Written by Lana McCarroll - Registered Legal Executive (Property)

You are all aware of the bright-line test that was introduced in October 2015, whereby any financial gains made from the sale of a residential property within 2 years of its acquisition are taxable unless a specific exemption applies (e.g. the property was the vendor’s main home). 

The Government has now confirmed that they will extend the bright-line test from 2 years ownership to 5 years. The legislation necessary to make the change is still making its way through Parliament, but the current intention is that the 5 years test will apply to all properties that are purchased from March 2018.

The extension is aimed at reducing speculative demand, and in turn, improving housing affordability for owner-occupiers. We suspect that it will inevitably affect people who did not set out to be property investors but are forced to sell their properties earlier than planned due to matters out of their control like a separation, illness, redundancies or a change in their job’s location.

It will also be interesting to see whether the changes have an effect on housing supply, as some owners may choose to hold on to their properties longer.

The exact details of the actual legislation are currently unknown, but we expect there will be a transition period in terms of agreements for sale and purchase that are already in place before the extension comes into effect.

At this early stage, we suggest you all become aware of the bright line extension and consider how to disclose this to your clients and their buyers from the outset.

Written by Rebecca Clark - Solicitor (Property)

The Healthy Homes Guarantee Act (No 2) 2017 (HHGA) passed into law in December 2017, after initially being unsuccessfully introduced in 2013. The purpose of the bill was to ensure every rental property in New Zealand meets minimum standards of housing and insulation. Andrew Little, under the Labour Party, introduced a second version of the bill, which received opposition from both National and ACT. They argued that in the practical sense this would do nothing to improve the living standards it seeks to address.

The facts speak for themselves about conditions many New Zealanders live in. At the time of the 2013 Census, over 450,000 New Zealanders lived in rental properties. Although at present there are no specific guidelines for what constitutes a warm and healthy home, the University of Otago found that the average indoor temperature in New Zealand homes is 2-5 degrees lower than what the World Health Organisation recommends.

At present, landlords have an obligation under s 45(1) of the Residential Tenancies Act 1986 (RTA). The HHGA proposes to amend the RTA to ensure every rental home in New Zealand meets the minimum requirements of heating and insulation to achieve warm, dry homes.

Current responsibilities include:

• Ensuring tenants receive the house in a reasonable state of cleanliness;
• Ensuring the property is in a reasonable state of repair taking the age and character into consideration;
• Complying with all requirements in respect of buildings, health and safety under any enactment so far as they apply to the property;
• Ensuring that the property has reticulated water supply and if not, provide adequate means for storage and collection;
• Compensating the tenant for any reasonable expenses incurred for repairing the property so long as the state of disrepair did not result from a breach of the tenancy agreement; and
• Taking all reasonable steps to ensure none of the landlord’s other tenants interferes with the reasonable peace, comfort or privacy of the tenant in use of the premises.
• The HGGA inserts the responsibility that the landlord “must comply with the standards of heating and insulation” under s 132A. Failure to do so will be considered an “unlawful act”.

From 1 July 2019, any new tenancies must be properly insulated or contain an adequate heating source. From 1 July 2024, all tenancies must meet this new threshold. The MBIE (Ministry of Business, Innovation and Employment) have 6 months to decide on and publish these standards. Standards must describe what constitutes adequate methods of heating, methods of insulation, indoor temperatures, ventilation, draught stopping, and drainage.

Grants of up to $2,000 will be available to eligible landlords to assist with these upgrades however no information has been released regarding eligibility criteria. The government estimates that it will cost between $3,000 and $5,000 if a landlord has to insulate from scratch and have a heat pump installed.

Important things to take away and provide to your landlord clients:

1. The provisions of the Act will need to be complied with from July 2024. For savvy landlords, it may pay to start creating a contingency fund to cover any costs that the government subsidy won’t provide for.
2. For potential investors, it may be worth considering the quality of a property before entering any new agreement and factoring in the cost of complying with the new regulations.

Written by Patrick Wynne – Law Clerk (Property)

Continuing our series of articles looking at what can go wrong in the real estate industry and what to watch out for, we focus this week on the case of Ma v Auckland City Council. This case involved an appeal to the High Court for a discharge without conviction for two licensed real estate agents. Obviously this is a position no professional ever wants to be in, but some interesting points can still be taken away from this.

In 2016 both agents entered guilty pleas to charges of carrying out building work without the required consent when they converted a single residential home into three flats for commercial purposes. The agents argued that if their convictions stand, the Registrar might not renew their licenses on the basis that they were not “fit and proper persons.” A judge can exercise a very limited amount of discretion to grant a discharge without conviction where the consequences are out of all proportion with the gravity of the offence.

Both agents submitted that their work as real estate agents was their only career option. Essentially, they would be left with no qualifications and the conviction would put severe financial consequences on their family. One agent also argued that they would be unable to obtain New Zealand citizenship for at least three years due to the conviction.

The appeals were unsuccessful and the convictions were upheld. Ultimately, the judge did not want to supersede the appropriate regulatory body. Without explicitly saying so, the judge seemed to be hesitant about allowing a real estate agent to appeal a conviction if it might restrict the factors the Registrar can consider. There is already an established method for real estate agents to appeal Registrar decisions via a judicial review.
It’s important to note that in this case, the offending was within the same broad area of work for a real estate agent. The judge didn’t discuss the point but it would be interesting to see if the decision would have been different had it been a drink driving conviction for instance.

The significance of work that real estate agents do and level of trust required has caused the industry to be heavily regulated. A consequence of this is that real estate professionals are subject to much more scrutiny than with other industries. Obviously, this case is an extreme example, but it does bring home the point that real estate professionals need to exercise caution with their own investments involving property. If you have any concerns that a personal project might conflict with your professional obligations, feel free to speak to our residential property team today.

Partner - Property

Phone: +64 3 339 5642

Email: janine.ballinger@cavell.co.nz

Solicitor - Property (based in our Queenstown office)

Phone: +64 3 409 2705

Email: rebecca.clark@cavell.co.nz

Registered Legal Executive - Property

Phone: +64 3 335 3469

Email: lana.mccarroll@cavell.co.nz

Law Clerk - Property

Phone: +64 3 335 3459

Email: patrick.wynne@cavell.co.nz

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