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 Rental properties can often have one dwelling on site as well as an additional sleepout. Some property owners have even converted these sleepouts and garages to self contained units in an effort to get a higher return. Although this may suit some landlords there are various fishhooks and important issues to consider and this article aims to shed light on some of these issues.Legal Issues One of the most important issues to consider is what the property is legally certified as. In order to rent properties on the same site separately, a landlord must generally provide cooking and bathroom facilities. If the additional dwelling requires you to build these from scratch then you must apply for necessary consents from council. In order to obtain consents you must meet certain criteria which may include new obligations under the Building Act including but not limited to firewalls, smoke detection devices, new meters, insulation and access. Sometimes when you have multiple properties on one site they attract higher rates demands from local authoritiesas well as additional insurance premiums. What many landlords think can be a quick addition of a kitchenette and bathroom may turn out to be a lot more expensive than originally thought, if done properly. Before purchasing a property you should find out if the multiple dwellings on one site are legally able to be tenanted separately. Just because a property has had multiple separate tenancies for years does not mean that the property is legally consented as two separate dwellings and therefore able to be tenanted as such. It is now becoming more and more common for councils to catch up with these properties and take action. It is also worth noting that most properties can not have more than one kitchen and stove. This is another reason why property owners should take the legal route. If a property is consented as two separate dwellings then usually a second stove and kitchen is allowed. Possible Problems The main danger of renting a property as two separate tenancies is that if the local council records show the property as a single dwelling then they may request you terminate the additional tenancy immediately, and in a worst case scenario return the property back to its original condition and pay a fine. Councils are becoming more and more proactive at this and can catch up with property owners in many ways. The most recent incidence I witnessed was a tenant who rang council to ask for an extra recycle bin. The council then determined there were two tenancies on one site so they inspected ASAP and sent the registered owner notice to terminate one tenancy immediately and remove the brand new non-permitted kitchenette and bathroom immediately. The owner also had to remove new joinery he had installed in a big double garage where he had ripped out a garage door so he also had to replace this at a substantial cost. Other cases saw the council identify a property because it had two letterboxes instead of one, and another was instigated because a tenant made a complaint to noise control which is a local council service. If tenants are unsatisfied for any reason they can also report a landlord to the council, so there are various ways for the council to find out if you are renting multiple dwellings on one site that are not permitted. Another major problem is insurance. If you change the nature of a property and rent it as multiple dwellings then often your insurance premiums will change. The insurance companies may happily take your premiums but you may experience problems when making claims. If one tenant had a fire and burned down all units/flats then one of the first things the insurance companies may ask for is a copy of the tenancy agreement/s. If the council and/or insurance records show that your property is registered as one dwelling but you have two tenancy agreements in place, they could possibly not cover the damage, especially if your additional properties don’t have consents for the changes/additions and you have multiple kitchens. If events were serious enough to cause death or injury then the property owner could be held liable for failure to meet Building Acts and Health & Safety Regulations. These are valid issues to consider. Tenancy Issues Many property owners decide to turn a dwelling in to multiple dwellings and whether legally consented or not, often many of these arrangements work very well. There are some key issues to consider that will help improve the performance and assist to secure good tenants, competitive rents and long term tenancies. Many tenant related issues are all about the tenant’s perception of the property and you can help influence this by taking strategic action when presenting the property. Firstly access. If possible dwellings on the same site should have access through separate parts of the property. This will enhance the tenant’s perception of privacy and make them feel that they are not living on top of someone else. Dwellings should have separate allocated parking spaces and in general the dwelling that pays the highest return or is the biggest should have the best parking like garages and carports. If possible properties should have outdoor areas that are separate. For example one tenant could have the front yard and one could have the back yard. If dwellings share a section then fences could be built to give tenants the perception of individual space. You will also find that when you do this tenants take better care of the lawns and gardens as they can easily determine which area is their responsibility.  Water and power issues also need to be addressed. Most properties have one water and power meter, as the cost of installing a separate power or water meter can be huge. Legally if you can’t individually and accurately measure your tenant’s consumption then you can’t charge them (but you can have it negotiated in the rent included in the tenancy agreement). Unlike commercial law you can’t just split bills 50% as this is unlawful and may have consequences including reimbursement and fines. Often the best scenario is to have water and power CHECK METERS installed. These can be installed at a fraction of the cost of new meters and measure the amount of water and power that is being directed in to specific units. This means that when you receive the power/water bills you know how much one unit is using, then the balance is the consumption of the additional unit. Bills can then be sent to each tenant for reimbursement. This requires readings to be taken periodically by property owners or property managers, and new invoices to be issued to all tenants using the water companies’ most recent charging structure. The landlords generally pay these bills and seek reimbursement from the tenants each month/quarter.In conclusion what many property owners feel is an easy process to get an extra return actually has many potential issues to consider. Although there are some great benefits there are also issues to consider. Those doing it well will no doubt be seeing great results. Those that are facing problems may want to consider making some changes/improvements. After all, if you do what you always did, you will usually get what you always got! Simon Allen Allen Realty Ltd
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