business risk/liabilities?

A

There are multiple issues here so, due to space limitation, I am going to make some general comments. You are conscious of risk that you carry personally (as director of business companies). This means the objective from an asset protection perspective is to move capital out of your hands personally.

I see a two-trust structure as appropriate. A “family” trust is used to own the home. A “business” trust is employed to own the shares in business companies. Doing so protects the shares from your personal risk. (Imagine that one of your businesses fails and you were sued as a director - you would not want the shares in other companies to be vulnerable to this.)

It is likely worth transferring the rentals held personally to the rental company, but there are tax consequences to consider such as a reset of the bright-line clock. There are other intricacies here, including tax consequences of moving shares (you can forfeit tax losses and/or tax credits), possible split ownership of the home given it is part rental, protecting shareholder loans and getting the optimal finance structure in place to name just a few.

I suggest you get expert asset planning advice to cover this array of issues sooner rather than later. - Matthew Gilligan

Working Out Next Move

Q

I purchased a two-bedroom home in Masterton in 2013 for $130,000. The mortgage is still $130,000. It is rented for $200 a week, which is cheap but the tenant is fantastic. I had a valuation done in 2017 which came up at $170,000.

The valuation said that with an updated bathroom, interior paint, tidy up, and a new roof it would value at $220,000. It meets the new regulations, but it is a bit rough. A new roof is happening this winter, and I put in a heat pump and insulation a few years ago.

My tenant is moving on in about a year so I thought it wise to plan my next move. I was planning to add a garage/sleepout for $40,000 and spend around $15,000 on a cheap kitset bathroom. I was also planning to refresh the interior with new lights and paint. If all goes to plan I’m hoping I’ll have $150,000 equity on a new valuation after that.

I misspent my 20s having fun, but I want to get serious now that I’m 30. What’s your advice on how to make a great leap from my point now and improve my position? I’m a beekeeper on $60,000 and I get three months off in winter.

A

If your mortgage stays at $130,000 and you end up with the $150,000 equity you mention without further debt funding you’ll have a property worth $280,000. With the LVR change back to 80% for investment this may mean you have circa $94,000 of unutilised equity.

From an equity point of view again if 80% funding is available this means you have purchasing power of $470,000. The affordability issue which you will also have to satisfy to get reasonably priced funding I can’t answer here as more detail is required in regards to your position.

I would recommend gaining understanding on how banks or near bank funders will assess your position from this side. Then you can understand what your purchasing options are and make some plans and set some goals to move forward from there. - Kris Pedersen