September 2010 - Real Estate Agents Act 2008 - the new era
The following article was written by Nalini Meyer:
On the 17th of November 2009, the Real Estate Agents Act 2008 came into force and nearly one year on, feedback from Agents and the public alike is positive. The Agents herald the legislation as providing certainty and enshrining many of the practices which the larger agency’s already self adhered to. It has introduced a licensing regime for those selling residential, rural, commercial and industrial real estate and occupational rights in retirement villages. It also applies to those involved in selling businesses, brokering leases and acting as buyers’ agents. It establishes regulatory bodies to oversee the administration of licensing of agents and disciplinary matters via the newly created tribunal. It provides clarity to the client and sets the level of expectation in relation to the sale and purchase of real estate in New Zealand.
It is now illegal to sell or lease for payment without a valid licence. The three levels of licence (Agent, Branch Manager and Sales Person) are subject to different criteria set out in the Act, which defines each of the various roles and the responsibilities of the licence holder. It imparts a duty on the licence holder to ensure that they meet the requirements of the legislation and adhere to the Code of Professional Conduct and Client Care created by the new regime. The burden is firmly placed on the licence holder to ensure that they have disclosed the costs, rebates, discounts, and commissions in relation to the sale of a property, that the terms of agency are explained, and once an agreement is negotitated to provide the buyers and sellers guides prior to parties signing an Agreement for Sale and Purchase.
Fundamentally it changes the way in which sales consultants provide appraisals. They now must be in writing and one will no longer be able to ask a sales consultant to give a verbal “ball park” figure as to the price of a property. Via regulation it is imposing a level of accountability that the industry has not seen before ensuring that they have researched their appraisals in an effort to create transparency, and to ward off the odd “unscrupulous” consultant who tainted the industry’s reputation in the past.
Disclosure or the provision of information is a theme which runs through the regime. Particularly, sales consultants are also now under a duty to disclose any known defects in a property to a potential purchaser. Should they have knowledge and not disclose, and this is subsequently discovered, then action can be taken against them via the disciplinary procedures.
The introduction of a cooling off period provides the potential seller time to consider their decision in relation to retaining a specific sales consultant/agency. Once the agency agreement has been signed the seller will have until 5pm on the following working day to potentially reconsider that appointment - no questions asked. The sales consultant must advise the seller of this right. If the choice to continue is made, then a copy of the signed agency agreement must be delivered to the seller within 48 hours of signature.
The new Code of Professional Conduct and Client Care forms the basis of the complaints procedure and disciplinary regime. The regulations place a burden on Agency licence holders to have an in house complaints procedure that clients may wish to avail themselves of, or they can go directly to the Real Estate Agents Authority. Any complaint must be in writing and will be referred to the Complaints Assessment Committee, and misconduct allegations will be referred to the Disciplinary tribunal.
In the event that a complaint is upheld by the complaints committee there are a range of sanctions available to them; from ordering a written apology to fining the individual (up to $10,000) or the Agency (up to $20,000).
The new regime is timely and has been welcomed by those in the industry; it provides transparency in relation to the sales process and sets out the minimum requirements for the participants. The licensing regime makes the licence holders accountable and will allow the industry to grow and move beyond some of the typical stereotypes to which it has been subject in the past. Time will now tell as to the effectiveness of the Regime, but all present signs are for a more positive future for all participants in the sales and purchase process.
August 2010 - Changes to the Qualifying Company and Loss Attributing Qualifying Company Rules
The following article was written by Alan Prescott and Nalini Meyer:
The taxation rules surrounding Qualifying Companies (QC), and their subset the Loss Attributing Qualifying Company (LAQC) have been the subject of government attention in the lead up to the 2010 Budget. In the wake of the Budget, it is clear that there is an effort to resolve areas surrounding taxation and the QC/LAQC. Initially established in 1992, the Qualifying Company (and the LAQC) is an entity which provides its shareholders (to qualify it must be closely held, being 5 or less members) with the ability to utilise some of the partnership tax rules for their own tax purposes, ie attributing company losses to the individual shareholder.
Under the current rules LAQC shareholders have the ability to attribute losses to themselves which can then be offset against personal income. However with the disparity between the top personal tax rate (currently 38 cents but 33 cents from 1 October 2010) and the company tax rate (currently 30 Cents, but 28 cents from 1 October 2010) issues have arisen which the IRD believe may challenge the integrity of the tax system. Income is initially assessed at the entity level, so any profits are taxed at the company tax rate. With an LAQC losses can be passed through to the shareholder and deducted from a shareholders gross income which may have been taxed at a higher rate. It is this disparity which creates what the IRD calls “arbitrage opportunities” and which is the issue the government is most concerned with in implementing changes to correct the perceived imbalance. The discussion paper “Qualifying companies: implementation of flow through tax treatment” has been issued by the Policy Advice Division of the Inland Revenue Department (May 2010) and proposes an overhaul of the way the QC is treated tax wise.
The idea behind the paper seems to be transparency. It is proposed that this be achieved via “flow through treatment”. If the papers recommendations are accepted then the rules governing existing QC’s and LAQC’s are to replaced as of 1 April 2011 making all such companies flow through entities for tax purposes. This differs from the way non qualifying companies operate where income is taxable and losses deductible by the company at the company rate. If the change is implemented, the shareholders of a QC will have both income and losses flowed through the QC to them individually, and the income and losses will be subject to the individual shareholders marginal tax rate. Effectively the company will be taken out of the tax regime.
This proposed regime is based upon the rules currently applying to partnerships. The changes are going to erase any distinction between a QC and an LAQC, so there will be just one classification under the new qualifying company rules. The ultimate result will be that limited partnerships and qualifying company tax rules will be aligned and limited partners and qualifying company shareholders will be treated the same for tax purposes.
As a consequence of this the Government proposes to limit the losses the LAQC shareholders can claim. At present LAQC shareholders can deduct losses in excess of their equity in the LAQC which are potentially greater than their true economic loss. It is proposed that the amount of losses which can flow through to the shareholder will be limited to the amount the shareholder has invested in the company. The amount invested includes equity invested, undistributed earnings of the LAQC and the share of any company debt guaranteed by a shareholder.
If the proposed changes become law the dividends will no longer be paid to shareholders of a QC as no income will be retained by the company. Profits and losses will be directly attributed to shareholders bypassing the imputation system. The IRD believes that the changes will simplify the rules relating to the QC and also compliance costs.
With the removal of depreciation on residential properties we may see more LAQC’s become income generating. The requirement to pass that income through to the shareholder may require investors to consider whether an LAQC is an appropriate structure going forward.
For more information contact Alan Prescott or Nalini Meyer.
April 2010 - Trees & Neighbours
The following article was written by Robin Standage:
Trees are wonderful works of nature. They often have great visual appeal. It is no accident that the areas of our towns and cities where property values are highest are likely to support description as a “leafy suburb.” .jpg)
But trees can have attendant problems. Apart from the constraints placed upon a landowner whose property contains one or more protected trees, the significant problems are likely to arise when your property is affected by one or more trees growing next door. These problems can include:
- Tree roots interfering with drains.
- Leaves falling into and blocking spoutings.
- Blocking sunlight.
- Obstructing view.
- Damage being caused to boundary fences.
- Potential significant damage from a tree that is at the end of its life and might collapse.
A person who, or whose property is adversely affected in these or similar ways, has several courses of action that can alleviate or solve the problem.
In our view, the first step should always be endeavouring to have a friendly chat with your neighbour. Preserving good relations between adjoining property owners is a state of affairs devoutly to be wished. In the course of our law practice, there have been a number of occasions where a feud between neighbours has reached the point where someone has had to sell up and move on. To say that such an outcome is extremely upsetting to all concerned is trite but true. But, if “coming out of your corner fighting” is avoided and a friendly approach is adopted, very often the problems can be resolved by agreement that involves the pruning or trimming of the branches or the roots of an offending tree. This is also likely to be the cheapest solution to any problem.
The next thing to be aware of is the ability of any landowner, as of right, to prune or amputate any part of a neighbour’s tree that intrudes across the common boundary. This action might possibly risk the neighbour’s wrath or ending up with a tree that looks unsightly from your side of the fence. Be aware that the branches or roots that you cut off belong to the owner of the tree and not to you. Also note that if you do anything that is calculated to kill the whole tree, such as the use of poison, your neighbours could claim damages from you for ruining their property.
If neither of these approaches solves the problem or are, for some reason or other, impracticable, then you may be left with having to take legal action.
For a long time there has existed a statutory right to apply to a Court for relief where trees are having an adverse affect on the property and the enjoyment of it. Anybody in this situation is welcome to talk to any of the lawyers at Harmans for advice as to what is involved in making a Court application and the likely cost attending this procedure.
We can say now that the law in this area has been substantially clarified and brought up to date by the passing of the Property Law Act 2007 and the guidelines for applicants and the Judge are set out with reasonable clarity. A Court can order that the offending tree be trimmed or even removed entirely.
The Court is entitled to take into account the fact that the problem complained of was already in existence when the applicant became the owner or occupier of the land, but that is not conclusive. The Court needs to be convinced that the order that it is being asked to make is fair and reasonable and that the hardship faced by the applicant is greater than the hardship that the defendant would suffer if the order is made. There are other factors which have a bearing on the making of, or the type of order that is available and these would be discussed with anyone who chose to consult Harmans over the matter of a problem tree.
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