Common Rental Property Expenditure

Landlords are operating a business when renting out a property, and like with any business, there are costs in doing business. We liken this to employing staff. For example, businesses cannot refuse to pay their employees or refuse to pay the IRD income tax. Similarly, landlords must cover the expenses related to keeping their rental property in good condition.

Section 45 of the Residential Tenancies Act 1986 states that landlords must provide and maintain the premises in a reasonable state of repair having regard to the age and character of the premises and the period during which the premises are likely to remain habitable and available for residential purposes.

As a landlord, it's important to consider the maintenance needed on your rental property. In fact, we recommend thinking about the same maintenance you would perform on your own home. This includes annual upkeep. If you have any experience with body corporates or commercial premises, you’ll know that they plan ahead for anticipated expenditure on the regular services and maintenance contracts, and for body corporates, they have a long-term maintenance Harcourts is New Zealand’s largest and most trusted real estate group*, with over 2570 sales consultants across 205 offices and a growing property management team. For more information visit www.harcourts.net/nz. While every effort has been made to ensure that the information of the publication is accurate; we recommend that before relying on this information you seek independent specialist advice. Harcourts Group Ltd Licensed REAA 2008 *Readers Digest Most Trusted Brand Survey 2013-2023. plan for future maintenance and replacement expenditure. A commercial premises will operate on a similar basis.

Landlords of residential rental premises also need to budget for the annual anticipated costs and forecast for the expenditure they anticipate in the future - for the repair and also replacement of items, thus creating their own ‘long term maintenance plan’.

A great way to forecast costs for the replacement of residential rental property chattels is to look at the estimated useful life and depreciation schedule by Inland Revenue: https://www.taxtechnical.ird.govt. nz/en/determinations/depreciation/ general/dep-80-residential-rentalproperty-chattels

For example, the estimated useful life of carpets for residential rental properties is just 8 years, so landlords should anticipate replacing carpets after this period, and any ‘life’ outside of 8 years may be viewed as a bonus. If carpet is damaged after 8 years, then it is likely that any insurer or tenancy tribunal will de-value the carpet based on it being past its ‘use by date’ and any pay out will reflect this.

Forecasting:
When forecasting and budgeting for future expenditure, landlords should consider the following items, however this is not an exhaustive list and should only be used as a general guide.

Capital expenditure:
Consider what the estimated useful life of the existing chattels in the premises are and create a budget, with a plan to replace them. For the spreadsheet lovers out there, this will be right up your alley, for anyone else, a quick google search will help.

Asset register:
By maintaining an asset register with the age and estimated life of all chattels, better data-driven decisions can be made on whether to repair or replace the item when it stops working. Include any warranties and the expiry dates and ensure that you meet any regular servicing requirements for the warranty to remain valid.

Appliance maintenance:
Landlords are responsible for servicing any fixed heating and ventilation systems. If an appliance is provided at the commencement of a tenancy, this must be either maintained and repaired, or replaced like for like if it stops working.

Smoke Alarm testing and maintenance:
Landlords must ensure smoke alarms -
• are working at the start of each new tenancy
• remain in working order during the tenancy

If landlords don’t meet their obligations, they could face financial penalties of up to $7,200. It is strongly recommended that landlords outsource the checking of smoke alarms to a qualified company which aligns with the industry accepted best practice in New Zealand.

Cleaning between tenancies:
When a tenant vacates a rental premises, they must leave the premises reasonably clean and reasonably tidy. The Tenancy Tribunal clarifies what ‘reasonably clean and tidy’ means -

The Tribunal stated that the words ‘reasonably clean and reasonably tidy condition’ do not impose an absolute standard. This standard will vary according to the age and condition of the premises. There is no requirement that each and every individual item in the premises be left ‘reasonably clean and tidy’, only an overall obligation in relation to the tenancy premises. Also, a tenant generally should not be expected to keep the premises any cleaner and tidier than it was at the commencement of the tenancy.

Therefore, landlords should anticipate getting a thorough professional clean of the rental premises in between tenancies to ensure that the cleaning standard remains high as any good tenant would expect.

Carpet cleaning:
Unless the carpets can be proved to be particularly dirty, tenants cannot be made to professionally clean carpets, however for the overall condition of the carpet, we strongly recommend that landlords have the carpets professionally cleaned between tenancies.

Emergency repairs:
A landlord must maintain a property and therefore they must have funds available to attend to emergency repairs and maintenance. When this is a legal obligation, a landlord cannot argue that they are unable to afford the expense. This is the same as if an employer said they could pay their employee, they will need to find the money. How much available funds a landlord should have to hand, or have access to, may depend upon the age of the rental premises and chattels.

General maintenance and repairs:
Chattels require repair or replacement due to normal fair wear and tear, and fair wear and tear is a landlord’s expense. Fair wear and tear refers to the gradual deterioration of things that are used regularly in a property when people live in it. A tenant is not responsible for normal fair wear and tear to the property or any chattels provided by the landlord when they use them normally.

Painting:
Most interior paint jobs are expected to last between five and 10 years. With tenanted properties, it would be reasonable to expect there to be more wear and tear as tenants would generally move more frequently than homeowners. Consider painting the premises in just one neutral colour throughout, and if you have more than one rental, use the same paint for all properties.

Pest Control:
Landlords need to make sure the property is free from pests at the start of the tenancy and maintain the property to help prevent infestations, however the tenant also has a responsibility to not do anything that encourages pests. If a rental premises is prone to infestation, it is likely that any fumigation costs will befall the landlord.

Outdoor maintenance:
The landlord is usually responsible for outside cleaning and maintenance tasks. For example, chimney cleaning, washing the house, driveways and paths, and cleaning the gutters. The tenant can do outside cleaning tasks like window cleaning, as they're responsible for keeping the property clean and tidy, but this would only apply if the windows were accessible. It does not include windows for apartment buildings or multi-level houses. Landlords are generally responsible for pruning and maintaining trees, shrubs and hedges, and the removal of any associated waste.