Previously we noted that the Kawarau Falls case had been appealed to the Supreme Court and we were awaiting its decision (Kawarau Village Holdings Ltd v Sun [2017] NZSC 150). 

To recap on this case: in September 2016 the Court of Appeal held that in circumstances where an 'off the plans' project could not be completed and the Agreement for Sale and Purchase had been cancelled by the developer, the developer had to pay purchasers back their deposits. 

Although this result appeared to set a favourable precedent for purchasers, a purchaser's rights became uncertain when the Court of Appeal decision was appealed to the Supreme Court.

On 6 October 2017, the Supreme Court of New Zealand released its judgment . The majority of the Supreme Court agreed with the lower court and found that the deposits must be refunded to the purchasers, and dismissed the appeal.

The rights of purchasers, in circumstances where they have bought off the plans and the project cannot be completed, are now clearer.

What this means for your residential rental property if purchased to run your business...

You are probably now well aware that the bright-line test has been extended to five years.

If you own a residential rental property or a holiday home, changes to the bright-line test may mean you have to pay more tax. The current law came into effect 1 October 2015 and states that if any residential rental property, or a holiday home, is sold within two years of being purchased, you have to pay tax on any profit from the sale. This timeframe has now been extended to residential rental property sold within five years for property purchased on or after 29 March 2018. There's more detail on how this will work here.

Former residential property purchased for the purposes of running a business may be exempt from the bright-line test if it's no longer considered to be residential property. If, however, you buy residential property and then convert it into your business premises within the bright-line test period, it may be deemed a sale from you to your business and subject to this tax on that basis.

The bright-line rules are complex and strictly enforced by Inland Revenue. If you're in any doubt about what to do, please contact us.

This is a question often overlooked when buying your home. It is, however, a common situation when two people are buying a property together. Let's take an example to show how these both work.

If you're buying a house together, many will assume that you're in a relationship and, therefore, would want the property purchased jointly, using the 'what's yours is mine' approach. If this is the case, a 'joint tenancy' is appropriate. The effect of owning property in this way is simply that if one of you dies, the property passes to the other by what is known as the 'right of survivorship'.

However, if you both want to protect your own investment in the property for whatever reason (you may be friends and not in a relationship, for example) and don't want it to instantly pass to the other person on your death, you will need to obtain some advice on owning the property as 'tenants in common'. This means that your share would be recorded as a proportional ownership on the title and your share in the property would pass to the beneficiaries of your estate as outlined in your Will.

In each case, you should discuss with us which form of ownership is most appropriate for your situation.

BE CAREFUL!

"Just tick the box here, here and here if you need finance, a LIM report and a builder's report".

You'll likely have heard this if you have ever bought a property. You'll have been advised that you require some conditions to protect you while you make an application for finance, arrange for your builder to inspect the property and to obtain a LIM from the local authority.

The standard Agreement for Sale and Purchase form provides perfectly good and well-established mechanisms for those conditions to operate. But how much did you really understand when you just 'ticked the box'? Were you expecting that you could only raise issues in a builder's report that were substantial enough to be considered 'objective problems'? Did you know that you would have to provide a copy of the report if you raised issues you wanted raised? Did you know that you couldn't simply walk away from the contract if you found a few things in the building report that you just didn't like?

What about finance? Were you aware that if you didn't make a reasonable effort to obtain mortgage finance that you might be in breach of the terms of the Agreement? Did you realise that if you did make an effort and only managed to obtain finance on terms which you didn't quite like, you could be stuck with the terms of that finance offer?

The standard wording in the Agreement for Sale and Purchase imposes a much stricter obligation than most purchasers realise. If you have a specific need to manage conditions on your own terms, then you will need our help to draft those conditions so you don't unwittingly get caught out.

... What it Means for a Landlord

If you are a commercial building owner, you will at some point come across a situation where your current tenant wants to sell their business. Tenants often forget to talk to their landlord about them consenting to the new business owner.

When a business is sold, the current tenant is obliged to seek the landlord's consent to assign the lease to the incoming business owner. The landlord usually has 10 days to approve the new tenant.

As a landlord, do you know what to look for? How can you be sure that the new tenant will pay their rent on time, and will look after and care for your asset as well as the previous tenant has done? The short answer is – you can't really. However, there are some steps you can take to gather as much information as you can on the new tenant.

You should:

• Obtain a credit check on the incoming tenant and any guarantors
• Ask to see copies of their business plan and financial statements (if available), and
• Check to see if they own any other property.

You can refuse consent to the assignment on reasonable grounds. However, landlords often feel they have no choice but to agree; you have every right to take time to do some due diligence on a new tenant. If you're unsure what you can ask a possible incoming tenant, do talk with us.

You have significant obligations to a number of parties

In June last year we discussed the tax aspects of being a host with Airbnb or other online accommodation platforms (click here to read that article). With Christmas holidays still fresh in our minds, and summer still a couple of months from ending (fingers crossed!) we thought a reminder would be useful if you're an existing host (or you're thinking of letting your house/room) about obligations to your lender, insurer and local authority.

Before becoming the host-with-the-most with phenomenal reviews, it is important that not only do you understand the IRD's requirements, but also that you are aware of your obligations to other 'parties' involved in what is your accommodation business.

We have set out some key points to check with your lender, insurer and local authority.   Read more…