Airbnb & Short Stay accommodation – what owners need to know Written by Mike Parker - Partner (Property) There has been massive growth in properties being used to provide short-term accommodation around NZ. Statistics NZ estimate that annual revenue from short-stay accommodation could be as high as $700 million. In the Banks Peninsula area the number of short term lets has grown from 114 to over 2100 in 3 years. In central Christchurch around 200 of the planned 900-home crown-led east frame housing project (comprising a mix of 1, 2 & 3 bed apartments) have been built by Fletcher Building. Meanwhile, other private developers have been prolific in completing a number of other multi-unit residential accommodation both in the central city and on its fringe. Many are being purchased by investors with the intentions of letting them out on short term basis. So, with the number of providers of Airbnb and other short-stay type accommodation only likely to increase, here are a few things we think owners, prospective investors, and agents should be aware of. Beware; new regulation is coming Around NZ local authorities are looking to regulate the short stay accommodation sector. In Christchurch, the Christchurch City Council has been considering options under the District Plan with a view to possibly promoting a plan change. The current rules permit unhosted home share accommodation (HSAs) within the central city, with some restrictions on property size, guest numbers and length of stay. In residential and rural zones outside of the central city unhosted HSAs require a resource consent. Options the CCC are considering are:
Given recent publicity and losing a case at the Environment Court the CCC will likely release a plan change for at least residential zones. This will mean people will have the opportunity to submit on the plan change. Beware; the GST net may apply In this regard there are two things to consider
Unlike the provision of the traditional residential rental accommodation in a “dwelling”, which is an “exempt supply” under the Goods and Services Tax Act 1985 (GST Act), the provision of short stay accommodation is a “taxable activity” if it is being carried on “continuously and regularly”, because the supply of short stay accommodation is not treated as the supply of accommodation in a “dwelling”.
Under the GST Act if the value of the income earned from the short stay accommodation is greater, or is expected to be greater, than $60,000 in a 12 month period, the owner is required to register and account for GST. It is the gross amount paid by guests, rather than the net amount received, that is the relevant factor (so, if an agent, such as Bachcare, is used to manage the short stay accommodation, it is the amount they are paid by the guests, not the amount the owner received, that is the relevant amount). Further, the value of taxable supplies from all taxable activities is combined to determine if the $60,000 threshold is exceeded. So, if a person owns one or more properties let for short stay accommodation continuously or regularly it is conceivable that a taxable activity is occurring and the GST threshold is exceeded, meaning the person will be required to account for GST on the income received. They would also need to account for GST if the property is sold. If any of this applies to me, what should I do next? This article is intended as an alert to unsuspecting owners of, or prospective investors in, short stay accommodation units, and agents who may be dealing with them, of the potential for GST to apply, and for the regulation of them to change. GST is a complex area of accounting and law. There are a number of factors that may impact on a person’s GST position, and there are different ways of structuring, and restructuring, a person’s affairs to manage GST. Anyone planning to buy a residential unit or units to supply Airbnb or another form of short stay accommodation should be advised to seek advice from an appropriately experienced accountant beforehand. We are happy to make recommendations if requested. They should also be aware of the changing regulatory environment. Our property and resource management experts are keeping abreast of the changes and are happy to answer any queries. Building Act implied warranties applying to commercial on-seller vendors Written by Beatrix Mitchell - Associate (Property) When acting as an agent for a commercial on-seller of residential property be aware that the Building Act implied warranties impose liability on the vendor. A commercial on-seller under the Building Act is a vendor who, for the purpose of on-sale, builds a dwelling themselves or arranges for a dwelling to be built or buys a dwelling from someone who built it. Implied warranties Compliance with the Building Act implied warranties is mandatory and a commercial on-seller vendor cannot contract out of them. The warranties implied into every contract for the commercial on-sale of a new build include:
Remedies The commercial on-seller is required to fix any applicable building defect notified to them within 12 months of completion. There are circumstances in which a commercial on-seller may be excluded from liability to remedy a defect (for example, if the property owner fails to carry out normal maintenance). However the onus is on the commercial on-seller to prove that the defect does not exist. If a breach of warranty can be remedied, a purchaser may require the commercial on-seller to fix the defect and repair or replace defective materials within a reasonable time and may recover damages for reasonably foreseeable loss resulting from the breach. Where a breach of warranty is substantial or cannot be remedied the purchaser may get compensation from the commercial on-seller for any reduction off the product of the building work below the price paid/payable; or the purchaser can cancel the contract. Advising your vendors Commercial on-sellers of new residential properties are responsible for the building work carried out by their contractors. Subsequent owners of dwellings can bring proceedings for a breach of any of the implied warranties notwithstanding that they were not party to the contract in which the warranties were implied. As part of providing quality service to your vendors, it is important that you make sure your commercial on-seller vendors aware that the vendor-purchaser relationship is governed by more than just the terms and conditions agreed and recorded in a Sale and Purchase Agreement. Bringing this to the vendor’s attention and dealing with any potential breaches or building defects upfront may also aid in avoiding delays in the progressing of a sale transaction or having to agree to a sale price reduction and may reduce the possibility of the sale contract being cancelled by the purchaser. Going a step further, you could procure from the home builder information on maintenance requirements for the building work, to provide to a purchaser. This will assist in limiting the commercial on-seller’s liability where the building work hasn’t been properly maintained by the purchaser. Caution your vendors against attempting to contract out of the implied warranties as this will be ineffective and a breach of the Fair Trading Act. You should also remind your vendors to check that they have appropriate warranties from their contractors and third party guarantees or insurances where possible. Mike Parker- Partner Mike acts for a broad range of property investors and developers on all aspects of property, including sales, acquisitions, leasing, subdivisions, commercial developments and property finance. Mike prides himself on developing strong, enjoyable relationships with his clients, and providing them with commercial, timely and cost effective advice. Beatrix Mitchell - Associate Beatrix acts on all aspects of property law work. Her specialist areas include commercial leasing (acting for both landlords and tenants), the sale and purchase of commercial properties, construction contracts and advising on Construction Contracts Act obligations. Beatrix also advises on residential builds and regularly presents on land and build transactions at building seminars.
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