LTC questions

[AucklandInvestor]

Hi all

I’m considering setting up a LTC and selling a property to it. I have a couple of quick questions (famous last words!) I’d appreciate your input on. I will get professional advice, but don't want to go in 'blind'

As background: I own a property with no mortgage. It’s currently tenanted. I am considering selling it to a LTC, with the LTC taking out a mortgage to buy the property from me. My questions are:

1. I am quite comfortable I know the market value of the property and I have data of recent sales in the area to support this. Should I get a valuation done to confirm this? (will IRD want to see it to support the level of mortgage?)

2. Will the lawyers who do the conveyancing need a proper sale and purchase agreement?

3. I will send a change in landlord form to tenancy services for the bond, and will ask the tenants to pay rent into the LTC’s bank account. Other than this, I assume the existing tenancy agreement continues as-is?

Thanks

[AucklandInvestor]

To answer my own question 2 - yes, my lawyer wants a sale and purchase agreement... even though it's me signing as seller and me (in my capacity as director of the LTC) signing as buyer

Any ideas on my other 2 questions?

[BigDreamer]

Having done this before I can try and answer but always best to check with an accountant/lawyer:


(1) Yes, you need to have some evidence. When I did this, my accountant recommended that I use QV desktop valuation as my basis in case IRD ask why was the property sold at $x rather than $y.


(2) Yes and no. I produced a S&P Agreement for the sales. I remember someone mentioning there was another form that could be filled rather than a S&P given that you stay with the same bank. Otherwise, producing a S&P Agreement is always the safest bet.


(3) To be honest, I'd like someone to answer this. You don't *have* to have the rent come into the LTC bank account but of course it makes book keeping much easier.

[isaac129]

1. You need some sort of supporting document just in case IRD auditing. E-valuation (eg, from QV) would be sufficient.
2. It's always best to have a proper S&P.
3. My understanding is that as long as you are the director of the LTC owning the property, the existing tenancy agreement is still in effect and there is nothing you need to change. However, it's better to have a lawyer to comment on this.

[al54]

Hi,

as a solicitor, yes, you will need formal documentation to record the sale of the house, as the LTC is a separate legal entity. Your solicitor, or even yourself, can prepare this easily, it forms the legal basis of the transaction. Ideally, you should obtain a valuation for the house, even if its just an online QV Estimate, so if inquiries are made from the likes of the IRD, you're not for instance, selling it grossly undervalue and be deemed to be evading any responsibility. Being a private sale without involvement of agents, the Bank is likely to require a valuation anyway, to ensure their not over-lending on the true value of the property, so again, get a valuation (but check to see if the Bank has any requirements before you start spending a dime). While the sale does not nullify the tenancy agreement as it transfers to the new owner / landlord, it would not harm, and is sensible, to amend the agreement so it recognizes the new landlord as the LTC. Hope this helps.

[AucklandInvestor]

Thanks for your replies - very helpful

I've spoken to my accountant and lawyer, who both echo what everyone here has said. In summary:

1) My accountant was quite happy with the note I prepared with my valuation, but still recommended getting the QV e-value report as it's an independent third party valuation. I bought the e-value report, which was consistent with my own valuation.

2) Yes, they needed a S&P agreement

3) There is no need to enter a new tenancy agreement as the sale of the property is subject to the existing tenancy. The bond transfer form is necessary.