Merry Christmas: New Zealand Property Management Tips

While you are away on holiday, you are still a landlord. The rent still has to be received and urgent repairs made during the Christmas New Year period. Hopefully these holiday smart tips will help keep you on top of everything while you are soaking up the sun and enjoying a well-deserved break.

Rent arrears
Rent arrears are a common problem during this time of the year. Holiday expenses can mount up very quickly not just for us but also for our tenants. Addressing the arrears promptly will ensure that you are not out of pocket during this tricky time of the year.

1. Before you head off anywhere, exchange holiday contact details with your tenants. Find out their best contact phone numbers, addresses and emails. You may also want to find out whether they will have Internet access just in case you need to contact them by email.
2. Take a copy of your rent ledger with you on holiday and continue updating it on the days the rents fall due.
3. Take a template 14 days rent arrear notice with you and issue it to your tenant as soon as the rent has fallen behind.
4. Have the web link to the Tenancy Tribunal online application page and a credit card handy so that you can file a Tribunal application for rent arrears in respect of the 14 days notice you issued above. Applying for a hearing promptly will get you in the queue sooner than those who wait until they return from their holidays to deal with tenancy problems. The current Tribunal wait time is 4-6 weeks. This estimate is only going to get longer on the 16th of January when most people return from their holidays. You are always able to withdraw the application if your tenant remedies the arrear.
5. Make sure you have an electronic copy of your tenancy agreement with you and also your bond number as you will need these documents when making a Tribunal application.

Repairs
Just as you would expect your tenant to continue paying rent, your tenant will expect you to respond to their repair needs promptly. With the traditional December/January shut down, make sure you stay organised even when you are on holiday.

1. Give your tenants your various holiday contact details in case urgent repairs are needed. Let them know how often you will be checking your messages so they know when to expect a response from you.
2. Take a list of tradesmen who work through the Christmas New Years period, their contact details and holiday prices with you so you can order work remotely.
3. Prioritise urgent repairs from those that can wait until you return from your holiday. Scotney Williams, says that there is no hard and fast rule as to what is or is not an urgent repair. ‘Clearly, the things that fall into the category of “urgent repair” would be blocked sewage line, septic tanks, outfall pipes and failed water cylinders. These things should be fixed within 24 hours if possible. A broken stove should be fixed promptly within a matter of two to four days as most people have a barbeque they can use to get by. Other repairs that will not have a serious impact on your tenant’s ability to enjoy the premises should be done within a reasonable period of time.’

Some useful tools to help you stay organised
1. If you are not inclined to holiday with your laptop, consider storing the documents above in a USB drive or use one of the many online file storage facilities such as Google Doc, Dropbox and Evernote.
2. There is no excuse not to check rent payments promptly. Use the 3G technology on your smart phone. Most banks now have downloadable apps for you to check your bank statement on the go. Most holiday destinations also have easy Internet access at a small fee. If you are uncomfortable checking your bank statements using a public portal, you can always ring your bank’s 0800 number and ask them to verbally confirm the deposits into your account.

Sarina Yang
Tenancy Practice Service
www.tenancypractice.co.nz
www.tpscreditcontrol.co.nz

When a property is owned by more than one person, who should sign the sale and purchase agreement?

Two or more individuals:
A spouse or de facto partner does not have the authority to sign the agreement for the other spouse or partner, unless one person has appointed the other as that person’s agent. It is possible for someone to have “implied authority”. This is where one person, by words or conduct, has lead a third party to believe that the other person has authority to act on that person’s behalf. However, it is best not to have to argue the point. It is safer to make sure that if there are two people on the other side of a deal, they both sign the contract.

Trusts:
A trust can only act through its’ trustess, and generally the trustees’ decisions must be unanimous (altough this can be varied by the trust deed).
All of the trustees of a trust must therefore sign an agreement, unless the trustees who do not sign have confirmed in writing that the trustee who does sign has been authorised by the non signing trustee to act on his or her behalf.

Companies:
Someone who has the expressed or implied authority of the expressed or implied authority of the company may bind the company. Therefore, even if there are two or more directors of a company, only one director needs to sign an agreement to bind the company.

Mike Toepfer – Aspiring Law

We are now well and truly in the silly season both with regards to Santa and Christmas parties and also renewing tenancies and re- renting properties due to become empty over the next couple of months. Make sure you are giving your property a thorough rental appraisal. Landlords need to keep increasing the rents each year even when good tenants are staying on both to cover the ever increasing costs and to keep the value up on the property. When deciding on the appropriate rents, take a fresh look at the property. Is it getting a bit tatty and could do with a tidy up? Is it lagging behind with regards to facilities and features? Many landlords wear rose tinted glasses. They forget that wear and tear is inevitable and a newly renovated property is only newly renovated just after the renovation. Good tenants may stay on for a few years and we all dread the day that those tenants decide to move on. Quite often they could be retained by making small improvements each year rather than waiting for them to leave and having to do a major renovation to achieve good rents.

Giving good quality existing tenants a reduced rent increase is perfectly acceptable as long as they are getting increases. Tell them what you would charge new tenants and what you will charge them. They appreciate the couple of dollars a week they are saving and each year that will compound for them. Often tenants who have been in a property a few years have no idea what current rents are. They also forget that it is expensive to move house and reminding them of some of the costs is also a good idea.

Some landlords’ formulas for increasing rents consists of an arbitrary figure added each year but it is important to know what properties are actually renting for. If that requires paying for a rental appraisal every few years to help ensure you are up to date on current rents then that is a cheap way to gather the information. Many landlords only have one or two properties and it takes as much time with one or two properties to remain educated as it does if you own 20 or 30 properties and lets face it, very few of us have lots of spare time. Contact us if you require an appraisal in Dunedin. Enjoy the festive season.

Tania and Kyle Elmer
Directors
Mana Property Management Ltd
www.ManaProperty.co.nz

Exciting times for Auckland’s planning.

The Auckland Council, formed from the amalgamation of the region’s 7 former District Councils and the Auckland Regional Council, is part way through possibly the most significant planning and resource management exercise in the region’s history, with the creation of a number of new planning documents and long term Council plans. The key ones for property investors being the Auckland Plan and the Unitary Plan.

Auckland Plan

The Auckland Plan, due for adoption and public release early in 2012, sets out the Council’s aspiration for the region’s growth and spatial development over the next 30 years and encompasses land use management, identification of areas for investigation and key capital projects. The Auckland Plan is accompanied by an Economic Development Strategy, City Centre Master Plan and a Waterfront Master Plan. The emphasis of these Plan’s are for the CBD and city fringe suburbs to be a focus for housing, retail and business growth (supported by the proposed City Rail Link) with significant growth also occurring in 13 identified Development Areas (as shown on the Detailed Development Strategy Map below). The plan targets that 75% of new houses built by 2040 will be within the existing Auckland urban area as defined by the Rural Urban Boundary which is intended to contain urban grown and stop sprawl into rural areas.

Unitary Plan

The Unitary Plan, due to be notified in early 2013, will replace the current 7 District Plans covering the area and the Auckland Regional Council’s Regional Policy Statements to create an overarching regulatory document containing the methods, rules and tools by which the vision of the Auckland Plan will be implemented. The Unitary Plan will be crucial to consider in terms of the effect it will have on the development rights of your property as it will include rules regarding density, lot sizes, height limits, parking, open space requirements and heritage protection. This is the plan that dictates what you can build and where and making sure that you protect the development potential of your land and buildings through engagement with the Council and by making submissions on the draft version of the Unitary Plan will be very important.

The Auckland Plan will give a good indication of the Council’s aspirations for the region and identify where Council will be investing in terms of infrastructure, public facilities and new public transport initiatives, all of which can help guide you on your property investment and development initiatives.

Merry Christmas and Best Wishes for 2012 from the team at Terra Nova Planning!

Cross lease titles were introduced around the 1970s as a temporary form of title however they have endured for far longer than what was originally anticipated. These titles each incorporate an undivided share of the underlying freehold land together with a 999 lease of the structures on the site which are shown on the flats plan as prepared by a surveyor. The initial advantages of cross lease titles were;

(a) They allowed for the division of head titles where a ‘subdivision’ could not be completed due to the area of the planned new Lots being under the minimum subdivisable levels allowed by the Local Authorities at that time. The minimum subdivisable levels have now been significantly reduced by the Local Authority allowing for subdivision of head titles into much smaller lots negating the need to complete cross lease subdivisions.

(b) Cross leases in the early days were not classed as ‘subdivisions’ therefore were not subject the same rules as ordinary subdivisions including the liability to pay the Local Authority Reserve Fund Contribution.

In today’s environment there is very little advantage to completing a cross lease subdivision and most people elect to complete subdivision of land into freehold titles.

IMPORTANT: When purchasing a cross lease title where additions and alterations have been carried out there are three issues to be mindful of;

1. Consent of Other Co-Lessors
1.1 Most cross leases contain a provision that any structural alterations to the leased structures must have the written consent of the other cross lease owners in that development. The absence of consent constitutes a breach of the cross lease. In addition clause 8.3 the current form of ADLS Agreement for Sale and Purchase provides for a ‘current consent’ to be obtained for any unauthorised structures.

2. Local Authority Consent
2.1 It is important to check that any additions or alterations have been permitted or consented to as appropriate by the Local Authority.

3. Cross Lease Title Defect
3.1 If additions and alterations have been carried out, which are attached to the leased structures and also enclosed creating a different footprint for the structure on site as appears on the legal flats plan then a defective title is created. This can only be remedied by a surveyor preparing a new flats plan, the Local Authority approving the plan, the defective lease surrendered and a new lease prepared. This can be a timely and expensive process. In addition the other cross lease unit owners will need to sign the surrender of lease and new lease documentation with their mortgagee’s consent also being required usually all at the cost of the owner with the defective title.

We advise you to proceed with care, and if in doubt consult us to help you though the process.

Feel free to contact Anne Needham on +64 9 3034089 or +64 (0)272266084

By Anne Needham: Urban Legal

With Christmas looming fast and the prospect of some sun, surf and relaxation on most of our minds now is a good time to ensure you have your rental maintenance or even for that matter home maintenance covered for the break and into 2011

There are some basic issues that many landlords overlook at this time of year that include burglar alarms if they are installed, security checks, providing emergency call out numbers for tenants if the property is not managed by a property manager and even small things like ensuring the tenant knows where the water main is on the property and how to shut it off and where the electrical switchboard is and how to turn on and off the breakers.

Let’s break these down so and ensure you have done everything so you can have a hassle free holiday from your tenant or property manager.

Burglar Alarms – If these are not monitored are they actually working and have they been recently tested (i.e. are the batteries ok?)The cost of a service call out is minimal just make sure you use a reputable company and someone local to the property if they need to attend again to keep your costs down. However if your alarm is monitored make sure it has been serviced and that the company monitoring it is actually doing just that (you pay for this service) and always make sure there are stickers on your windows and doors giving full warning that the property is alarmed as most burglars want an easy life so will move on to the next property. Make sure tenants and neighbours have the alarm company’s details in case the alarm is faulty so it can be sorted without you needing to be involved.

Security – Some locksmiths provide a residential security inspection service for around $100.00 which will cover all aspects of your property. This is one of our most popular services our company provides as not only does your tenant feel safe and secure in their home but you equally have knowledge that your property is secure and that it is less likely to be broken into as well. You are also able to provide your insurance company with a copy of the report should anything happen to your property to reinforce your diligence as a landlord and have any claims paid subsequently. Just make sure you do fix any items that are highlighted on the report. Security lights should always be operational as these are your second biggest deterrent after alarms. If you don’t have any then get at least one installed at each entrance and one by any garage as well.

Water Mains – Always make sure your tenants and neighbours if possible know where this is located and how to shut it off. The amount of damage done by a burst pipe can be enormous in a short space of time and anything on your side of the boundary is at your cost to repair. I am often amazed at how many landlords and property managers who don’t know where their mains are and it’s just too late when an incident happens.

Electrical Switchboard – A call out on a weekend or public holiday can cost you well over a $150.00 just to have a circuit breaker reset. That’s dumb so make sure the tenants know where the electrical switchboard is and how to reset a breaker and or have a spare fuse or two of different sizes by the board so they can change them if necessary. If you then need an electrician you can sort one for the next working day at a far less cost to you. If your tenants are going away encourage them to use 24 hour timers with lamps so they come on at various times and even provide them if you feel it will help keep your investment and their home safe for the period they will be away.

Most importantly make sure your tenants have emergency numbers for contractors that you want them to contact if you manage your property yourself. These contractors should have a clear set of questions they ask your tenants before going out to site and charging you and they should be trustworthy and be clear that you are an investor and that this is a business.

So now let’s have a look at what you can do if you are financially challenged and will be staying around home or near your rental property over the Christmas holidays. Firstly it’s a great time if tenants are going away for a period of time to get access and do all those small maintenance jobs that are needed. Most tenants won’t look after a property as well as a home owner so the gardens may need a good tidy up and a bit of elbow grease from you once a year isn’t a bad thing for a landlord. Perhaps it’s time to paint the front fence or replace the mailbox remember that tenants like to be house proud as well and if you put in the effort a small rent increase in the new year may just fly through with little objection as they appreciate you spending your holiday time maintaining their home. You could also Chem Wash the property and make it look fresh and appealing (this also helps to lengthen the time in between you will need to repaint your home generally).Get the chimney swept for the New Year and keep your insurance company happy whilst you have the opportunity.

If you can gain access inside have a really good look around and ask the tenant to list all issues that they are aware of ( don’t be afraid) and then deal with the simple ones first and then move onto the harder stuff from there. Remember if the list was 10 and you completed 7 and you have a schedule for the other 3 what happy tenants you will have when they get back from holidays. Always check for water damage in all wet areas including under all sinks in bathrooms and leaking toilets. This damage really adds up and will cost a lot if left for any period of time. If unsure get a professional such as a builder or plumber to take a look for you. It’s hard to see signs of roof leaks in summer but water marks on the ceiling are a sure sign and again these need to be sorted by a professional. Even if you use a property manager you should visit your property regularly if at all possible and ensure you are happy as the landlord and owner that the property is being maintained to a good standard after all it’s your investment, your income and your business isn’t it?

Try to remember that all property has maintenance costs and that dealing with issues on a regular basis or annually at such times at Christmas holidays can mean larger costs and bills being avoided. It is very easy to have an annual maintenance plan for your properties either residential or commercial for that matter the key is to be diligent in your actual maintenance.

All of what I have shared above can be used on your own home or your bach as you will probably be there over the holiday period anyway. For more information on property maintenance or to find out the 6 Biggest Maintenance Mistakes that investors make go to www.MaintainToProfit.co.nz/AnnualMaintenance for some more great free information.

Happy and safe holidays to you all and we look forward to catching up with you all in 2012 and remember “Be A Wise Landlord”

By Mark Trafford
Director
Renovate To Profit

Websites: www.MaintainToProfit.co.nz | www.RenovateToProfit.co.nz

Summary

(1) For commercial buildings, assets listed under the “Building Fit-out” depreciation category may still be separately depreciated
(2) Separating the fit-out cannot be done retrospectively
(3) A fit-out pool of 15% of the buildings tax value can be created on 1 April 2011 if depreciation was only claimed on the building prior to that

Can depreciation still be claimed on the fit-out for a commercial building?

Historically, many commercial and residential property investors paid for valuations to be performed when an investment property was purchased so that any chattels and fit-out could be separated from the purchase price. This would allow a much greater depreciation claim as fit-out and chattels are depreciated at a higher rate than buildings (the building rate is 0% from 1 April 2011).

In May 2010, the IRD released a policy regarding the chattels that they would allow to be separated from a residential building. The IRD considered that many items in a residential rental property formed part of the building including internal walls, wiring, plumbing and items attached to the building. All those items can no longer be separated from a residential building so they must be depreciated at the building depreciation rate.

While the IRD policy specifically related to residential rental properties, the policy created uncertainty as its principles could be interpreted as applying to commercial rental properties as well. In August 2010, the IRD released a proposed policy to clarify the situation. Submissions on that policy closed on 1 September 2010 and we are now waiting for the final policy to be released which I expect to happen sometime before the end of March 2012.

For an item to be separately depreciated in a commercial property, the IRD proposes to allow an item if it is described in the depreciation asset category of “Building Fit-out”.

So, I still consider it to be a great idea to get a fit-out valuation done when purchasing a commercial property as you can significantly increase the depreciation claim on that property by doing so. Here are a few companies that do commercial fit-out valuations for tax purposes:

www.valuit.co.nz
www.darrochvaluations.co.nz
www.prendos.co.nz
www.seagars.co.nz

Can the fit-out be separated retrospectively?

When a commercial rental property is purchased, you have following three options:

(1) Not to claim depreciation at all; or
(2) Identify the building value and depreciate it at the building rate of 2% to 31 March 2011 and 0% after that; or
(3) Identify items of fit-out and depreciate those items separately from the cost of the building.

All of the options are allowed but once you’ve made your decision, the IRD will not allow you cannot change it. So, if you didn’t get a valuation to identity the items of fit-out in the past, then you can’t do it now.

However, for those that went with option 2, there is some relief. It is proposed to allow you to create a building fit-out pool based on 15% of the buildings book value at 31 March 2011. That fit-out pool would be depreciated at 2% straight line from 1 April 2011. It is also proposed that there would be no loss on sale or depreciation recovered on the fit-out pool when the building is sold. So, if you are in the position where you have only claimed depreciation on your commercial buildings up until now, the pool method for depreciation your fit-out from 1 April 2011 would be a great option for you.

Tony Thorne
www.thorneaccounting.co.nz

It never ceases to amaze me how things can change so quickly.

I wrote only last month on the outlook for next year and how we thought we could see the beginnings of a genuine recovery based upon the levels of leasing enquiry.

Since then, the New Zealand institute of economic research has come out saying that a rapidly worsening global economy will depress New Zealand’s fledgling recovery and keep interest rates on hold until 2013.

The institute’s latest quarterly predictions slash the growth forecast for next year to 1.5% from 2.6% in September. It sees a rising risk of Global recession with its centre in Europe’s sovereign debt crisis.
It sees the global growth outlook as being much softer and New Zealand slowing because of weaker exports and higher borrowing costs. The institute puts a “25%” probability on another global crisis in which financial markets seize up and a world recession ensues.

This is exactly the sort of press which fuels peoples’ fears and becomes a self-fulfilling prophecy. People operate in a herd mentality and react to such dire predictions in fairly predictable fashion by becoming cautious, not spending and fearing the worst. We are, after all, creatures of habit and tend to behave in line with what the media is telling us.

Whilst acknowledging the risks to which the I.O.E.R refers, I do not share their pessimism. My reasoning is simply that we as a country are not reliant on trade with the affected European economies. Rather, our trade is with Australia and Asia.

Certainly, there are signs the Asian and Chinese economies are slowing but that in itself is not a bad thing as they were becoming overheated in any event.

The Christchurch rebuild gets underway in earnest next year and this alone will provide some much needed stimulus to the domestic economy.

Our commodities will still be in demand even if they are not attracting the top prices of recent times.

We are still seeing reasonable leasing enquiry across the board on commercial property to give us some confidence.

What we don’t need is the doom merchants smothering the spark of recovery.

I have enjoyed sharing my thoughts with you over 2011 and look forward to being with you next year.

Until then, my thanks to Hadar and his team for a great job in getting the website to where it is today and have a great Christmas and a relaxing holiday.

D.J. McMahon
Managing Director
McMahon Commercial

For many of us, life is not just about being a landlord. Having to juggle a multitude of commitments means that we may not always be able to devote as much time and energy to our rentals as we would have liked. In dealing with defaulting tenants who must make a claim against at the Tenancy Tribunal (“the Tribunal”), acting swiftly will save you a whole lot of hassle in the future.

So, how long do you have to bring a claim to the Tribunal? Though the Limitation Act gives landlords six years to make a Tribunal claim, realistically it would be foolish not to do so as soon as possible. Any delay in bringing a claim makes life difficult for you, evidence is harder to find, people’s memories fade and you are not going to get your hands on documents as easily.

So what does as soon as possible entail? Well, cases differ, ideally:
• For rent arrears (s55 of the Residential Tenancies Act) – right after the 21 days threshold (i.e. on the 22nd day);
• For failure to comply with 14-days-notice (s56) – when the notice period expires;
• For abandonment – once the s61 two-step test (one day rent arrear and physical abandonment of property) has been satisfied; and
• For an application concerning damage to the vacated property – as soon as you discovered the damage(s) and received a repair quote for the damage(s).

The Department of Building and Housing recommendation is for landlords to bring a claim within two months from the end of a tenancy. This is to do with the tenant’s address for service. The Residential Tenancies Act (“the Act”) requires both parties to advise each other of their contact addresses at the start of the tenancy. These addresses are deemed valid for two months after the end of the tenancy. If a claim is brought to the Tribunal within that period, the landlord will be able to use the address on the agreement as the tenant’s address for service. Otherwise, the Tribunal requires the landlord to provide
• a new address given in writing within two months before the application; or
• a physical address where the tenant lives or somewhere notice can be served personally; or
• name and address of a solicitor/agent authorised to receive service on behalf of the tenant.
This can be problematic. Defaulting tenants tend to prefer doing a Houdini than leaving calling cards. A prudent landlord really ought to stay within that two months period.

The Tribunal does recognise that sometimes bringing an immediate claim may not be practicable as landlords may be awaiting quotes for repairs. This is when having a good working relationship with your contractors come into play. Explain to them that you are pursuing a claim through the Tribunal and politely request that your quote be priortised over other jobs.

Of course, Houdini never really disappeared into thin air. There are always ways to track down a defaulting tenant should you ever exceed that two months period. The simple answer is to obtain adequate information when you deal with the tenant at the beginning of the tenancy that will help you in the end. You are not going to get the information out of them after the end of the tenancy. If you ask them, they will not tell you. Why would they? Of course, if you are still at a loss, my suggestion would be for you visit www.tpscreditcontrol.co.nz for a tailored free tenancy agreement and other professional tools that are designed to protect landlords from delinquent tenants.

Sarina Yang, Tenancy Practice Service

Have your rating Vals gone well?

Well accordingly to the news papers 2 weeks ago quoting QV stats, Auckland is surging ahead whilst the rest of the country is stagnant; then a week ago they report, using the real estate stats, that exactly the opposite is happening. A bit like the poll results for Labour although for them it’s a matter of being down, or less down – but never quite achieving the status of the Grand Old Duke of York being neither up nor down. And just as you were beginning to think the papers have nothing but contradictory nonsense, the journalists seems intent on proving this beyond any doubt- this week the newspapers seem obsessed with a storm in a teacup, that is some inane driveling chatter over a cup of tea that we’re supposed to want to know about.

So what’s the real deal with the market now we’ve secured the world cup we all knew was ours (albeit for a nerve-wracking hour or so at the end) Pretty much more of the same as what’s been happening all year, that is plenty of activity from first home buyers, slow but steady demand from investors enticed by solid yields, still pressure on rents and prices to increase. If you’re an economic commentator you’ll probably be a bit jittery about the economic wheels falling off Europe due to non performing Greece but first home buyers are still presented with increasing rents vs low interest rates and a property market that increasingly looks to be getting out of reach if imminent action isn’t taken. I do think however that once the distractions of Rugby and the Election are behind us, and folks have had a good summer break, that listings will increase somewhat to soak up that excess demand. This would be a good thing for many with buyers having more choice, Valuers and agents busier with more turnover. Still hard to see any drop in values with building levels still at record lows.

But where is good value for investors? It seems anything with a sleepout these days is pulling a fantastic rent, yields of 10% now more frequent especially when a buy and reno strategy is implemented. Two years ago I cited Mangere East as a good area for capital growth which has in many cases now become a bit pricey for investors. For some time I have considered Mt Wellington good value with potential for growth and revitaslisation due to its central location. It seems there has been quite a bit of value increase in Mt Wellington South previously considered a ‘low cost’ area but now defying that label with many properties now achieving in the $400,000’s. The only areas that really seem to have been stagnant are Papakura East/ Redhill, Clendon and Otara. The’re not everyones cup of tea but eventually the wave of property increases with ripple through – especially Otara which is conveniently located to many amenities including a 10 to 15 minute trip to the city in light traffic conditions.

Aucklanders should have received their rating valuations by now, bit of a mixed bag – the ones for my properties seemed ok although I think they missed the increase in value of some 15% the shoebox apartments increased over the first half of this year. Remember that rating values should, at best, provide a general guide and any online type valuations you get are based on a % up or down from the current rating valuation. The council don’t employ elves to sneak down your chimney and check out the inside so don’t lose too much sleep if your $50,000 renovation isn’t reflected in the latest rating value – generally best to just enjoy the lower rates bill. Unless you are selling and the rating value could influence some buyers in which case having a realistic figure would be useful. In this circumstance it would be advisable to get a Registered Valuer to prepare a report to assist in the objection process, which can also be used in the selling process.

Rene McLean.