Category: Property

The NZ government has recently taken legislative steps with the stated objectives of: collecting more information about property buyers and sellers; improving tax compliance; and cooling the heated property market.

Some measures are in place and others are well on the way.  This article covers each of those measures.

Tax information regime

On 1 October 2015 the Land Transfer Amendment Act 2015 came into force.

For agreements dated after 1 October 2015, there is now a requirement that people buying and selling property must provide a completed Land Transfer Tax Statement.

The Tax Statement must include the following information:

• The name of the buyer/seller;
• Whether the land has a home on it;
• Whether the buyer/seller or a member of their immediate family is a NZ citizen or visa-holder; and
• If the buyer or their immediate family has a work or student visa and whether they intend living in the property.

Some sellers and buyers will also have to give:

• Their IRD number; and
• Their tax number in another country (if they have one).

A natural person who is buying/selling their main home can claim the “main home exemption” and does not need to provide their IRD number (and overseas tax information).  However, this exemption can only be used twice in two years (discussed further below under the Bright-line Test).

Any trust, company or overseas person must provide an IRD number (and overseas tax information) and cannot claim the main home exemption.  This will mean that previously unregistered people or entities must obtain an IRD number in order to sell or buy property.

The Tax Statements are given to Land Information New Zealand (as part of the process to change land ownership), who pass the information on to the Inland Revenue Department (“IRD”).  The IRD may use this information to identify those people who have a pattern of property trading and who possibly should be paying tax on any gains accrued as a result of such property trades.

Bright-line test

Another recent law change is the so-called “bright-line test”.  The Taxation (Bright-line Test for Residential Land) Act 2015 came into force on 16 November 2015.

This regime requires tax to be paid on any income made from residential property that is sold within two years of acquisition.  This is intended to supplement the existing rule that gains from the sale of land are taxable if the land was bought with the intention to sell.

Not all sales will trigger this tax obligation.  The following transactions will be exempt:

• Sale and purchase of the main home;
• Disposal of property by the executors of an estate; and
• Transfers under a relationship property agreement.

The main home exemption can only be used twice in two years.  If a person buys and then sells their third main home in two years, they will be assessed for tax on the gains of their third home.

Residential land withholding tax

The third aspect of this suite of legislative changes is the proposed withholding tax on sales of residential property by people who live overseas.  This is to come into force on 1 July 2016.

This will catch “offshore persons” who sell residential land in NZ, that they acquired on or after 1 October 2015, and that they have owned for less than two years.  There is no “main home” exemption.  This is a collection mechanism for the bright-line test as it applies to offshore persons.

“Offshore persons” will include:

• People who are not NZ citizens;
• People who do not hold a residence class visa; and
• NZ citizens and residence class visa holders who have been away from NZ for a significant period of time (three years in the case of NZ citizens).

“Offshore persons” selling NZ residential property must pay a tax on any gains they have made from the sale.  The tax is collected and paid on their behalf by their “conveyancing agent” (for example, the lawyer handling the sale).

The tax paid is the lesser of:

• A specified percentage of the gain on the property;
• 10% of the sale price of the property; or
• The amount left after repaying any mortgage and rates for the property.

 Summary

The new tax information regime is designed to give the IRD a better insight into property transactions on the back of concerns that not all property traders are meeting their tax obligations.

The Government has been at pains to stress that the regime will not affect the main home of ordinary New Zealanders.  Nevertheless, the new and proposed rules are complex and care will be needed around settlement to ensure buyers and sellers are disclosing the correct information, complying with existing and new property trading taxation obligations and, if an overseas person, meeting the proposed withholding tax requirements.

If you are in any doubt as to the tax implications of these changes for you, please speak to your accountant and/or your usual McCaw Lewis contact.

Introduction

The next phase of the Government’s plans to reform the environmental law scene was recently completed, with the public submission period on the Resource Legislation Amendment Bill (the Bill) closing in mid-March.  As expected, the Bill has drawn a great deal of interest from a raft of stakeholders, including district councils, corporations, iwi, professional associations and organisations, community groups, and individuals.  By the end of the submission period, 675 submissions had been received by the Local Government and Environment Select Committee.

Many of the submitters were in support of the purpose and objective of the Bill – namely, to create a resource management system that achieves sustainable management of natural and physical resources in an efficient and equitable way.  Nonetheless, the submissions detail a number of concerns in relation to particular aspects of the Bill, with many claiming that the intended purpose will not be able to be achieved if the Bill is passed ‘as is’.

This article sets out a few of the key concerns raised in the submissions. Please note that the points outlined in this article are not necessarily the views of the author, but merely represent an overview and brief summary of some of the issues raised in relation to the Bill.

Background: Overview of the Bill

Without discussing the details of the Bill, the proposed changes are briefly summarised below:

• National direction: the Bill includes a number of amendments which are aimed at providing more national control, such as amendments to clarify the content of national environmental standards and national policy statements (referred to as NES and NPS respectively), introduction of a national planning template (or NPT) to ensure consistency of plans, and regulation-making powers for the Minister for the Environment.
• Plan making: the idea is that plan-making will become faster, more efficient (both in relation to cost and time) and with increased iwi engagement.  The proposed amendments therefore include two new planning processes, the Collaborative Planning Process and the Streamlined Planning Process (CPP and SPP respectively), as well as the introduction of Iwi Participation Arrangements.
• Consenting process: changes are proposed in relation to timeframes for considering applications, determination of the status of certain activities, requirements for consultation and notification, the scope for imposing consent conditions and, the process for setting consenting fees.
• Court powers and appeals: the proposed amendments relate to delegation, the timing of certain steps in the process, methods used for determining disputes before the Court, and when the Court has jurisdiction to hear a matter.
• Process alignment: the Bill proposes that processes and timeframes under different environmental statutes be aligned, that refinements are made to the service process, and that the ability to charge financial contributions is removed.

The main concerns raised

Although a raft of concerns are raised in the 675 submissions, a quick overview identifies three issues as particularly contentious, namely:

• The introduction of ministerial powers;
• The structure for increased Māori participation;
• The limited ability for public participation and reduced appeal rights.

The introduction of ministerial powers

Clauses 103 and 105 of the Bill introduce new ministerial regulation-making powers in sections 360, 360D and 360E.  These relate to measures to exclude stock from water bodies, restrictions on local authority control over certain land use, and limitations in relation to administrative charges.

Comments in relation to clause 103 (amended section 360) include support for a consistent approach across the country, while at the same time concern about the content of such regulations being decided by the government.  Some concern is also expressed in respect of the lack of reference to collaboration with affected parties to ensure that the regulations are fit for purpose.

The overriding worry over proposed new section 360D is that it will effectively provide the Minister with the ability to enact regulations which override local authority control of land use.  Submitters were concerned about the Minister having the ability to require the removal of provisions in District or Regional Plans if the Minister believes that such provisions conflict with the regulations.

Many submitters describe clause 105 as a “Henry VIII clause”, a concept used in the Regulatory Impact Statement prepared for the release of the Bill into Parliament.

Some of the main arguments against the Minister being awarded the proposed powers are:

• It goes against principles of democracy and the separation of powers;
• Any wide-reaching and sweeping governmental powers should be subject to adequate monitoring and inspection;
• The proposed powers go too far and are excessive, particularly bearing in mind the existing framework for governmental input into matters of national importance (e.g. through NPS, NES and the proposed new National Planning Template);
• The proposed powers undermine the democratic process underpinning our society.

While the above points more or less represent the majority of submissions, particularly from individual submitters, some submitters (largely local authorities) express a general support of the proposed powers, while criticising the broadness of the section and suggesting that some refinement (rather than removal) may be able to rectify the issue.

The point should be made that parts of section 360D will only be applicable for a limited timeframe, as it is intended to be restricted to the period before the adoption of an NPT, and one year thereafter.  The NPT is set to be in place two years after the Act has come into force.

By way of note, most of the Ministerial powers in section 360D are subject to some control, as the Minister is obligated to prepare an evaluation report, notify the public of the proposed new regulations and establish a process whereby the public can be heard.

The structure for increased Māori participation

There are two clear camps in relation to the proposed amendments concerning Māori participation, in particular the introduction of Iwi Participation Agreements (IPAs) as between iwi and local authorities.

One view is that increased Māori participation will benefit the RMA processes in that it will allow Māori the kaitiaki role always intended for tangata whenua.  The opposing view is that neither Māori nor any other group of society should be given preferential treatment in a matter as vital to New Zealand as resource management.

Concerns raised by the supporters of the introduction of IPAs include:

• How will the proposed agreements fit alongside existing partnership agreements between Councils and iwi? As it stands, many local authorities have existing agreements and/or understandings with local iwi (sometimes with a number of different iwi) and the concern is that the proposed IPAs will not adequately account for the processes already in place.
• The proposed agreements are only intended to ensure Māori participation into the planning processes, meaning that Māori have limited opportunities to provide input into other Council processes.  As a result, some submitters claim that the proposed IPAs do not go far enough to ensure that Māori can fulfil their kaitiaki responsibilities in relation to the environment.

Those who oppose the introduction of IPAs raise the following points:

• A democracy is founded on law-making being delegated to democratically elected representatives.  In allowing non-elected representatives positions of power without the usual ability to remove such representatives if required (such as in cases of abuse of power), the Bill circumvents basic democratic principles.
• The iwi provisions propose to give a select group of citizens special legal status insofar as the environment is concerned, a concept which is incompatible with the principle of equality of citizens.
• Positions of power should not be awarded based on race and there is a risk that these provisions will, without intending to do so, create animosity and/or a societal division by fostering racial disharmony.

It seems that local authorities and large organisations are in general support of the introduction of IPAs, mostly noting that the proposed provisions simply formalise current practices and processes for inclusion of Māori.  On the flipside, a large number of individuals raised concerns in respect of the proposed amendments and it seems there is a genuine fear (whether perceived or real) of what this would mean for society as a whole.

Limited ability for public participation and reduced appeal rights

There are a number of provisions in the Bill which limit the ability of the public to participate in both planning and consenting processes.  Examples include:

• Prescribing which parties are eligible to be notified of different types of consent applications;
• Widening the ability of local authorities to strike out submissions;
• Precluding public notification of certain activities;
• Refining the definition of “affected person” for the purpose of limited notification;
• Limiting appeal rights in respect of certain decisions.

As with the proposed introduction of IPAs, the provisions in the Bill relating to restrictions on public participation have been met with both positive and negative feedback.

The positive feedback largely focuses on the idea that the proposed amendments will help reduce time, limit costs and improve certainty in a number of identified situations, which is of benefit to all stakeholders.

The negative feedback includes:

• Public involvement is the cornerstone of the RMA, and any attempt at reducing consultation or removing the ability to appeal to the Environment Court will detrimentally affect the core of existing environmental legislation.
• The combination of limiting public participation and restricting the ability to appeal decisions will have the effect of drastically reducing the number of stakeholders allowed to take part in any RMA process.  The purpose of ensuring time and cost efficient processes is likely to be able to be achieved with an “either/or” approach.
• The proposed amendments would, rather than simplify, establish unnecessarily complicated procedures.
• The opportunities for early stage involvement in plan-making processes do not adequately make up for the proposed constraints on notification and eligibility of submitters in the consenting process.

Conclusion

While this article is not based on a detailed review of all 675 submissions received, even a limited review makes it clear that the majority of the submitters are in general support of the government’s intention to amend existing resource management legislation by way of an amendment Act.  While a small number contend that a complete overhaul is required, the majority seem convinced that the Bill can result in improvements to the current legislation, provided that the Select Committee properly considers the submissions made.

It is equally clear that the Bill as drafted contains a number of rather contentious amendments, primarily in relation to the proposed changes to the RMA.  Time will tell whether the Select Committee will be able to adequately address the concerns raised.

The Select Committee’s report is due on 3 June 2016.

If you would like further information please contact Dale Thomas on 07 958 7428.

The Heritage New Zealand Pouhere Taonga Act 2014 (“HNZPTA”) is about the identification and preservation of our historic and cultural heritage and replaces the Historic Places Act 1993.  Under the HNZPTA the Historic Places Trust has been renamed Heritage New Zealand Pouhere Taonga (“Heritage NZ”) to better reflect the Trust’s overall purpose.  This is to identify and protect all our cultural and heritage sites for the benefit and enjoyment of all New Zealanders for many years to come.

The changes to the HNZPTA are mainly focused on updating the old legislation and making the heritage consent application process faster and easier to follow.

In light of the Christchurch earthquakes of 2010 and 2011, the HNZPTA has also created an emergency archaeological authority to better manage the protection of our heritage and historic sites, and minimise any delays in decision-making when natural disasters occur.

What does the HNZPTA mean for property owners?

An archaeological site is defined in the HNZPTA as any place in New Zealand (including buildings, structures or shipwrecks) that was associated with pre-1900 human activity, where there is evidence relating to the history of New Zealand that can be investigated using archaeological methods.

When there is an archaeological site it is unlawful to modify or destroy the site without the consent of Heritage NZ.  This is the case even if:

• The site is recorded by Heritage NZ or not; and
• The land on which the site is located is:
  • Designated – which means the Council intends to use the land in the future for a particular work or project (i.e. building a road); or
  • The works to be undertaken are permitted under the District or Regional Plan; or
• • A resource or building consent has been granted for the works.

The HNZPTA provides that significant penalties can be imposed for unauthorised destruction or modification of such sites.

The term “modification” includes the following types of work:

• Earthworks for forestry tracks, planting and harvesting;
• Earthworks for residential developments, including building platforms, topsoil stripping and access ways;
• Earthworks for stock races or farm tracks, fencing or landscaping;
• Trenching for telephone, power, and waste disposal;
• Road construction;
• Quarrying; and
• Building demolition.

If you are developing land and you come across anything on site during earthworks that may potentially be of heritage value, you must notify Heritage NZ and your local Council.  Any earthworks or construction that could affect the site must be stopped until Heritage NZ provides advice on how to proceed.

If you are concerned that your property may contain a heritage site, what should you do?

• Contact Heritage NZ to see if your property is an historic site on the New Zealand Heritage List;
• Contact your local Council, as a heritage site may be recorded in the Council’s property information file or LIM report; and
• Check the title to the property, as Heritage NZ may have registered a heritage covenant or the Council may have registered a consent notice on the title to notify both current and future owners that the property contains a heritage site.

If your property does contain a heritage site that will be affected by any works/development you are planning, then you will need to apply to Heritage NZ for an authority to modify or destroy the site.  See this Heritage NZ webpage for information about obtaining an Archaeological Authority: http://www.heritage.org.nz/protecting-heritage/archaeology/archaeological-authorities

What is the New Zealand Heritage List?

The New Zealand Heritage List identifies New Zealand’s important historical and cultural heritage places and replaces the former Historic Places Register.  The aim of the list is to help better inform and notify owners, the public, community organisations, government agencies and Councils about significant heritage places.

The New Zealand Heritage List is divided into five parts:

• Historic Places – such as archaeological sites, buildings and memorials;
• Historic Areas – groups of related historic places, for example a geographical area with a number of properties or sites, a heritage precinct, or a historical and cultural area;
• Wāhi Tūpuna – places important to Māori for their ancestral significance and associated cultural and traditional values;
• Wāhi Tapu – places sacred to Māori in the traditional, spiritual, religious, ritual or mythological sense, such as maunga tapu, urupā, funeral sites and punawai; and
• Wāhi Tapu Areas – areas that contain one or more wāhi tapu.

The role of local and territorial authorities

Councils, along with Heritage NZ, play an important monitoring role in the preservation and protection of heritage sites through District Plan policies and heritage listings under the Resource Management Act 1991.

Under the new Act, Heritage NZ must maintain, and supply Councils with, a list of all entries in the New Zealand Heritage List and heritage covenants that apply to their governing areas.  Councils, in turn, are required to make the list available for public inspection and should include heritage covenants and known heritage sites on the LIM reports for the affected properties.

How can we help?

The HNZPTA is an important piece of legislation that has changed the way heritage sites are managed in New Zealand.  If you require any further information about dealing with heritage sites or making an application to Heritage NZ please contact our Resource Management or Property teams.

If you would like further information please contact Dale Thomas on 07 958 7428.

Owning a unit title property is similar to joining a club.  Considerations such as how well run the club is and what the club rules are will influence whether (or not) you might want to join the club.  In this article, we summarise a recent case that highlighted this message and the need to understand the difference between owning a unit title property compared with other types of property ownership arrangements.

Message from the High Court

The reality is that owning a unit title property can be a lot more restrictive than owning either a freehold or even a cross lease property.  While owners are given exclusive rights over their units, each unit owner must adhere to the Unit Titles Act 2010 (the Act), Unit Title Regulations 2011, body corporate operational rules, and owners must also work alongside the body corporate to help run and carry out an effective unit title development.

In Wheeldon v Body Corporate 342525 the High Court stated:

 “…people who want to be able to choose how and when they might repair building elements should carefully reflect on whether unit title ownership is appropriate for them.”

This case dealt with a repair and maintenance issue in a unit title development that had 22 individual units set out in a “wedding cake” design.  The unit title development needed extensive repairs and maintenance to the whole development to bring it in line with building standards.  The estimated costs to complete the extensive works were around $3,000,000.

Five unit owners opposed the works and the subsequent levies raised to cover the works.  These opposing unit owners brought a case to the High Court seeking a declaration and injunctive relief relating to the scope of the remedial work.

In determining the scope of the remedial works the Court went “back to basics” by looking at the intention of the Act.  In particular, the Court reviewed the purpose of the Act, which is set out in section 3, and highlighted subsection 3(d) which states “…to protect the integrity of the development as a whole” . In reviewing the purpose against the factual background of the case, the Court found that the body corporate was entitled to repair the whole building without first giving individual unit owners the opportunity to effect their own repairs.

The Court then moved on to consider section 138 of the Act, which sets out the body corporate’s duty to repair and maintain building elements and infrastructure that relate to or serve more than one unit.  In looking at whether the criteria under section 138(1)(d) of the Act was met by the body corporate, the Court referred to the Re Bell case.  In this case it was found that the merits of the body corporate’s proposed work should be determined by the affected owners, as they have personal knowledge of the matter.  The matter should not be determined in Court; the Court can only decide on whether the correct procedure was undertaken in passing the resolutions and the material that could justify such decision.

It was found in this case that the body corporate had sought an expert opinion, which was provided to it in good faith, and the body corporate acted on that opinion.  It therefore falls to the body corporate to decide how to act, whether via a holistic solution put forward by the defendants or a targeted approach supported by the plaintiffs.

The next question then for the Court was whether the decks of levels 4, 3 and 2 were building elements and whether they related to or served more than one unit.  The Court very simply and precisely determined that the decks were building elements and referred to the interpretation section of the Act, in order to arrive at their conclusion.  Following this, the Court went on to determine the meaning of “relate to”.

The Court adopted the meaning as set out in Young & Ors v Body Corporate where Harrison J stated:

“Something is incidental if it naturally attaches or is causally relevant to something else.  The phrase “relates to” has a similar meaning of reference to or concern with.”

The Court therefore found that the work did not have to just physically affect more than one unit to meet the criteria under section 138(1)(d).  There could be an economic impact on the other units if the work was not completed to the building elements and infrastructure as this would in turn ultimately have a physical impact on the other units, albeit at a later point in time.

In that sense, and in applying the evidence from the experts, the building elements related to more than one unit as the inevitable consequence of the “wedding cake” design meant that any water leaking from a deck would migrate vertically and horizontally through the building structure and in turn affect all units of the development.  The Court also found that the small in-fill panels in certain units, although they were within the boundary of each unit, related aesthetically to the other units and should be replaced as part of the whole repair and maintenance exercise.

The Court determined that the work to be carried out was essential to bring the building up to standard.  The Court did exclude some of the improvements, such as double glazing, and stated that these should be presented to owners as optional extras.  This determination was qualified by the Court on the basis that should the relevant local authority issue a building consent for a reduced scope of work than the work that was contemplated, then the body corporate would need to consider its position further.

Unit title ownership

This case highlights the often complicated nature of unit title property ownership.  There are many more aspects to consider when owning a unit title property, compared with owning a freehold property.  It is important to understand, as both an owner and a potential purchaser, your roles and responsibilities under the Act, the Unit Title Regulations 2011 and also the body corporate operational rules of your unit title property.

While this case deals with repair and maintenance issues, there are number of other matters that the body corporate is responsible for and a number of other matters that the body corporate can control.  For example, the body corporate can limit the number of pets you can keep, or whether you are even allowed any pets at all.

When buying a unit title property or if you currently own a unit title property, we believe it is crucial to understand your rights and responsibilities as a unit owner, and to also understand the role and obligations of the body corporate.  If you are unsure of these matters or would like further advice on any issues you may have, please do not hesitate to contact a member of our Property Team.

If you would like further information please contact Dale Thomas on 07 958 7428.

Reinstatement

The current version of the Auckland District Law Society (ADLS) commercial deed of lease form provides that the tenant will, at its own expense, if required by the landlord, no later than the end or earlier termination of the lease, reinstate the premises to their condition as at the lease commencement date.  If the tenant fails to reinstate then any costs incurred by the landlord in reinstating the premises will be recoverable from the tenant.

Under the ADLS form of lease, if the lease is assigned to a subsequent tenant, then the subsequent tenant as at the expiry or earlier termination of the lease is liable to reinstate the premises to the condition of the premises as at the commencement date of the lease to the original tenant.

Reinstatement obligations are potentially wide-ranging and may, for example, include the removal or reinsertion of office partitioning, cabling, wiring and other office fit-out, computer systems, bathroom and kitchen facilities together with repainting, redecoration and replacement of floor coverings. This can lead to significant costs for a tenant. Where possible, the potential reinstatement costs should be factored into the calculations made by a tenant when considering the financial viability of the letting.

In addition, both the tenant and landlord can incur costs (such as professional fees, internal management costs and the like) in attempting to resolve any dispute between them around reinstatement issues and as to exactly what the state of the premises was at the commencement date of the lease. As many years may have elapsed since the original lease term commenced, it can be very difficult to establish the condition of the premises at the commencement date without any supporting evidence.

Premises condition reports

The inclusion of a premises condition report (sometimes also referred to as a schedule of condition) in a deed of lease is potentially very useful in determining the state of the premises at the commencement date of the lease.

The current version of the ADLS commercial deed of lease form includes the option for the parties to include a “premises condition report” and provides that where such a report is included, it will be “evidence as to the condition of the premises at the commencement date of this lease”.

The inclusion of a comprehensive premises condition report in the deed of lease means that the parties have clear evidence as to the condition of the premises at the commencement date.

Summary

Before entering into lease arrangements, landlords and tenants should thoroughly check the reinstatement obligations under the proposed lease.  If you have any queries in relation to reinstatement obligations either before entering into a new lease or when approaching the expiry of a lease we recommend you obtain legal advice.

If you would like further information please contact Dale Thomas on 07 958 7428.

Introduction

The Ministry of Business, Innovation & Employment (“MBIE”) has recently announced a number of new consumer protection measures with the aim of improving practices in the residential construction sector.  The new measures are contained in the Building (Residential Consumer Rights and Remedies) Regulations 2014 (the “Regulations”).

The Regulations have been introduced following the Building Amendment Act 2013 (the “Amendment Act”), both of which came into force on 1 January 2015.  The Amendment Act is the result of a comprehensive review of the Building Act 2004 (the “Act”), which is the primary piece of legislation governing the New Zealand construction industry.

New rights for clients – what you can expect from your builder

The key consumer protection measures introduced by the Regulations and the Amendment Act include the following:

• For all residential building work costing $30,000 (including GST) or more (the “price threshold”):
  • Contracts are to be in writing;
  • Building contractors are to provide checklists and disclose certain information;
  • There is now minimum content that must be included in residential building contracts;

• There are various default clauses that are taken to be included in a residential building contract, in the circumstances outlined further below;
• Information that a building contractor must provide to its client after the building work is completed; and
• Fines of $500 where a building contractor breaches any of the written contract, disclosure or checklist requirements.

The price threshold is based on the total price for all work being done by the building contractor, regardless of whether it is covered by one or more contracts.  Any attempt to break the required work into separate, multiple, lower-priced contracts to get round the Regulations will therefore be ineffective.

Subject to the price threshold noted above, the Regulations apply to all “residential building contracts”.  The Regulations will therefore apply both to owner-occupier homeowners and residential landlords undertaking construction work on their rental properties.

Some further details on the new measures follow below.

Checklists and disclosure statements

The checklist prescribed by MBIE contains useful information for a client to consider before engaging a builder on a construction project.  The checklist covers various points, including:

• Details of the type of construction work caught by the Act;
• Agreeing the project scope and management structures;
• Issues to consider in hiring competent building contractors;
• Agreeing on a contract price and making payments;
• Having a written contract;
• The importance of effective communication; and
• Resolving disputes.

The prescribed disclosure statement requires the builder to provide details of various project-specific matters relating to the proposed work, including:

• The name of the building contractor;
• Contact details for the person responsible for supervising the work;
• Details of relevant insurance policies held or to be held by the building contractor; and
• Information about any guarantees or warranties which the building contractor offers in relation to the building work.

A building contractor who knowingly provides false or misleading information, or who knowingly leaves out information they are required to provide in the disclosure statement, is liable to a fine of up to $2,000.

Minimum content

The Regulations set out minimum requirements for the content of contracts for building work above the price threshold.  This includes:

• Party details;
• Details of the works;
• Start and completion dates;
• Payment arrangements;
• The contractual mechanisms governing how changes to the scope of the work (also known as “variations”) will be managed and agreed; and
• Dispute resolution procedures.

Default clauses

The Regulations prescribe default clauses which will be considered to be part of a construction contract in the following circumstances:

• Where residential building work is above the price threshold and there is no written contract; or
• Where the written contract does not including the minimum content required by the Regulations.

The default clauses cover such aspects as:

• A requirement for the building contractor to obtain all necessary building consents (written and oral contracts) and code compliance certificates (oral contracts only);
• How variations will be managed;
• Monthly progress payments; and
• How disputes will be managed.

Post-completion information

The Regulations set out the information and documentation that a building contractor must provide to a client on completion of the building project.  This includes:

• Copies of relevant insurance policies;
• Copies of any guarantees and warranties relating to the work; and
• Information on how to maintain any element of the building work if the validity of any applicable guarantee or warranty could be prejudiced by the failure of the client to carry out maintenance in the prescribed manner.

Other relevant provisions

Aside from the consumer protection provisions of the Regulations, the Amendment Act itself sets out implied terms that apply to all residential building work, regardless of whether or not there is a written contract and what the contract terms are.  The implied provisions are wide-ranging in nature and cover such aspects as:

• The building contractor’s compliance with the Building Code;
• The requirement for good workmanship;
• The timely completion of work; and
• The remedying of any defects notified within one year of completion.

Considerations for clients

Before embarking on a residential construction project, clients should familiarise themselves with their rights as consumers under the new Regulations and the Amendment Act.  The MBIE website contains a useful consumer guide – Building or Renovating? Do Your Homework (2014) – for those considering undertaking residential building work.

For work above the price threshold, a client can now expect to receive from a builder:

• A written building contract containing prescribed minimum content;
• A checklist;
• A completed disclosure statement; and
• A pack of information following completion of the work, including applicable insurance details, product guarantees/warranties and maintenance advice.

Even if the proposed building work falls under the price threshold specified in the Regulations, it is still recommended that the client and builder have a written contract to help avoid later misunderstandings, and clients may still request a checklist and MBIE-prescribed completed disclosure statement from the building contractor.

If you would like further information please contact Daniel Shore on 07 958 7477.

Introduction

In 1986 David Harding was involved in the design of the CTV Building in Christchurch.  As is now well-documented, this building collapsed in the earthquake of February 2011 – with fatal consequences.  At the time of designing the building, Mr Harding was a member of the Institution of Professional Engineers New Zealand (“IPENZ”).

Following the building’s collapse, IPENZ received complaints regarding Mr Harding’s involvement in its design.  The complaints initiated IPENZ’s disciplinary procedure, which resulted in an investigating committee in April 2014 determining that the complaints should be referred to a Disciplinary Committee.  In June 2014 Mr Harding resigned his membership of IPENZ.

The IPENZ Disciplinary Committee

In August 2014 the complaints went before an IPENZ Disciplinary Committee hearing.  Mr Harding argued that the committee had no jurisdiction to hear the complaints on the basis that he had resigned his membership of IPENZ a few weeks previously.

Despite Mr Harding’s objections, IPENZ proceeded on the basis that it did have jurisdiction and it subsequently released its ruling on that issue, Harding v Institution of Professional Engineers New Zealand Incorporated [2014] NZHC 2251.

Judicial review application

Following the IPENZ ruling, Mr Harding sought a judicial review of IPENZ’s decision that it had jurisdiction despite the resignation.  Mr Harding submitted in support of his position that:

• IPENZ’s jurisdiction was limited to current IPENZ members only; and
• It would be a breach of natural justice for IPENZ to retain jurisdiction in such circumstances.

In response, IPENZ contended that:

• It was the individual’s membership status at the time of the complaint or conduct in question (and not at the time of the hearing) which impacted on the question of jurisdiction; and
• It was sufficient that Mr Harding was a member of IPENZ at the time of the conduct giving rise to the complaints and when the complaints were made.

The Court focused on the internal rules and disciplinary regulations of IPENZ.  It was agreed that Mr Harding was a member of IPENZ at the time of his involvement in the design of the CTV Building and at the time of the complaints which were the subject of the disciplinary hearing – these points were not in contention.

The sole issue between the parties was whether the IPENZ rules and regulations provided jurisdiction to hear a complaint and to make a decision regarding a former member of IPENZ – and so (in the language of judicial review and public law), whether the decision of IPENZ was ultra vires (beyond its powers).

The IPENZ rules and regulations

The Court considered the IPENZ rules, in particular the following:

• Rule 3, which sets out the object of IPENZ.  This is described as “the advancement of the professions of engineering within New Zealand”;
• Rule 4, which sets out the professional obligations of IPENZ members, including the requirement for an undertaking by each candidate for membership that they will abide by the IPENZ rules and regulations.  Under Rule 4, members must also comply with a code of ethics and with obligations of competence and good character;
• Rule 11, which requires IPENZ to prescribe disciplinary regulations.

Upon receipt of a complaint which may indicate that a member has acted in breach of the Rule 4 membership obligations, the rules provided that the Chief Executive of IPENZ must (in other words a mandatory, not optional, process) either refer the matter to a Disciplinary Committee or carry out further investigations.  Upon completion of its investigations, an investigating committee must (mandatory again) either refer the matter to a Disciplinary Committee or dismiss the matter.  Under Rule 11.5 there were various sanctions available to the IPENZ Disciplinary Committee, including suspension or expulsion.  If there were grounds for discipline, a Disciplinary Committee was required to decide whether and how to exercise its powers under the rules.

Mr Harding argued that as he was no longer a member of IPENZ, its rules and regulations no longer applied to him.  He further contended that as the Disciplinary Committee no longer had any power to make any orders against him, proceeding to hear the complaint was an empty exercise.  IPENZ accepted that it no longer had powers to make any orders against Mr Harding as a member of IPENZ.

The decision

In considering the meaning of the term “member” in the context of the rules, the Court concluded that a member included someone who may have resigned prior to the hearing of complaints made against him by a Disciplinary Committee.

Although Mr Harding’s resignation limited the Disciplinary Committee’s full range of potential disciplinary measures, the Court noted that the sanction of publication still remained open to IPENZ, and this could have a punitive effect in its own right.

The Court emphasised the importance to the public of there being an effective complaints procedure, to investigate and hold to account individuals who are members of a recognised professional body at the time of the conduct the subject of the complaint, or at least the time the complaint was made.

The Court also rejected Mr Harding’s suggestion that if “member” was limited to a current member, he would be denied the opportunity to appeal to IPENZ and that this would constitute a breach of natural justice.  The Court held that just as the committee had jurisdiction in respect of Mr Harding’s conduct as an IPENZ member, so too would Mr Harding be entitled to make a request for an appeal in respect of any sanction imposed by the committee.

Mr Harding’s application for judicial review was therefore unsuccessful.

Conclusion

This case will be of interest to engineers and others involved in the construction industry, but it is also of potentially broader application to members (both current and former) of any recognised professional body.  As a matter of pure legal interpretation the Court found that IPENZ had jurisdiction under its rules to hear complaints and make orders in respect of a former IPENZ member.  That must also surely be the correct outcome from a public policy perspective.

If you would like further information please contact Daniel Shore on 07 958 7477.

Introduction

Development contributions (“DCs”) continue to get a lot of media attention – and can leave a sour taste, especially as they do not just apply to “developers” as traditionally understood, but to all kinds of projects and people.

Following a central government review in 2013, where the DC regime was described by the then Minister as “complex, difficult to understand, and … applied inconsistently”, the Local Government Act 2002 Amendment Act 2014 (“LGAA 2014”), which largely came into force on 1 July 2014, has significantly altered the landscape for development contributions.

Background to development contributions

The legislation has its own terminology:

• “development” means a subdivision, building, land use, or work, that generates a demand for reserves, network infrastructure, or community infrastructure, not including pipes or lines of a network utility operator.  Many of these terms have their own definitions as well; and
• “development contribution” means a contribution provided for in the relevant policy of a Council, calculated in accordance with a statutory methodology, and comprising money, land, or both.

A Council may require a development contribution (“DC”) to be paid when a resource consent, building consent, or authority for a service connection is granted, as long as the DC is consistent with that council’s policy.  Every Council must have a policy before imposing DCs.

DCs may only be required if the effect of the development is to require new or additional assets, or assets of increased capacity – with the consequence that the Council incurs capital expenditure.  A DC is a tax or a charge, not a payment for services.

Complaint processes

The LGAA 2014 places significant emphasis on accountability for Councils in setting DCs.  Essentially it provides for two new processes –  reconsideration and/or objection.

Reconsideration

If a DC is imposed, there is an ability to request that the Council reconsider it, on the grounds that:

• the DC was incorrectly calculated under the Council’s policy; or
• the Council incorrectly applied its policy; or
• the information used to assess the development against the policy – or the way the policy was applied – was incomplete or contained errors.

The Council’s policy must itself set out the process for seeking reconsideration.

The request for reconsideration must be made within 10 working days of receiving notice of the level of DCs required by the Council.  The Council then has 15 working days after it has received all required relevant information to respond.

Objection

Objection is a more formal process, and can be sought on the grounds that the Council has:

• failed to properly take into account features of the development which would substantially reduce the impact of the development on the demand for community facilities; or
• required a DC for community facilities not required by or related to the development; or
• breached other provisions of the Local Government Act; or
• incorrectly applied its own policy.

A request for reconsideration may not follow an objection, but an objection may follow a request for reconsideration.

If an objection is made, there is then a specified procedure to be followed under Schedule 13A.  This includes:

• the Council appointing 1 – 3 Commissioners to the matter from a government-appointed list;
• exchange of evidence, and potentially a hearing; and
• consideration of the objection by the Commissioners, with regard to the grounds for the objection, the purpose and principles of DCs, the provisions of the Council’s DC policy, and the cumulative effect of the development.

The DC Commissioners’ costs are payable by the objector, as are the reasonable costs incurred by Council in preparing for, organising and holding the hearing.

Judicial review

Neither the reconsideration process, nor the objection process, affects the right to apply for judicial review of a Council’s decision.

Development agreements

Council and a developer may also enter into a development agreement.  The legislation refers to this as a voluntary arrangement, but also sets out what a development agreement must and may contain.

A development agreement cannot force a Council to depart from its regulatory responsibilities, nor can it require a developer to go beyond what the developer would normally be required to do.  A development agreement may include such things as:

• the timing of the provision of infrastructure;
• ownership, operation, and maintenance of infrastructure;
•  mechanisms for dispute resolution; and
• terms as to enforcement and breach, including provision for a guarantee, bond, or encumbrance.

Within the boundaries of the legislation, there is the potential for developers and Councils to pursue creative solutions.  A dispute resolution arrangement that fits one development may not fit another; in some cases, an encumbrance may be better than a bond or guarantee.

Conclusion

The provisions of the LGAA 2014 need to be understood by everyone who gets hit with a DC.  Developers now have greater rights to complain through seeking reconsideration or making an objection.  Councils have clearer obligations of transparency and accountability.  Development agreements will likely have a greater role in allowing developers and Councils to have a meeting of minds.

If you are levied with a DC you do not like, there is something you can do about it.  Understanding the options is key, and the best approach for determining the way forward is a team effort between the planner, lawyer, and client.

If you would like further information please contact Dale Thomas on 07 958 7428.

In April and July 2013 we described proposed changes to the taxation of certain land-related lease payments proposed by IRD in April 2013.  The proposed reforms will affect many landlords and tenants of commercial property.  There is currently draft legislation before parliament but the reforms are less extensive than previously thought.

We summarise the key aspects of the draft legislation, being the Taxation (Annual Rates, Employee Allowances, and Remedial matters) Bill (the Bill), which was introduced to Parliament in November 2013.

The Bill proposes to tax, from 1 April 2015, certain lease transfer payments, which can be substituted for taxable lease surrender and lease premium payments. The Bill also proposes a number of technical amendments to tax law relating to leases and licences of land to provide consistency and certainty.

Provided the Bill is enacted, a lease transfer payment will be taxable in the following situations:

• If the lease transfer payment is sourced directly or indirectly from funds provided by the owner of the estate in land from which the land right is granted.  Such a payment can be substituted for a lease surrender payment.
• If the person purchasing the lease is associated with the owner of the estate in land from which the land right is granted.  The lease transfer payment can be substituted for a lease surrender payment.
• If the vendor of the lease is associated with the owner of the estate in land from which the land right is granted.  The lease transfer payment can be substituted for a lease premium.

The Bill is currently before the Finance and Expenditure Committee.  The proposals, if enacted, will apply from 1 April 2015.

If you would like further information please contact Dale Thomas on 07 958 7428.