When You're Not Happy With The Finish
A walk-through of a new build can reveal problems, but how you are placed over withholding money can vary.
28 February 2023
Q I’m buying a new build, which is coming up for settlement. I did a walk-through as part of a pre-settlement inspection, and there are a few things I’m not happy with. Am I able to withhold some of the money until they fix them?
A This will depend on the terms of your contract with the builder/developer. While the builder/developer is usually obliged to undertake construction work to a proper and workmanlike manner and be free from defects, often your contract will require payments that are due and owing to be made “without counterclaim, set-off or deduction” or something to that effect.
The courts have said these types of clauses require you to pay the amount that is due and owing first and then make your claim against the builder/ developer later. In some cases the defects may be of such an extent that the payment obligation on completion is not yet triggered, but often new build contracts are drafted broadly
and completion may still be achieved even if some defective work exists. The builder/developer is also usually entitled to a reasonable opportunity to repair the defects before you are able to get someone else to do the work and bring a claim against the builder/developer for those costs.
All of this does not prevent you from reaching an alternative agreement with the builder/developer to withhold some funds pending the completion of work, but usually they are hesitant to do so because cash flow may be tight and they may have their own funders they need to pay on completion. Under some agreements for sale and purchase there may also be a mechanism to resolve claims for deduction in prices on an interim basis. These issues are often resolved on short notice and with comparably low legal fees. This could be an option if you wish to deduct an amount.
Finally, the legal position may be affected by the Construction Contracts Act 2002. This has a prescriptive regime for payments in construction contracts where payment schedules are issued. Some new build contracts could be construction contracts. If this is the case the payment claim/payment schedule regime changes the way liability for payment works. Because of the large volume of different contracts, this answer can only be general. If you do need particular assistance you should get legal advice. - Shane Campbell
Q I made a mistake and rented my house to a person who is a gang member and his partner. I didn’t know they were involved with gangs when I rented to them. Soon after they moved in they started causing problems with the neighbours and they have caused damage. When I tried to speak to them about this, they threatened me. Because they are gang members I am now scared to go to the property. Over the weekend the female partner sent me a text to say she was moving out because she had been beaten up by her partner. She included a photo of a police safety order which says she was assaulted. I’m happy for them to leave, but what are my rights?
A Not surprisingly, when gang members want a new rental property they do all they can to hide their affiliations. It’s not uncommon for them to use their female partners to do a lot or all of the initial application process. In the case you have outlined, the female tenant is able to remove herself from the tenancy by giving you
two days’ notice (in the approved form) along with qualifying evidence of the violence. The police documentation you have been provided with will suffice in this case provided it identifies the tenant and the fact she has been the subject of violence.
However, a text is not an approved form of notification to a landlord. The notification must be in writing and sent to an email address, PO Box, or fax number if it is listed on the tenancy agreement as an additional address for service or sent to by post or delivered to the physical address for service listed on the tenancy sgreement, or hand delivered (by anyone).
I suggest you contact the female tenant and advise her that you will accept her notice that she’s leaving the property provided you receive the notice in the approved form. You could even provide it to her in the approved form and just have her sign it. With her gone it may be easier for you to convince her male partner to end the tenancy. Previous behaviour is often a good indication of future behaviour, so you are best to cut your losses and try to have them end the tenancy by agreement. Unfortunately, the law doesn’t allow you to end the tenancy due to threats made to you. The law only allows you to end the tenancy if you or a member of your family or your agent have been physically assaulted by the tenant and the police have charged the tenant with the assault. - Ryan Weir
‘Not surprisingly, when gang members want a new rental property they do all they can to hide their affiliations’ RYAN WEIR
Q I have inherited a rural property with three bare land titles and another title with a house on it. If I sell three bare land titles individually and then apply to the council to split the title with the house on it into two titles, will there be tax implications?
A While inherited land is exempt from bright-line it’s important to remember there are numerous taxing provisions that can tax the development or division of land into lots. The most commonly applied section is CB 12, which poses the question was the land developed or divided within 10 years of acquisition and was the work
more than minor? This section in turn is covered by several exemptions that deal with whether the land was the residence of the taxpayer and whether the division
was done to enable the taxpayer to live on the land.
There are also exemptions where land is developed or divided to enable the taxpayer to derive rent, rather than sell the land. In an inheritance situation the
land is deemed to have been acquired for its market value, so profit, if any, is measured relative to the market value of the land acquired. There is also the matter of association and whether the acquisition date of the land may in fact be outside 10 years by virtue of association to the person the land was inherited from. Even if beyond 10 years, there is a catch-all taxing provision that is triggered in CB 13 if the development work includes major expenditure on earthworks and roading,
which is often the case with the division of rural land.
CB 13 has no 10-year time limit to its application, so the answer to your question is that there are potentially tax issues every time you undertake a subdivision, but whether tax applies to your specific situation requires a much more in-depth analysis of the facts and the proposed scheme of division before a view could be ormed on the tax position. Seek advice. - Mark Withers
Q I’m really concerned about rising interest rates. Any tips on how I can manage cash flow for the mortgages on my investments and home?
A Many borrowers are getting concerned as not many people saw interest rates increasing at the rate they have. If you are paying principal as part of your mortgage payments then you may want to consider moving to interest-only payments which will reduce the payment amount. If this is not an option you may want to see if you can extend the loan term out, which can also reduce your payments. Another point to consider is refinancing as potentially moving to another lender can result in you receiving a cash contribution from the new lender which you can then use towards the payments. - Kris Pedersen
Q Now that Jacinda Ardern has stepped down, do you think it’s more likely interest deductibility will be repealed?
A Labour is unlikely to repeal the rule at this stage. Our only hope is a National-ACT government in October – both parties are campaigning on tax policy to repeal the interest non-deduction rules. However, neither ACT nor National have discussed reversing loss ring-fencing, which is a concern. I suggest everyone raise this with their local National and ACT representatives and elevate it as an issue. - Matthew Gilligan