The Bright Line Test

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In 2015, the government introduced the “bright-line test”, a method which attempts to tighten the property investment rules.

The bright-line test states that (subject to exemptions) any gain from disposing of residential land within two years of acquiring it will be taxable. The test only applies to residential land. Residential land is land that has a dwelling on it or could have a dwelling on it and does not include farms or business premises.

The bright-line test applies where a person’s “first interest” in residential land is acquired on or after 1 October 2015. Generally, a person acquires their “first interest” on the day they enter into an agreement to purchase residential land. The start and end dates may vary depending on the circumstances of each transaction.

For standard sales, the two year bright-line period starts when title for the residential land is transferred to a person under the Land Transfer Act 1952 and ends when the person signs a contract to sell the land. In other situations, such as gifts, the date of “first interest” is the date the title is registered by the donor and the end date is when the donee acquires registered title.

In simple terms, when a person purchases their main home after 1 October 2015 and then sells it within two years, the income they receive for the sale is not taxable. A person can only have one main home to which the bright-line test does not apply. If a person has more than one home, it is the home that the person has the greatest connection with that is considered the main home for the purposes of the test. Factors to assess when determining what constitutes a main home include; how often a person uses the home, where their immediate family is, where their social and economic ties are and whether their personal property is in the home.

The test is based on actual use of the property and not just a person’s intention to use the property as a main home. This exemption cannot be applied on a proportionate basis; therefore, if a house is used only partly as a main home, the exemption does not apply. Where a main home is held in a trust, the exemption is usually available; however, additional information is required to ensure trusts are not used to avoid tax.

A habitual seller cannot use the main home exemption. If a person has used the main home exemption more than twice in the previous two years at the time of selling their property, they are considered a habitual seller. A habitual seller also includes a person who regularly acquires and disposes residential land.  Where property is inherited by a person as a beneficiary and they subsequently sell the property, the disposal will not be subject to tax under the bright-line test. Where property is transferred between partners or spouses under a property relationship agreement, there are no tax implications. However, if the property is subsequently sold; the bright-line test may apply.

There have been cases where tax obligations arose through the disposal of residential property which did not result in financial gain to the seller. As a result, it is highly recommended that specialist advice is obtained in respect of all property transactions.

The Human Tissues Act

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Until we are confronted with death, an emergency or illness, few of us are likely to turn our minds to the interplay between the law, and how it affects the way we deal with a loved one’s remains, let alone the choices we make or leave in respect of our own bodies.

The Human Tissue Act 2008 (“the Act”) currently governs the way human tissue is dealt within New Zealand.  Under the Act, Human Tissue (“tissue”) is defined as including any material that is, or is derived from a body or material collected from a living individual. The definition is wide reaching and encompasses amongst other matters an individual’s organs, blood, skin or stem cells. Human embryo’s, including female eggs and sperm only qualify as human tissue in certain instances, including where human tissue is collected for non-therapeutic purposes or in relation to exporting or importing human tissue.

The Act provides for compromise in its framework, by facilitating an ‘opt in’ approach. Informed consent or an informed objection may be given by the individual whose body the tissue may be collected during their life and upon death. Where no informed consent has been given or no informed objection has been raised, the Act provides a hierarchy of who may consent to tissue being collected from the body of a deceased, including an individual’s nominee(s), immediate family and then a close available relative.

Several assumptions exist within the Act, including:

  1. that an individual over 16 years of age is capable of making an informed decision;
  2. consent or objection is free and informed, immediate family members providing consent have undertaken consultation with other immediate family members; and
  3. that the individuals have taken into account the cultural beliefs of their families.

The cultural context for decision making in respect of donating or collecting tissue is woven throughout the Act. There is a requirement and expectation on those who collect human tissue, that they will take into account the spiritual needs, values and beliefs of the individual and their immediate family. Potential donators are encouraged to consider the impact that their decision will have on their family following death.

In respect of expressing consent, certain obstacles exist in conveying ones wish to be a donor. We are likely to be familiar with the ‘donor’ indications on a driver licence. However, ticking the ‘donor’ box on a driver licence may not meet accepted requirements for obtaining informed consent. This is primarily due to the contention that a driver licence has a life span of 10 years, and it may not reflect an individual’s wishes at the time of death. In contrast, a Will provides the unequivocal wishes and intentions of a deceased person including an expression of consent.

The issue of expressing consent by way of  a person’s Will is that it may not be practical and timely to ascertain certainty around the intention and consent of the deceased in times of emergency, or where a timely decision is required. The Act has attempted to alleviate this problem by providing an ‘opt-in register’, where consent may be given after the fact and at a later date.

To ensure that your wishes and intentions are adhered to, we recommend that you discuss these matters regularly with your family and lawyer.

Going to Court – Checklist

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The prospect of appearing in or even simply attending Court proceedings will fill most people with a sense of dread.  There are a great number of unknowns and a Courtroom is not known as being an inviting or friendly environment.

However, a Courtroom is certainly a safe environment and while the participants in a Court process may appear to be aloof and unfriendly, in fact these people are well aware of the stress and anxiety that a person may feel when coming to Court and will happily answer questions or provide help.

The Courtroom is used for several types of cases and depending on the nature of the case or what stage it is at in the process, the Courtroom and the people in it can look quite different. For instance, if the Court is set up for a criminal matter there will likely be a jury, a full press box, an accused person near the back of the Court, several lawyers, the Judge, a registrar and members of the New Zealand Police. However, a commercial matter in the early stages of the process will be handled in what is called the commercial list and in that case there is no jury, any police and several matters will be heard one after another involving different lawyers that will come and go as their matters are called.

Accordingly, how to prepare to come to Court will depend on the reason for attendance and the type of case. However, here is a checklist of key things to do in preparation for attending Court as a support person or as a client in a civil (non-criminal) matter:

  1. If you are the client, travel to court with your lawyer. It is the best way to appear as if you know what you are doing and to avoid becoming lost or anxious. Your lawyer will have been to Court many times before.
  2. If you are to appear in Court (as a witness for example), prepare and ask questions about when you will be asked to appear and who will speak to you and when.
  3. Check whether the matter is to be heard in the District Court, High Court or Family Court (or indeed the Court of Appeal or Supreme Court) as these Courts may be in different places.
  4. Dress tidily. Judges have been known to refuse entry into their Court because of what a person is wearing. Unless you are appearing as a party to the matter, a witness or you are a lawyer, you do not need to wear a suit or equivalent. However, you are expected to dress professionally.
  5. Turn your mobile phone to silent. Mobile phones may not be used in Court and the Judge will become annoyed if he/she hears a phone ring.
  6. Do not take photographs.
  7. Be respectful. The Court is the Judge’s office and like anyone, the Judge will demand respect from people when they are in their office. The Courtroom is a solemn place and loud conversations, rudeness, foul language or poor behaviour will not be tolerated.
  8. Call the day before to ask any questions about the appearance, the time that the particular matter is to be heard and which Courtroom will be used (there are often several Courtrooms in one place)
  9. Be prepared to wait or stay for longer than you may have planned. The process of administering justice is not straight forward and hiccups do occur. So, bring a book.

Strange and Wonderful Land Covenants

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Land covenants are standard in residential developments. They are essentially the rules that the owners and occupiers of land within the subdivision/development must abide by and they keep the area and properties within that residential area up to the standard hoped for by the developer and the buyers of properties in that area.

Covenants are relatively harmless and usually confirm the ordinary good neighbour rules that we all try and live by.  However, strange and wonderful rules are adopted from time to time. Here are some of examples:

  • Rules about permitted breeds of dogs and cats and a cap on the number of dogs and cats
  • Other general animal restrictions (e.g. no roosters and no more than two chickens)
  • Rules about where to place trampolines and other children’s toys (e.g. less than 4 metres from a roof)
  • Rules to stop certain washing lines and sheds being used including restricting the colour and type
  • Rules that stop residents hanging their washing within sight of the road
  • Restrictions as to the planting of certain trees or hedges
  • Imposition to maintain gardens and use certain contractors for servicing maintenance of gardens with neighbours/development
  • Restrictions on parking including the number of vehicles, placement and colour / type of vehicle
  • Rules about where to park boats and caravans (and some instances of a ban on parking these vehicles).

I have been named an executor of a Will, what do I do now?

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When a loved one passes away it can be a stressful time for the family, which can be made more difficult when the deceased has not left a Will. Where the deceased has left a Will they will have named their executor or executors (their representative(s)) in that Will.

The role of an executor is to administer the deceased’s estate. This may include settling outstanding debts owed by the deceased, and distributing the deceased’s estate in accordance with the deceased’s Will.

Before an executor can administer the estate of the deceased, they must first obtain Probate.

What is “probate”?

Probate is a court order determining the Will of the deceased as being true and authentic. The executor(s) is/are appointed in this order.  Upon the making of the order, the executor(s) then has/have the legal authority to deal with the deceased’s estate.

How do I apply for probate?

The executor(s) named in a Will must make an application in writing to the Wellington High Court for probate. The application must be in a specific format, as prescribed by a set of rules called the High Court Rules.

An application for probate may be filed in one of two ways either by way of ‘probate in common form’ or by way of ‘probate in solemn form’.

An application for ‘probate in common form’ is usually made on a ‘without notice’ basis, where the application is made without notifying anyone else, on the basis that no one will contest the Will.

In the event that it is highly likely that someone will contest the Will, an application for ‘probate in solemn form’ will need to be filed. In these circumstances the relevant parties will be notified of the application and a trial at High Court will proceed, for which the parties will probably need legal advice.

What would I need to make an application for Probate?

The High Court application fee for obtaining Probate is currently $200.00; this would need to be paid together with the filing of the following documents:

  • The original Will (not a copy);
  • An application for probate in common or solemn form;
  • A sworn statement (affidavit) from the executor(s) which includes the following information;
  • The person who made the Will has died;
  • They knew the deceased;
  • Where the deceased was living when they died; and
  • Confirmation that the Will is the deceased’s last Will.

How long does this process take?

If the Application has been drafted correctly, in the prescribed from, and filed acceptably with the Wellington High Court, it may take four to six weeks to process the application. However, it could take longer if the High Court is busy or the application is complicated.

This timeframe may also be drawn-out in the event that the application has not been drafted correctly and/or the High Court raises issues with the application.  Delays of this nature have the potential to cause a number of problems between the beneficiaries, and can affect an executor’s ability to administer the deceased’s estate, particularly if immediate action is required (which it often is).

With that in mind, legal advice should obtained when making an application for Probate.

Building a Boundary Fence

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The Fencing Act 1978 prescribes the steps that a person must take before building a fence on or near the boundary with a neighbour. It is a three step process:

  1. Send a fencing notice

The neighbour wishing to build, replace or repair a boundary fence must notify the other neighbour(s) about the type of fence and materials to be used, the cost of the fence and the details of when the work will start and who will do it. The notice must also confirm that the neighbour(s) may object and make a proposal of its own or may refuse to accept liability (if good reasons exist to do so) for the cost of the fence.

  1. Objection

The neighbour(s) to whom the fencing notice is given may object to any element of the proposal and may provide a counter proposal.

  1. Build a fence or negotiate

If there is no objection (either because the neighbour does not respond or accept the proposal) within 21 days of the date of the fencing notice, the process is complete and the fence may be constructed as per the fencing notice and the costs split 50/50. However, if there is an objection, the neighbours must come to an agreement and if they cannot do so, either party may refer the matter to a mediator, adjudicator, the Disputes Tribunal or the District Court.

The Legal Results of a Market Decline

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When a market is in relative good health, there is a good chance economists will be predicting a future decline. In light of the current press on New Zealand’s economy, this article explores some things that can happen, in a legal sense, during a market decline.

Insolvency

A person (including corporate persons and trusts) that is insolvent, put simply, is a person that cannot pay debts as they fall due.  The implications of insolvency depend on whether that person is an individual, a company, a trust or another type of entity. However, in all cases the risks to that person’s property/assets are much the same.

Creditors (parties to whom the insolvent person owes money) have certain rights that crystallise upon the person’s insolvency, including:

  1. A right to place the person, if an individual, into bankruptcy;
  2. A right to place the person, if a company into receivership or liquidation; and
  3. A right to seek the return of sums paid by the person to other creditors or third parties back to that person to pay the debt (or a portion of it).

The person that is insolvent is able to take steps to delay or stop the above (and other steps) by creditors and it falls to the Courts to make orders that the above steps are carried out. However, in a market decline where capital to defend claims by creditors may be scarce it is often difficult for a person that is being pursued by creditors to stave off the inevitable.

Bankruptcy

If a natural person is adjudicated bankrupt, their assets are placed under the control of the Official Assignee.  The Official Assignee is then able to use those assets to pay that person’s debts. The insolvent person is restricted from certain activities and roles and the effects of the bankruptcy survive until the insolvent person applies for a discharge from bankruptcy.

In certain circumstances, sums that may have been paid or gifted by the insolvent person to creditors, related parties or third parties may be clawed back by the Official Assignee to be added to the pool of assets available to satisfy debt.

Where the insolvent person has no realisable assets and the debts are less than $47,000, the Official Assignee may take a step short of placing the person into bankruptcy.  The process involves using the “no asset procedure” in the Insolvency Act 2006 which allows the person to resolve their short term credit problems.

Receivership

Receivership is a process in which the assets of the insolvent company are placed under the control of a receiver. The receiver then uses the assets of that company and income that continues to be derived from the company’s business, to pay the debts and attempt to negotiate terms with the creditors such that the company may trade out of insolvency. If the receivership is successful, an application may be made to the Court to remove the company from receivership. If the receivership is unsuccessful, the company may be placed into liquidation.

Liquidation

In liquidation, the assets of the company are sold to pay debts and the company is eventually removed from the register.

A company may, before receivership or liquidation is triggered, place itself into voluntary administration to, hopefully, improve the outcome of the insolvency to the company and its creditors.  However, the process is complicated and therefore still requires an administrator to be appointed and relies on the creditors’ cooperation. Advice should be taken before taking steps to enter voluntary administration.

Eviction

If the insolvent person owes money to a landlord, to whom they are obligated to pay rental, the landlord may (in addition to pursuing the debt):

  1. In a commercial tenancy (for instance office or warehouse space) seek an order from the Court to lock the tenant out of the premises and require the tenant to remove its property.
  2. In a residential tenancy, apply to the Tenancy Tribunal to terminate the tenancy.

Both parties should take specialist advice on eviction and termination.

Mortgagee sales

Mortgagee sales are a common occurrence in a market decline.  When entering into a mortgage with a lender, the borrower agrees that money against which the mortgage is secured, if they are unable to pay the interest and/or principal, the holder of the mortgage security may sell the property to pay off the loan.

Similar rights accrue to holders of other securities such as those that might apply to cars and other personal assets.

Conclusion

Anyone experiencing credit problems or finding it difficult to pay debts as they fall due should seek immediate advice so that early intervention is possible and the best outcomes can be achieved for all involved.

What goes on in a property transaction?

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Many kiwis will, during their lifetimes buy and sell property.  Property transactions are not simple; nor should they be.  The importance and value of a property transaction alone necessitates a degree of complexity and care.

However, the transaction and how it is completed is not well understood by the general public.  It may, therefore, be useful for property owners and potential property owners to consider what the lawyers do in the background to complete a sale, purchase or refinance.

Manager

A lawyer in a standard property transaction is the key-point of contract for several parties to the transaction.  The lawyers (for both sides of a sale) are the “keepers” and enforcer of the contract, the negotiator, and an advisor.

Consequently, a lawyer manages the transaction by communicating with the key participants in the transaction, including banks/lenders, Kiwi Saver scheme and fund managers, real estate agents, Government agencies, local authorities, mortgage and insurance brokers, tenants and property managers, body corporate managers, valuers, surveyors, engineers and builders.

Informer

Behind the scenes, the lawyer obtains and collates all of the information received by the various participants to the transaction and, if required, informs the client of the critical points in each report, agreement or offer.

Key to the role as informer is to keep all participants, but crucially the client, informed of key dates and deadlines in the transaction.  Missing a date or deadline can have significant financial and practical implications.

Adviser

A lawyer will advise the client on legal and other issues that arise in the transaction.  Advice may include raising issues with the legal elements of the title to the land, problems with a Land Information Memorandum (“LIM”), assisting the client to exit an agreement or providing options for handling problems on the day of settlement.

In certain circumstances, the lawyer may also be asked to give advice on structures for ownership of the property, relationship property considerations and complexities around family trusts, guarantees, gifting and insurance.

Custodian and transactor 

A lawyer must communicate with and meet the requirements of banks and other lenders.  For instance, the lawyer must give certain assurances to lenders before they will advance money to complete the transaction.  To give these assurances, the lawyer must investigate, compliance with the lender’s instructions and various laws.  Unless such investigation is completed and the bank/lender is comfortable, the funds will not be advanced and even when funds are advanced, in most cases they will only be advanced to the lawyer, as custodian, to use in buying the property.

The lawyer must ensure that the legal title to the property, the physical ownership of the property and the funds themselves change hands in such a way as the parties are protected.  This process of settlement is carefully staged so that the funds, securities (such as mortgages) and the property change hands concurrently.

Once the lawyer has the necessary funds to complete the transaction or has received those funds following a sale, the lawyer is required to pay those funds to the correct person; be it the other lawyer, the bank/lender, secured parties, real-estate agents or the client themselves.

Completion

Hopefully, after the lawyer plays its part, a buyer gets the land, the seller gets some money, the bank gets a mortgage and all other participants in the transaction get what they need without a hitch.

First As Three NZ Women Umpires Officiate Match

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Diana Venter, left, Kathy Cross and Kim Cotton are the first all-woman appointment to umpire an international cricket match in New Zealand.

 

Cricket umpires Diana Venter and Kathy Cross are used to being described as pioneers.

But along with third umpire Kim Cotton, they took their ground-breaking careers another step forward as the first all-woman appointment to officiate in an international match in Monday’s Twenty20 clash between New Zealand’s White Ferns and Pakistan in Nelson.

Now based in Wellington, Taumaranui-born Cross, 59, achieved a significant milestone in 2014 when she became the first woman named on the ICC Associate and Affiliate panel of international umpires.

She stood in three Women’s World Cups, in 2000, 2009 and 2013, and in March this year, joined Australia’s Claire Polosak as the only two women to officiate at the Women’s World Twenty20 tournament in India. Cross created history when she stood in the opening clash between Pakistan and Bangladesh in Chennai.

She was also the first women to umpire in a New Zealand men’s domestic T20 match during the 2006-07 season, the former wicket-keeper having initially taken up umpiring in 1998.

“I’m very happy that it is another first, particularly for two more women in New Zealand cricket,” Cross said.

South African-born Venter, now based in Auckland, last year became the first woman to umpire an Australian premier match as part of Cricket Victoria and Auckland Cricket Umpires and Scorers Association’s umpire exchange program.

A national powerlifting champion in South Africa, 50-year-old Venter went on to play, coach, then umpire the game in Finland, before moving to New Zealand in 2004. She has still to officiate at a Women’s World Cup, with those appointments for next year’s tournament in England and Wales still to be determined.

“I’m very honoured to be here with Kathy and to share in the experience,” Venter said.

Aucklander Cotton began umpiring senior men’s cricket in Timaru in 2010 after a playing career which included a brief involvement with the Wakatu club in Nelson. She also enjoyed a stint in England when she represented Kent.

Now a Christchurch solicitor, 38-year-old Cotton has also been involved in several trans-Tasman umpiring exchanges. Since moving to Christchurch, she has regularly umpired premier men’s club cricket and for the past three seasons has stood in NZC’s national women’s under-21 tournament.

Earlier this year, Venter and Cotton were named in New Zealand Cricket’s high performance umpire reserve panel for the 2016-17 season.

- Wayne Martin.

 

Read the Stuff article here. 

The ins and outs of a restraint of trade clause

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Restraint of trade

The world of business is increasingly competitive.  Business owners as employers have become more focused on securing and safeguarding information that sustains their business, such as trade secrets and profit margins.  Those employers may consider the inclusion of a restraint of trade clause in their employment agreements as a safeguard against employees leaving their employment and using this sensitive information to the former employer’s detriment.

 

What is a restraint of trade clause?

A restraint of trade clause is designed to protect a business’s sensitive information to which its employees may have access.  The most common conditions in restraint of trade clauses tend to prohibit or limit an employee from working in a certain field of expertise, and/or in a designated geographical location, and/or for a specified period of time.

 

Consideration

An employer considering the inclusion of a restraint of trade clause within an individual employment agreement is advised to consider offering the employee consideration such as an increase in wages or salary, given the imposition the employee may face if a restraint of trade clause is sustained.

 

Practicalities to consider

A restraint of trade clause does not automatically protect an employer.  The Courts take a careful approach when making determinations about restraint of trade clauses, and often deem restraint of trade clauses unenforceable from the outset.

Where a dispute arises, the Courts examine all aspects of the restraint of trade clause, paying particular attention to whether the conditions are reasonable in order to protect the employer’s interests, relative consideration or compensation, as well as the reasonableness and practicality of the conditions imposed upon the employee.

The Courts may consider the following factors when considering the enforceability of a restraint of trade clause:

  • Whether the former employer has a proprietary interest that is capable of being protected; (for example, did the employee have access to confidential information or having built up a strong customer/client/supplier relationship);
  • Whether it is reasonable to restrict the employee’s employment options/activities;
  • Whether the period of the restraint is reasonable;
  • Whether the geographical limits of the restraint are reasonable.

Before considering inclusion of a restraint of trade clause it is vital to understand what is the interest or the purpose of the restraint of trade clause; what reasonable parameters may be imposed in order to achieve that purpose; and in return whether fair consideration or compensation been offered to the employee.

Restraint of trade clauses can be very beneficial for employers, especially if a business is reliant on securing and safeguarding its interests critical to the successful running of the business.  It is essential to understand all aspects of a restraint of trade clause before relying on one to protect your business, as finding the right balance in a restraint of trade clause is vital to ensure that it is enforceable.  We are available to help draft and discuss such terms.