In The Know - Property Management
28 August 2019
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Insurance information to be included in all new tenancy agreements as of 27 August 2019
Under the new Residential Tenancies Amendment Act 2019, tenant liability for careless damage in rental properties is limited to the landlord’s policy excess or four weeks’ rent (whichever is lower).
As of 27 August 2019, landlords and property managers are now required to include insurance information for their rental premises in every new tenancy agreement.
The insurance information must stipulate:
1. Whether the property is insured; and
2. What the excess amount is.
Failure to comply with this obligation is deemed an unlawful act and can attract a penalty of up to $500.
It is recommended that property managers request a copy of the landlord’s insurance policy to help fulfil this obligation.
To access the Insurance Statement template by Tenancy Services, click here.
Unlawful residential premises
The amendment has also provided that as of 27 August 2019, the Tenancy Tribunal will also have full jurisdiction over cases concerning unlawful premises.
Contamination of rental properties
New regulations will also be developed over the next year prescribing the acceptable level for contaminants such as methamphetamine. The regulations will also prescribe the processes for testing and decontamination of contaminants.
REINZ will be releasing an Information Sheet on the changes soon.
Landlords and tax expenses
Withers Tsang, who presented at the REINZ Residential Property Management Conference, have helpfully put together a list of the most common questions landlords ask an accountant.
The most common question landlords ask an accountant is, “what expenses can I claim against my rent?”.
It’s easy to hand over a list that includes interest, rates, insurance, body corporate fees, and repairs and maintenance, as these are obvious property related expenses.
The problem with a list though is that it leads to the question; “what about?” and so on.
The gold is understanding the principals of deductibility so that you can use the same tools as the accountant to determine whether a cost is claimable.
There are three limbs to it. Firstly, the general principal of Nexus. Is the cost linked in some way to the generation of the rent or necessarily incurred to earn rent? If you have a nexus or link between the cost and the rent you are over the first hurdle. Next you must apply the capital limitation. This test asks whether the asset is improved rather than simply repaired. This is often the tricky one for landlords as improvements are no longer depreciable, so there is a strong motivation to categorise as repairs. Step one is to “identify the asset”. Ask “is the work creating a new standalone asset or is it maintaining an existing one?” and “is the asset the building or is it something else?”. Next assess whether the extent and degree of the work goes beyond what could be considered fair wear and tear. Understand also that work done after acquisition but before a property is let or work done after a tenant leaves ahead of a property being sold, will usually be either capital expenditure or have lost its nexus with earning more rental income and render the cost non-deductible.
Lastly, consider whether the expenditure is private or domestic. If it’s too closely related to your personal expenditure, it will be non-deductible. An example of this might be the landlord arguing their new glasses were needed to read the tenancy agreement that relates to them earning rent but equally, they need their glasses for personal wellbeing also so the expenditure does not jump the private or domestic hurdle.
If it all proves too hard - call your accountant.
Case Update: Property manager fails to meet insulation deadline
The tenants in this case claimed that the property manager failed to install appropriate insulation in the rental premises.
What happened?
The tenants had been living in the property with their children since 21 May 2016. The tenant (mother) had first raised the lack of insulation with the former property manager around a year ago and offered her community services card to reduce the cost of installing insulation. She claimed that this was ignored.
The former property manager resigned from her position at the end of June 2019 and this was taken over by the new property manager.
An assessment had been carried out by a qualified professional which established that the ceiling insulation was deficient and that there was no underfloor insulation.
The tenancy commenced before 1 July 2019 therefore, the Residential Tenancies (Smoke Alarms and Insulation) Regulations 2016 were applicable.
Ceiling and underfloor insulation must be installed under Insulation Regulations from 1 July 2019.
The Tenancy Tribunal found that the property manager had breached its obligation to provide the qualifying insulation.
Exemplary Damages
Failure to comply with the Insulation Regulations is an unlawful act and can attract a penalty of up to $4,000 in exemplary damages.
The Tribunal needed to determine whether the property manager had committed the unlawful act intentionally, and then if it would be just to do so, having regard of the party’s intent, the effect of the unlawful act, the interests of the other party and the public interest, to award exemplary damages.
The Tribunal found that the unlawful act was intentional because the property manager was fully aware that insulation was a requirement. The Tribunal noted the strong public interest in deterring failure to comply with this obligation. The Tribunal further stated that the interests of the tenants were not served. A mitigating factor had been taken into account in that, a qualified professional was sent in May 2019 to undertake an assessment, but the tenants had a medical emergency and therefore, access was unavailable.
Tips:
- Prior to taking over a rental property, property managers need to ensure that the property is compliant with all legal requirements and in particular, the Insulation Regulations.
Property Management Roadshow
Hamilton - The RTA and Keeping Safe Around Dogs - LAST CHANCE
Wednesday 4 September
Book now
Christchurch - The RTA and Keeping Safe Around Dogs
Wednesday 25 September
Book now
Residential Property Management Qualification - Second Intake
Due to high demand, there will be a second intake starting 9 September. Only one week left to register.
REINZ Residential Rental Review - July 2019
The July REINZ Residential Rental Review is available here.
Finding the right tenant - what information should I not collect?
