I thought I'd share some of the great information sent out today by Cavell Leitch .
When it comes to property law, your agent should be well informed and be able to indicate what applies to your situation and what doesn't. However, before you sign anything you should always get the advice of your lawyer.
Read below for more about the Brightline Test, selling a Unit Title and the Letting Fees ban.
Five years in, two years out - Brightline Test extension now applies
Further to our article in February 2018 , the Taxation (Annual Rates for 2017-18, Employment and Investment Income, and Remedial Matters) Act received royal assent on 29 March 2018. The Act extends the bright-line test from 2 to 5 years.
Who does this legislation apply to?
This legislation applies to ALL vendors who sell their residential property within 5 years (irrelevant of the intention at the time of purchase). For sale and purchase agreements signed after 29 March 2018, this will mean that if a vendor sells within 5 years of owning a residential property, and the property is not their main home, then they will be taxed on any gain made on the sale.
For those sale agreements that are already in place, i.e. signed before 29 March 2018, but settlement is yet to occur, then the previous timeframe applies (i.e. a vendor sells within 2 years of owning a residential property (that is not their main home) then they will be taxed on any gain made on the sale).
Another note to remember is like under the current timeframe, any vendor selling may only use the main home exemption twice within the 5 year period.
What does this mean for you?
The main questions you should be asking your vendor clients straight away should be:
· How long have you owned the property for?
· Is this your main home?
· If taxation is a concern, have you sought advice from your accountant and/or legal advisor?
Once these matters are established, you can alert your vendor about the risk of capital gains tax. During the course of the sale transaction, we will also discuss potential taxation with vendors, but it would be hugely beneficial to our clients if you made them aware of the new legislation and requirements that will be needed. We see this as especially important for you as the date of disposal is the date of the agreement for sale and purchase between the vendor and the purchaser, not the date the property is transferred. Once the agreement is signed within the 5-year time frame, your vendor could be up for a tax they maybe weren’t expecting.
We suggest if your vendor clients are concerned by potential tax implications of a sale, they take accounting and/or legal advice prior to entry into any agreement for sale and purchase. Even where it is not a consideration for a client it is something you should bring to their attention to avoid potential nasty surprises from the Inland Revenue.
Disclosure statements when selling a unit title property
We often field queries from both clients and agents alike when we are dealing with the sale or purchase of a unit title. The most common question which arises is “why do we need to provide a disclosure statement? Don’t the purchasers already have all of this information?”
We thought it might be useful to recap how disclosure statements work in a unit title transaction. Essentially there are 3 different statements which must be provided at 3 different stages of a sale and purchase transaction.
Pre-contract Disclosure Statements
The first disclosure statement is called a pre-contract disclosure statement. As the name suggests the pre-contract disclosure statement must be provided to a purchaser before any contract is entered into, or the purchaser may be entitled to cancel the agreement.
The pre-contract disclosure statement needs to contain the information prescribed by section 146 of the Unit Titles Act 2010 (UTA) and section 33 of the Unit Title Regulations 2011 (UTR). The pre-contract disclosure statement must include at least the following:
· The amount of the annual levy which has been set by the body corporate and the period covered by this levy;
· Details of any maintenance plan proposed by the body corporate in the next year and how the body contribution proposes to meet this cost (i.e. if any additional contributions will be required by unit owners);
· The balance of the bank accounts held or operated by the body corporate;
· Whether the unit or the common property has or is subject to any claim under the Weathertight Homes Resolution Services Act 2006 or other civil proceedings regarding water penetration; and
· An explanation of how unit title ownership works, including information on unit plans, ownership interests, body corporate rules, the title and any easements or covenants affecting the property.
To protect your vendors it is important you are aware of this when the property goes onto the market, so they have adequate time to obtain this information from the body corporate.
Likewise, if you are acting for a potential purchaser you will need to make sure they are provided this information before they enter the agreement. Please note that even when there is no formal body corporate in place, if the property is a unit title the purchaser will still need to be provided with this information.
Additional disclosure statement
The pre-contract disclosure statement also needs to provide an estimate of the cost of providing further information if the purchaser requests it. The further information will then be provided in a second “additional disclosure statement”.
The additional disclosure statement contains useful information including details of the body corporate’s long-term maintenance plan, details of previous body corporate meetings, details of any contracts or expenses the body corporate has committed to.
Pre-settlement Disclosure Statements
Once an agreement has been signed the vendor is required to supply the purchaser with a pre-settlement disclosure statement at least five working days before settlement. The purpose of this statement is that the body corporate is certifying all the information provided about the property remains correct. Section 34 of the UTR outlines what is required in this form, including:
· Information about the body corporate such as unit number, body corporate number;
· Amount of contribution levied, the period covered by the contribution, the due date for the levy;
· If any of these levies are unpaid and if so how much;
· If any legal proceedings have been instituted in relation to any unpaid levies;
· If any repair costs are outstanding;
· Whether there are any proceedings against the body corporate; and
· If any changes have been made to the body corporate operational rules since the pre-contract disclosure statement or any additional statements.
The vendor is also required to provide the insurance information for the body corporate with this statement. It is vital that the purchaser is provided with the pre-settlement disclosure statement at least 5 working days before the settlement date. If the pre-settlement disclosure statement isn’t provided on time the purchaser can elect to delay settlement or even cancel the agreement.
If you have any questions about unit titles, please give one our property experts a call.
Letting Fees Ban
In late March 2018 the Residential Tenancies (Prohibiting Letting Fees) Amendment Bill was introduced by Housing Minister Phil Twyford, and the bill has since passed its first reading. As the name suggests, the bill proposes a ban on landlords or property managers charging letting fees to tenants.
A letting fee has historically covered the array of services provided by a property manager in obtaining new tenants. This may include conducting open homes, verifying potential tenants and preparing the necessary tenancy documents. A standard letting fee usually equates to one week’s rent plus GST per tenancy.
To date reaction to the proposed letting fee ban has been mixed. One school of thought suggests that the ban will reduce the up-front costs payable by tenants, while it is also recognised that property managers perform a valuable service.
A concern held by some commentators is that the cost will simply be passed onto tenants in the form of increased rental. The New Zealand Property Investors Federation has further expressed concern that the ban may lead to a reduction in the number of tenancies on the market at a time where supply is already low in some areas.
A select committee has been appointed to review the proposed ban, and the committee has asked for submissions from the public before 23 May 2018. Interested parties can make a submission on the bill here.