APIA Blog

RSS Feed

Trust beneficiary's ability to move into the rental property remains up in the air

Friday, August 28, 2020

A common question that has been circulating in the lead-up to the Residential Tenancies Amendment Act 2020 coming into effect:

Whether a tenancy at a trust-owned rental property can be terminated under s 51(1)(a)?

The current s51(1)(a) requires the landlord to give a 42-day notice to terminate if the owner or any member of the owners' family intend to move into the property as a principal place of residence. The amended section increases the notice period to 63 days and requires that the owner/member of the owners' family move into the property within 90 days of termination and uses it as the principal place of residence for at least 90 days.

(Two things to note: The section owners not landlords*. The Amendment broadens the definition for 'member of the landlord's or owner's family'. )

As many rental properties are held by companies or trusts for asset protection and tax purposes, the natural inquiry then is whether tenancies of company-owned or trust-owned properties are capable of being terminated under s51(1)(a). 

In the case of company-owned properties, the answer is fairly straight forward. A company is a standalone entity that is separate and distinct from its directors and shareholders. It is incapable of having family members. Tenancies at company-owned properties cannot be terminated under s51(1)(a). 

The same logic does not apply comfortably to trust-owned properties. On a strict interpretation, a trust is a 'bundle of rights'; rights and bundles are incapable of having family members so s51(1)(a) should have no place in a trust-owned tenancy. But what about trustees who are beneficiaries and their family members who are also beneficiaries of the trust? The right answer becomes a lot less clear. 

To complicate the matter more, the Tenancy Tribunal has been inconsistent in its approach. 

In Kearns, Heather v Jazmine Lenniston as trustees for the J T Trust [2018] NZTT Porirua 4139127, the adjudicator held that

... the person seeking to occupy the premises in this case is a trustee – and presumably also a beneficiary... As a trustee, Ms Lenniston is legally (if not beneficially) an owner of the property: her name will appear on the title to the property. On that basis, I am prepared to find that s.51(1)(a) can apply.

Yet the adjudicator in Fitzpatrick, Natasha Sandra and other parties v Trustees Executors Ltd [2018] NZTT Manukau 4125809 is adamant that 

There is no ability for a company or trust to give notice pursuant to section 51(1)(a) to terminate a tenancy, as a trust or a company cannot occupy the premises as its principal place of residence, and neither can they have family members who could occupy the premises.

DK Law Director Kristine King says, 'If the Tribunal is to focus on the beneficiaries then there is a pathway to have those people considered as family members for the purposes of the section. Especially with the new Trust Act coming in, we are seeing variations of trust so that the trust beneficiaries are reduced to core family members and elimination of wider general classes of beneficiaries due to the new disclosure requirements. That would align quite well with these provisions. This, however, wouldn't work for trusts where the only beneficiary is another trust (e.g. a trading trust with a family trust as sole beneficiary).'

As with many interpretation issues, we look to the Tenancy Tribunal as the ultimate arbiter and await more orders to eventuate before advising our members further. What we do know for certain is that the RTAA 2020 has not all of a sudden, put up an impediment for company directors, shareholders and trust beneficiaries to avail themselves of the protection of s51(1)(a). But the removal of the safety net that is 90-day no-fault termination certainly amplifies the urgency for property investors to consider, more broadly, the knock-on effects of different ownership instruments. Sign up to our upcoming webinar to learn the best way to structure your rental property portfolio.

We would like to acknowledge Kristine King and the team at DK Law for assisting us with putting this piece together. 

* Had s51(1)(a) allow for termination to take place to accommodate the landlord and landlord's family moving in then an argument could be made characterising the director of a company and settlor/trustee of the trust as landlords and therefore make way for the termination to occur.

 

 

 

 

Recent Posts


Tags

rtaa2020 market rent buying rules kiwibuild meth contamination financial advisers act housing bubble bond form election2020 government property apprentice insurance auckland RBNZ investment strategy commerce commission partners Landlording CCC Q&A Sponsored post opes partners TCIT data security fixed-term tenancy yield income short-term rental letting fee smoke alarm ocr sublease worksafe DTI maintenance Investor story damage meth CoreLogic Editor's Choice debt enforcement buyer's agent parry v inglis clnz interest only property management finance re agent Level 4 early termination barfoot and thompson HSWA extractor fan negotiation Must know lvr productivity buying anti-social behaviour property value Property (Relationships) Act will heater positive cash flow trademe market cash-flow p lab asbestos equity tax recycling equity election 2017 anz ventilation LIM rta banking rental market Market report Guest blog HHS water bill auckland council subdivision property tenancy issues airbnb tenancy services scotney williams Investment tip twg report termination legal insulation bond boarding house sale and purchas property cycle trespass ring-fencing tenancy tribunal education warm up new zealand wealth creation rent speculator shower dome skill shortage cat holiday house unitary plan RTAA 2019 robert kiyosaki advice capital gain relationship development off the plan cgt structure bad tenant minor dwelling initio business rental wof watercare HHGA How to building management sale and purchase property maintenance television beginner investor Holler first home buying khh trust reserve bank housing affordability Question and answer return ask an expert mortgage house prices nzpif rent arrears landlord gluckman report Case study rent increase Must knows letting personal growth renovation warren buffett covid-19 winz Gluckman inspection ird heating investor rta reform principal and interest tenant interest rates Standards New Zealand Tribunal case study Jeff Bezos mindset wins privacy Kris Pedersen Mortgages and Insurance

Archive

Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo
09 360 2376
info@apia.org.nz

The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 



Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited