Q We purchased a stand-alone residential property on 1400m2 in 2018 and rented it to a pet rescue. The rescue has charitable status and has resource consent to run the rescue from this address. The house is in a residential neighbourhood and had previously been lived in. Do the interest deductibility rules apply here or is this
exempt with the resource consent and the tenant?

A Common sense suggests that interest should still be deductible, as a property rented to a charity running a pet rescue centre is not residential rental activity. However, such is the nature of these rules that I am concerned the common sense answer is not what the law produces. The interest limitation rules apply to residential land, which is defined as land with a premises on it that is configured as a residence or abode, whether or not it is used as such.

This means if the dwelling here has been adapted so that it could no longer be said to be configured as a place of residence, then the interest limitation rules will not apply, and interest will be fully deductible. Naturally (for these rules) there is precious little guidance on exactly what it means for a premises to be configured as a place of residence or abode. One would expect there needs to be a kitchen, bathroom and bedrooms/sleeping area. If the dwelling is configured as a place of residence or abode, there is one more means of escape. There is an exemption if the dwelling is used as business premises. The catch here is that if the charity is
not running the pet centre as a business, then strictly speaking the business exemption will not apply.

It seems to us that the flavour of the rules is such that they should not apply where a dwelling is rented to a charity as is the case here, but at the moment the business exemption may not be wide enough to cover that. It seems like yet another example of a shortcoming of the hurried and ham-fisted nature of these
new rules. - Matthew Gilligan

Q A developer put my property under contract in October last year for a really good price. But now it’s hard to contact him and I don’t know whether he’ll settle. Anyway, can I force (or encourage) them to settle?

A Provided the agreement is unconditional, and the developer has no right to cancel, you are able to start proceedings against the developer (i.e. sue them) for specific performance to compel them to go through with the sale. In a simple case this could be by summary judgment (a very quick way of getting a result from a
court). Another option you would have is to caveat the title to avoid the developer disposing of it pending resolution of the dispute. This does come with risks,
however, particularly where there is a no caveat clause. If the developer does not complete the transaction you may have the ability to sue for damages.

While the above answer is simple in the abstract, it is more difficult in reality. This is because most agreements for off-the-plan purchases come with significant conditions precedent (before the contract is entered into) and subsequent (after the contract has been signed and is on foot). One of the most common is that a developer will try to reserve themselves a right to cancel if certain milestones are not met, such as gaining all necessary consents. If a developer purports to cancel or
not advance in the development, then they may be precluded from cancelling the agreement if they have not taken reasonable steps to satisfy the condition. So, the short answer is yes, you do have ways to encourage or force settlement in this situation. None of the options are without risk, but they can be relatively straight forward if you consult a lawyer and push the right buttons and provided the contract lets you push those buttons. - Shane Campbell

‘It seems like another example of a shortcoming of the ham-fisted nature of these new rules’ MATTHEW GILLIGAN

Q I read your column on the bank of mum and dad with interest. We’ve only just made the mistake of buying a house in our family trust, and plan to sell it to our daughter on favourable terms later on. Should we try to put the property in her name now, since there won’t be any capital gain and bright-line test to pay?

A The issue here is that while the property is no doubt your daughter’s main home, the main home exemption to bright-line only applies when the home is the main
home of the principal settlor of the trust. The principal settlor is the person that has settled the most money on the trust. This will no doubt be you rather than
your daughter. So, a sale to her is likely to trigger bright-line consequences, income tax on any gain on disposal and a 10-year reset for your daughter. That
said, if you get a valuation that proves the property to be worth no more than the trust paid for it there would be no tax payable despite bright-line being triggered by the disposal. The consequence would then just be the 10-year reset. So, this would seem to be a viable option provided the reasons you chose to place the property in the trust rather than your daughter’s name from the beginning don’t trump the taxation considerations. - Mark Withers

Q After investing in property for the last 15 years I’m now struggling to get money from the main banks. Which is the best non-bank lender to use? And what’s the
difference between them?

A You haven’t explained why the banks are not willing (or able due to regulation) to provide you funding. However, I will assume it is to do with their view on your loan affordability. This is a lot tighter than how they used to assess borrowing capacity and this tightening has been exacerbated further by interest rates increasing quickly, portfolios in general having lower yields than previously, and also lenders taking less rent into consideration on existing properties due to tax changes. There are several lenders that could be useful, however how your position stacks up will determine whether they are the “best non-bank lender to use” or not. In the prime near bank space you have lenders such as Resimac, Avanti and Bluestone.

If you have a larger portfolio and are lowly geared Resimac has a specialist investor product in particular which may be useful. Avanti and Bluestone in some cases can have easier affordability criteria than the banks. The next level brings on other non-bank options with even less onerous affordability criteria, but you will pay more for the privilege. You are best to talk to a mortgage adviser who can understand your specific situation, what you are trying to achieve and what is holding
you back, and who understands the myriad of options in the market and can provide a best fit solution for you. - Kris Pedersen

Q I have just received the bad news from the mother of my tenant that my tenant has died in an accident. This is sad news for all concerned but what happens to the
tenancy, which was not due to end until the end of the year?

A That is sad news. I assume there is only the one tenant named on the tenancy agreement and that is the tenant who has died. It makes no difference whether the tenancy is a fixed term or periodic tenancy. The tenancy ends on one of the following dates (whichever is earliest).

1. 21 days after the tenant’s personal representative (probably the tenant’s mother in this case) or other next-of-kin gives the landlord written notice of the tenant’s death.

2. 21 days after the landlord gives the tenant’s personal representative (mother) or other next-of-kin written notice to leave the premises.

3. A date agreed in writing by the landlord and the tenant’s personal representative or next-of-kin.

4. A date given by the Tenancy Tribunal on an application made by the landlord (this can be made without notice).

Point four should really only be used in exceptional circumstances. It will no doubt be a difficult time for the deceased tenant’s next-of-kin. Understanding and working with them to end the tenancy and have the tenant’s personal effects removed from the property will be necessary. - Ryan Weir