Rentals: Home and income hiccups

File photo / Northern Advocate.

Getting tenants in to help pay the mortgage can be a minefield

Many a landlord has started his or her property empire with a "home-and-income property". Usually it's a house with a flat attached or self-contained accommodation in the garden. The landlord lives in the main property and lets the secondary dwelling.

The extra income can make the economics of owning your first home an awful lot easier. But it's not all plain sailing.

For both landlord and tenant, it means that you live in close proximity to each other, and that doesn't always work. Landlords must ensure they do not breach tenants' rights.

One real fish hook with home-and-income properties is the legality of the rental accommodation. Real estate agents often talk about these properties in very measured language - which may mean the second dwelling isn't legal under the Building Act and Building Code.

Tenants should inform their councils if they think the dwelling may be illegal, says Peter Klein, chairman of the Tenants' Protection Association (Auckland). Landlords can and have been forced by councils to remove alterations - often at considerable cost - and may be taken to court by the council.

Tenants can also apply to the Tenancy Tribunal for an order to terminate the tenancy and seek compensation and punitive damages if the landlord lets a property that doesn't comply with building and health and safety laws.

Just because the flat can't be let legally as a separate tenancy, providing it has code compliance or similar, there are ways to make money from it. One option is to let the main house and flat together under one tenancy and remove any clauses in your tenancy agreement stopping tenants from subletting.

That way the lead tenant can get flatmates in or sublet the smaller dwelling to family or couples. It's likely you'll lose a little in the rent you receive - but not a huge amount.

If the unit is on your own property and it cannot be let legally, your only real option is to treat it as a bedroom of the main house and to put a "boarder", "flatmate" or homestay student in it.

"Regardless of whether a tenancy is exempt from the RTA [Residential Tenancy Agreement] or not, a landlord should check with their local council to ensure they are not breaching any other relevant legislation such as the Health Act 1956 or Building Act 2004," a spokesperson for the Department of Building and Housing says.

Home-and-income property owners should also let their insurance companies know if they have boarders or homestays in their sleepouts, or they may invalidate their cover.