Landlord e-newsletter No.3: September 2007
Welcome to the third edition of our e-newsletter for landlords. This is a new era for the residential property investment industry. The government is signalling new education initiatives aimed at property speculators, and the demands for quality and efficiency in buildings are reaching new standards.
The Department of Building and Housing is taking steps to support landlords as more and more new landlords are realising that being a landlord is a business and requires a number of business skills and best practices.
In this edition we explore two crucial areas requiring best practice: managing bonds and obtaining an address for service. We also touch on property transaction and tax, new energy efficiency requirements and weathertight investments.
Cashing up? Keep proper records for tax purposes
Landlords need to keep detailed records about the intentions of their purchase of a property as much as their day-to-day operations during any tenancy of that property. In most cases, landlords operate transparent businesses and work with professional advisors and disclose their profits when they realise a sale of their investments.
Inland Revenue is increasing its focus on the property area. The main thing they consider when determining whether tax should be paid on the profit from the sale of a property is what the intention was when the property was purchased. If a person buys property (which covers land, including a bare section, and buildings) with the intention of selling it when prices rise, then it is most likely the profit will be taxable.
Talk to your tax advisor if you are unsure whether you should be paying tax on properties you have bought and sold.
For answers to frequently asked questions about these aspects of buying property, visit www.ird.govt.nz/news-updates/like-to-know-property-transactions-qs-as.html
The best ‘address for service’ – getting it right
Landlords should ensure all tenants provide an address for service that is different from the tenancy address and make sure it is recorded in the tenancy agreement.
While it seems logical to have the rental property as that address, the Residential Tenancies Act actually provides for a more effective way.
The address for service is a specific physical address where both parties agree that formal documents and notices can be sent. It is the place where documents will be accepted either by the tenant or on the tenant’s behalf.
A guaranteed way to contact tenants
“The address for service provides landlords with a guaranteed way of contacting tenants,” says Client Services Group Manager Jeff Montgomery. “Tenants may supply their workplace address or the address of a family member or close friend as the address for service.”
Landlords can still contact tenants at the tenancy address during the tenancy, even if they have a different address for service.
“An address for service that is different from the tenancy address allows landlords to contact their tenants at any time, even after the tenancy has ended.”
An address for service is useful for things as simple as forwarding mail, but is especially valuable if landlords have filed an application with the Tenancy Tribunal and need to contact their former tenants.
Why an address for service is so important
“The Tenancy Tribunal needs an address for service in order to serve papers. If a landlord has filed an application with the Tribunal for rent arrears or damage payments, it is imperative that the former tenant can be contacted.”
The Tenancy Tribunal allows for the tenancy address to be used to serve notices for two months after the tenancy ends.
“If landlords do not have an alternate address for service after this period, they will have to get a Court order for substituted service and then pursue other remedies. This can be a costly process.”
Making sure the address for service stays current
Jeff advises that landlords need to ensure the address for service stays current during the entire tenancy period.
“People change jobs and move – it’s important that landlords always have a current address for service where they can contact their tenants.”
Any changes to the address for service should be recorded in the tenancy agreement.
Lodging bonds – what landlords need to know
Some landlords do not realise the importance of bond until it’s too late.
Department of Building and Housing Client Services Manager Jeff Montgomery says a bond can be a valuable safeguard for a landlord.
“Every landlord I speak with reiterates how important it is to collect the full bond entitlement. If the tenant causes damage, the landlord might have to make a claim against the bond money for repairs and maintenance.”
Jeff advises it is important for landlords to understand the rules for collecting and lodging bonds.
“Bond money does not belong to the landlord and cannot be held in a private bank account,” he says. “It is the tenant’s money held in trust by the government until the end of the tenancy or a circumstance that enables the landlord to claim the bond.”
How much bond should a landlord request?
Jeff says there is sometimes confusion about how much bond a landlord can request from a tenant.
“Landlords can ask for up to the equivalent of 4 weeks’ rent as a bond. They are not required to ask for a bond, and they can ask for less. If a landlord proposes a weekly rental figure of $300, collecting the equivalent of four weeks rental as bond gives the landlord a useful fund to claim against for recovery of damages.”
Lodging bond properly
When landlords collect bond from a tenant, they must give the tenant a receipt and forward the payment to the Department of Building and Housing within 23 working days. Landlords must also enclose the Bond Lodgement form (available at www.dbh.govt.nz) with the bond cheque.
“Some landlords are prepared to stagger their receipt of bond money from their tenants. This is fine provided they send the payment with a lodgement form to the Department of Building and Housing within 23 working days.”
Collecting rent in advance
In addition to collecting a bond, landlords may also collect one or two weeks’ rent payment in advance. This is completely separate from the bond money.
“If the rent is to be paid fortnightly, a landlord can ask for two weeks’ rent in advance. If the rent is to be paid weekly, a landlord can only ask for one week in advance.”
At the end of the tenancy, the tenant and landlord need to complete a bond refund form. The bond refund form is sent to the landlord after the bond is lodged. The form is also available on the Department’s website, www.dbh.govt.nz.
For more information on bonds, contact the Department of Building and Housing on 0800 737 666 or visit www.dbh.govt.nz.
Energy efficient requirements
Investors also need to stay informed of changing energy efficiency requirements.
New houses, and home extensions, will need more insulation. This requirement comes into effect for South Island and North Island Central Plateau houses from November 2007. They take effect in the rest of the North Island up to Auckland from July 2008, and for Auckland and north from October 2008.
More ways to boost energy efficiency can be found on www.smarterhomes.org.nz.
You might also want to tell your tenants about the site, which lists simple things they can do to reduce their power bills
A free booklet “Your Guide to a Smarter Home” provides energy efficiency information and tips to reduce your power bills and can be obtained by calling the Department of Building and Housing on 0800 83 62 62.
Weathertight investments
It’s important that landlords protect their property assets through taking steps to ensure that houses are weathertight and stay that way. You need to think about weathertightness when buying, building, renovating and maintaining your property.
Weathertightness is more than just dealing with ‘leaky’ homes. Any home, regardless of age or style, can develop problems if it is not properly maintained, or renovations are of low quality.
The Department of Building and Housing has produced two checklists, one for home maintenance and one for home buying, to help you minimise the likelihood of weathertightness issues. The checklists can be found on www.consumerbuild.org.nz, a site jointly run by the Department and the Consumers’ Institute.
Home maintenance tips
The checklist for home maintenance advises how to approach the different types of maintenance including:
- regular chores (such as cleaning gutters)
- repairs
- planning ahead for major tasks (like re-roofing)
- preparing for emergencies.
The checklist also covers common areas needing maintenance, such as walls, balconies and decks, drains, gutters and roofs.
Landlords should ask tenants to inform them of any potential issues or maintenance that is required, so quick action can be taken and the problem doesn’t grow. We’ve all heard the stories of landlords who find out too late about a serious problem that started off as something that only needed a simple fix.
Home buying tips
The checklist for home buying covers:
- questions people need to ask
- structural aspects that need to be checked
- features to watch out for
- the information you can access on the property
- getting the sale and purchase agreement right.
By following these simple steps, you can help to protect your investment and reduce the chance of costly and stressful problems further down the track.
That’s all for this issue, but remember, if you have an idea or burning issue you’d like to see covered in our next newsletter, we welcome all suggestions. Email us at info@dbh.govt.nz
For online services, forms and information about being a Landlord, visit our website,
www.dbh.govt.nz. To ask a question about renting law or to get advice about a problem, call us on 0800 TENANCY (0800 83 62 62)
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