November 24 2017
As a follow up to our article about the tax implications for renting your accommodation as a holiday home, we’re taking a look at your legal obligations to your lender, insurer and local authority. If you’re thinking about renting holiday accommodation over the Christmas period, or are an existing host, here’s what you need to know to ensure you have everything covered.
You have significant obligations
While you may think you have everything covered once you understand your tax obligations to the IRD, your lender, insurer and local authority will also require you to fulfil certain obligations if you have an accommodation business. Here are some of the key points to check.
How your lender will change their view
If it meets the requirements, your lender will consider your family home to be an investment property. One bank defined an investment property as a property that is occupied by someone other than the owner for six or more weeks in a year. Check with your lender to see if they have the same view.
While this may have no immediate impact on your circumstances, it will matter if you need to finance a new project or are considering spending more money on your property. Your lender may want evidence of positive income flows before they lend you more money.
While you’re probably aware the regulations imposed on banks by the Reserve Bank restricted lending to no more than 80% of the purchase price of the property, this only applies to owner-occupied property. The loan to value ratio for investment property was tightened to 60%. If you want to restructure your loans or seek more finance, you may not be able to borrow any money until your equity increases.
Make sure you notify your Insurer
To avoid any issues with making a claim, you should always talk to your insurer about any changes to the occupancy of your property. Tell them if you’re expecting Airbnb guests, if you’re going to be away from your property for any length of time, or if you have arranged for a house-sitter to look after your home.
We’d remind you about common sense precautions too if you have strangers in your house, such as securing your valuables and organising a separate alarm code.
Check your policy document for any information about making claims. Insurers will use loopholes to avoid making payouts. For example, if you’ve been away from your home for more than 60 days, some contents policies have terms like ‘additional excesses’ or ‘refusal of cover.’ Remember, if there are more than one incidences of damage to your home by visitors, you insurer may consider them to be separate claims with individual excesses.
Your obligations to your local authority
Local authorities have different policies regarding rates for homeowners offering visitor accommodation. Many will consider placing an increased rates obligation on homeowners if they consider your property will use more public utilities such as water and transport.
The Auckland Council imposed a ‘targeted accommodation rate’ from 1 June 2017 which is factored into the annual rates levy. They consider any property to be commercial when it is occupied by visitors for more than 90 days per year. Some properties may also need resource consent.
The Queenstown Lakes District Council provides clear guidelines for resource consent and whether hosting will require a rates increase of at least 25%. It also requires letting homeowners to register as a homestay or holiday home.
The obligations you’ll have to your lender, insurer and local authority may be different to the points listed above. Before you go ahead and accept bookings, check with these three parties to see if there are any limitations for you as a result. If you have any questions, then talk to us.