Q

How can I complain about a property manager? My property was damaged badly by the tenants but because my property manager didn’t take photos I am unable to take them or the tenant to the Tenancy Tribunal. No photos were taken from 2016 (when the tenant moved in) until 2018. I have told the property manager to hold the bond.

A

Your property manager is contracted as your agent and is required to act on your behalf. I suggest you look at the agreement that you signed when appointing the property manager. If it is clear that the property

manager has not fulfilled the requirements of their contract, you may decide to make an application to the Disputes Tribunal for a claim against the property manager. (The Tenancy Tribunal is only for disputes between the landlord and the tenant.)

The bond is security for judgements against the tenant. If you want to claim any part of it and the tenant does not agree, you will need to take your dispute to the Tenancy Tribunal. I should point out that the absence of photos from the start of the tenancy does not necessarily stop you taking action against the tenant in the Tenancy Tribunal. However, such photos are very useful as baseline evidence in helping the Tribunal decide whether any damage occurred since the start of tenancy. You may have to rely on other evidence, such as regular inspection reports.- Bernard Parker

Best rental structure

Q

My wife and I currently own two houses under my name. One is our personal home and the other one is rented out. We have owned the rental for five years and our own home for four years.

We are looking at buying another property to live in and renting our current house out. We would like to try and use equity from both houses to decrease our mortgage on our new home. What would be the best structure to own our rentals in whilst getting the best tax advantage? If we were to use a company structure and sell our properties to the company at market value, what portion of the loan’s interest is tax deductible if any?

A

I see the best structure here involving a family trust and a rental company. You should settle the new home directly into the trust. In order to protect as much equity as possible and have your bank debt structured effectively, you should sell the two existing properties to the company.

The company takes on bank borrowing up to the purchase price of the two properties. Interest on all of this borrowing will be deductible as the company will be regarded as having borrowed the money in order to buy the rental properties.

As with all things in tax there are hidden hooks. You have mentioned that you have owned both of these properties for at least four years, meaning that you will not trigger a bright-line gain on sale to the company. However, there are other tax provisions that could see tax payable and you would need to have that checked before you proceed. There is also the possibility of depreciation recovery.

Finally, you need to acknowledge that you will trigger a fresh start to a five-year bright-line clock on transfer. In summary, there is advantage in moving the two existing properties into a company, but you need to tread carefully.- Matthew Gilligan

Getting into investing

Q

I have a freehold house in Birkenhead, Auckland. The last RV was $1.51 million. Given current low interest rates and the slowdown of the North Shore market, I’m thinking it might be a good time to look at investing in a rental property. What would be your advice on this?

A

Low interest rates are definitely making the cashflow side of property investment look better at the moment. But there is much more you need to take into consideration as well. What are you trying to achieve by investing in property? What are your timeframes? You have a great equity position but what is your household income like (as this will play a factor as well)? Have a think about what type of property and what region will assist you best in achieving your goals. At a high level, it’s always a good time to buy as long as you buy right. However, make sure to spend some time determining this first. - Kris Pedersen

Swapping old for new

Q

We are removing an old rented house off a property and are buying a new transportable home to replace it (a top spec cabin to be exact). Can we claim depreciation on the brand-new cabin/house at all? And do we need to write off the value of the old house so that we are not obligated for clawback of historical depreciation claimed against it?

A

The old house should be disposed of for its scrap value. This will presumably be below its book value. This then establishes that no depreciation on the old house is recoverable but there is no deduction for the loss on disposal. If the new dwelling is a permanent house rather than a transportable building like a tiny house, for example, there is no depreciation on the building. But separately identifiable chattels that are not attached to the building may be able to be separately identified and depreciated as they are not “building” assets.- Mark Withers

New landlord woes

Q

I’m a new landlord and have already made plenty of mistakes (which I’d prefer not to have pointed out to me!). I’m now in a mess with a tenant who isn’t paying his rent. He currently owes me over $3,000 and has now stopped making excuses, promises, and apologies. I’ve rented my house to him for a fixed five-month term while I’m overseas, so I can’t go around and talk with him. Now I’m told by a friend that things are going missing from the property, including a dozen wooden sleepers that were garden edging.

How can I make him pay? How can I get my stuff back? How can I get rid of him? We have a proper fixed-term tenancy agreement but Tenancy Services dispute resolution processes seem so slow that I’ll be home before I get through the process. I can’t afford to have the house not paying for itself in my absence. I am not an investor, just someone on a low income who has ongoing bills to pay in my absence and has no other income at the moment.

A

If a landlord is overseas for more than 21 consecutive days, they must appoint an agent to manage the property for them. If they do not, they are in breach of the Residential Tenancies Act. The agent must be someone in New Zealand who can manage the property while the landlord is away. An agent can help manage the property and take action to resolve issues early.

It is the tenant’s responsibility to pay their rent on time, when it is due, according to the tenancy agreement. If the landlord is in a position where rent is 21 days or more in arrears, possessions have been taken from their property and contact with the tenant isn’t working, the landlord has the option to apply direct to the Tenancy Tribunal.

It is recommended that you include relevant documentation and evidence to support your claim of rent arrears if you proceed with lodging an application to the Tenancy Tribunal. Documentation may include: a copy of the tenancy agreement, a statement of the rent position to prove the amount of rent in arrears, bank statements, a copy of a police report, photos from before and after showing the missing sleepers, and any correspondence between the landlord and the tenant about this issue. The landlord needs to be able to represent themselves in a Tenancy Tribunal hearing either in person or via their appointed agent. - Jennifer Sykes

Shortfall liability

Q

We have tenanted a small one-bed studio. During the tenant’s occupation a pipe burst, flooding the bedroom. The tenant temporarily vacated. We removed the carpets and placed a dryer/blower overnight. We arrived next morning to find the appliance had failed and caused a fire resulting in extensive smoke damage to the tenant’s possessions. The tenant was reportedly underinsured by some $10,000 and is pursuing reimbursement. Are we liable for the shortfall of our tenant’s insurance?

A

My initial reaction is no, you are not liable to your tenant. But as there are a whole set of legal principles that underpin the determination of liability (in this case a landlord to its tenant), it’s unfortunately not that straightforward. In the scenario you have described it appears that unless the tenant can prove that you knew the heater was faulty or that you used the wrong type of heater for the job, then it is unlikely that the tenant (or their insurer) can hold you liable for their loss.

So my advice is that you shouldn’t be rushing to take responsibility for this. There is a process and, sometimes, a cost involved in determining liability between parties. That’s why it is important that you have a robust rental property insurance policy with landlord’s liability cover, which means that your insurer will step in to represent and protect you. If you do have landlord’s liability cover, make sure that you advise your insurer at the first sign of the tenant’s attempt to hold you responsible. - Rene Swindley