Q

I have a granny flat on the ground floor of my house that I rent to boarders with a boarding agreement. Recently I had a boarder for over a year who, when she left, went to the Council and told them we had an illegal apartment.

The Council sent an inspector round and found the shower and a sink had no permit, but that there was nothing else wrong with the building itself. We were completely unaware of this and engaged with the Council immediately to sort it out. The Council said the shower was installed pre ‘91, so doesn’t need permitting, but the sink does need a COA, which we are working to obtain. Our former boarder has now gone to the Tenancy Tribunal and is claiming exemplary damages. How likely am I to be fined? What’s the best way to proceed?

A

The Tenancy Tribunal will assess whether the arrangement you had is covered by the Residential Tenancies Act (RTA). If it is covered then the Tribunal will have jurisdiction as this person would be a tenant rather than a boarder. A boarder is someone who lives with and shares the house and facilities with you.

If the application is covered under the RTA, and a hearing is scheduled, you will need to bring any evidence that supports your side of the dispute. In this instance this would include any correspondence you have had with the Council and other documentation relating to the dispute. You should have two extra copies of all evidence ready for the adjudicator and the other person.

Exemplary damages can be awarded under the RTA if the breach is an unlawful act. Exemplary damages can’t be awarded for “ordinary” breaches that are not an unlawful act, but the Tribunal can still make other orders, including an order for compensation. Schedule 1A of the RTA lists maximum amounts that can be awarded by the Tenancy Tribunal for certain unlawful acts.

The Tenancy Tribunal will consider the intent of the landlord, how serious the unlawful act is, and the impact it has had on the affected person when making a decision about whether to award exemplary damages and the appropriate amount to be awarded (if any).

- Jennifer Sykes

Calculating Equity

Q

My owner occupier house is worth $500,000 and my rental property is worth $400,000. I owe $600,000 to my bank. How do I calculate how much the bank would lend me for a) a second rental house (to rent) and b) a third house to live in (ie if my current house becomes second rental)?

A

Firstly, note that there will be other criteria outside of your equity position that you will also need to satisfy. But, based on the information that you have provided, you have $80,000 of unutilised equity when looking at bank criteria (and non-bank options may enable you to push further).

The way to look at this – from a bank point of view – is as follows: Your personal home can be leveraged to 80% which is $400,000 and your rental property can be leveraged to 70% which is $280,000. These figures combined are $680,000 which, when you take the $600,000 total mortgage figure away, leaves $80,000 which you can use for further deposit funds.

If you were to purchase another rental this would give you a maximum purchase price of $267,000. To calculate this, you take the $80,000, then divide by three and times by 10 which shows you how much the $80,000 as a deposit will give you.

I presume you have both of your existing properties with the same bank. If this is the case, if you look to purchase a new property they are going to assess both of your existing properties at 70% of their combined values or $630,000. This would only leave you a $30,000 deposit for the purchase of a new home. But if they are currently with different banks there may be other options.

- Kris Pedersen

Non-Resident Ail Queries

Q

I’m a non-resident and I earn interest from term deposits with BNZ. I also receive rental income from some apartments in Auckland. Recently, I read somewhere that as a non-resident I can opt to pay 2% Approved Insurer Levy (AIL) for my bank interest instead of paying the NRWT. I would like to know if I am really better off choosing AIL? Also, is there any catch given that I also need to pay New Zealand tax for my rental income? The country I reside in has a double tax agreement with New Zealand.

A

Let’s start by confirming some basics for all readers. When a non-resident earns interest from New Zealand, they are subject to non-resident withholding tax (NRWT) by default. The rate is generally 10% but depends on the country they live in.

However, there is an exception to the default if you elect to pay a 2% Approved Issuer Levy (AIL). On the face of it, you are better off being subjected to the 2% AIL than suffering NRWT deductions.

Generally, the only instance where it would be better to pay a higher amount of NRWT is where you have to return the interest as taxable income in your country of residence and that country permits a tax credit for NRWT but not for the 2% AIL. Because the 2% AIL is not seen as a form of income tax by all jurisdictions, it is sometimes not possible to claim it as a credit.

Of course, if you do not have to pay tax on the interest in your country of residence, then you do not face this issue and you are better off paying the 2% AIL. The fact that you have rental property is neither here nor there in this scenario.

- Matthew Gilligan

Mould Liability

Q

The tenants in my property have used a drier in the laundry, unventilated for three months. This has led to a great deal of mould and peeling paint. Prior to this, the threemonthly inspection reports for this tenant were clear that there was no damage/ mould anywhere in the house. The reports covering the six years before (for the previous tenants) also confirm this.

But, unknown to me, the EQC painting in this area seven years ago was substandard - so when there was excess unventilated moisture, mould grew and paint peeled. There is a strong communication trail from the property manager showing requests that the property be ventilated. There are also neighbour reports that the curtains and windows were never opened.

I accept the painting of the laundry is a contributing factor and my responsibility. But my property manager tells me that the tenants are not liable for anything at all. That’s because they “didn’t understand” what they were doing and the initial paint job negates them fully.

A

It’s curious that for six years there were no mould issues and in the last three months there has been a mould problem. I’m surprised that a paint job seven years ago can last six years and then fail in three months. The common denominator seems to be the tenants using a drier in an unventilated room. The suggestion the tenants are not liable because they “didn’t understand” what they were doing is rather facile. The correspondence from the property manager and the evidence of neighbours should help to establish the cause of the mould. I don’t think the paint job can absolve the tenants from responsibility of acting with care and attention to prevent mould.

- Bernard Parker

GST Registration

Q

I own a few apartments in Auckland. One of these is in a hotel pool but I did not register I own a few apartments in Auckland. One of these is in a hotel pool but I did not registerfor GST at the time of purchase. The rest are residential apartments which I lease out. The hotel pool apartment gives me less than $15,000 net income per year. But including rental income from the other residential apartments I own, my net total rental income for the last 12 months is more than $60,000. Do I have to register for GST now?

A

No. Residential rental on long term tenancy is an exempt activity for GST. Only the income from properties where a commercial taxable activity is being undertaken need be considered for GST. This could include the residential properties if they were rented short-term, but that does not seem to be your activity. Note the $60,000 threshold is gross income not net income and I imagine that you are below this with a single property.

- Mark Withers

Rising Premiums

Q

Why have my property insurance premiums suddenly increased?

A

There are a number of reasons why premiums may have seen a recent rise. Some of those may be associated with your insurer passing on costs such as recent claims and securing reinsurance, but the most recent hike will be due to increases in government levies.

Levies are charges that are applied to insurance premiums and paid to the Government by insurers. They help cover the cost of services such as the Earthquake Commission (EQC) and Fire and Emergency New Zealand. Effective from July 1, the EQC Levy increased by between $69 and $115 per house.

Many insurers have now changed to a risk-based pricing model, which has affected how they calculate premiums. If you buy a risky home or a property in an area prone to disaster, this risk will be reflected in a higher premium specifically for you.

Reinsurers are also re-examining New Zealand’s risk exposure to natural disasters. This might mean further increases may be on the horizon. - Rene Swindley