DISCLAIMER - We are not financial planners, accountants, quantity surveyors nor are we members of the Victorian Civil and Administrative Tribunal (VCAT). We are just trying to be helpful agents. If you do need more specific help, please see the bottom of this article for links to some helpful websites.
One of the biggest challenges we have as agents, is deciphering the difference between what is considered fair wear and tear and that which is damage. When your Tenant vacates a property, we have the not so pleasant job of documenting the condition of the property and disclosing what changes there have been to the condition. This is when the fun begins…
The next stage of this process is normally the agent realigning the expectations of both parties as to what is considered fair. This is often a complex and time-consuming task.
Consumer Affairs Victoria (CAV) does try to help us with a seven-page document called the Directors Guidelines – Damage and Fair Wear and Tear. In this document they mention some case law where a Judge stated the “reasonable minds may differ” as to what constitutes fair wear and tear, as compared to damage and that “each case must depend upon its own facts”.
This is somewhat helpful but still leaves plenty of grey. So, let’s go back to the CAV Guidelines… There is one term in there that does stands out to us and that is “normal, ordinary or expected day-to-day use”.
Now let’s discuss, depreciation. On their website, BMT Quantity Surveyors state that “tax depreciation is a tax deduction claimed for the nature wear and tear of an income-producing building and its assets over time”. This includes residential rental properties.
It goes on to say that the items within these properties, over time, are worth less. If a long enough period goes by, they decease in value to zero (when it comes to depreciation that is). Each item has an effective life for tax purposes, and they all vary in what this timeframe is.
Let’s use carpet as an example. The Australian Tax Office states that carpet depreciates to zero over a period of 8 years. So, if your exiting Tenant spills red wine on your carpet and it is older than 8 years old. The changes of seeking compensation are very slim.
So, next time you need to negotiate compensation for the wine stain, there are several things you need to consider…
Was the stain caused by ordinary day-to-day use?
How old was the carpet?
What will it cost to attend the tribunal?
Is it time to recarpet so next time it happens you can claim something?
There are a couple of other things you can do to avoid these issues. You could employ a quantity surveyor to prepare a depreciation schedule, allowing you to claim the decrease in value year on year. Another suggestion we make to all our clients is to get Landlord insurance.
If you need help arranging this, we would love to speak to you. Please contact us at hello@re-define.com.au
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