FAQs. Frequently Asked Questions... and Answers!
- Do I need to get a Land Information Memorandum (LIM) before I offer to purchase a property?
A LIM is a report on the property provided by the local Council setting out all of the information held on their records in relation to that property. The report normally indicates:
- What building consents have been issued for any buildings, or alterations to any buildings, on the property. It is important that you pay particular attention to this as the lack of a building consent could cause problems in the future.
- The zoning for the property.
- Site plans of any buildings and/or alterations on the land.
- Location of drains.
- Any outstanding Council requisitions or requirements on the property which have not been complied with.
- Rates information.
- Any proposed notified public works in the area.
- Any notified Resource Consent applications for properties adjoining the property which may affect the property.
Alternatively, you can research the information yourself at Council offices, called a "public counter search”. We strongly recommend that you do one or the other, as important information is held in Council records. It is safer to obtain a LIM than undertake a public counter search as this may not disclose everything that a LIM would disclose.
- What is a fencing covenant?
Under the Fencing Act 1978 the occupier of a property can force the occupier of any neighbouring property to pay half the costs of a fence along the boundary between the two properties, if it is not already adequately fenced. A fencing covenant provides that the person, in whose favour the fencing covenant is registered, is exempt from this requirement. A fencing covenant that is not in favour of a local authority expires 12 years after it was first registered. Fencing covenants are common in subdivisions where the subdivider does not want to be liable for the costs of fencing or where a local authority does not want to be liable for the costs of fencing any land administered by that local authority.
- What are the tax implications of buying a property?
That is not a question that can properly be answered without knowledge of the purchaser's situation and the particular transaction envisaged. In general terms a contract for the sale and purchase of a residential property will be stated as being inclusive of GST (if any) so that there will be no taxation consequences for a purchaser who intends to purchase the property as a residence solely. In any other circumstance you need to consult your lawyer or accountant.
- Can I pull out of a contract to buy a property?
Generally speaking there are only limited grounds for a purchaser to pull out of a contract to purchase a property as follows:
- If the contract is subject to conditions that have to be fulfilled by the purchaser and, after making reasonable efforts to satisfy those conditions, those conditions have not been satisfied;
- The contract is subject to conditions which have to be fulfilled by the seller and which have not been fulfilled;
- The seller commits a serious breach of the contract entitling the purchaser to cancel.
A contract for the sale and purchase of a property is a legal binding document and should not be entered into lightly. If in doubt you should consult your lawyer first.
- When do I pay the legal fees?
Your lawyer will provide you with a statement prior to the date for settlement setting out the amount required from you to complete the purchase. That will include any legal costs and expenses payable. These are normally payable at the time that you pay the balance of your cash contribution to the purchase which is on, or just prior to, the day of settlement.
- How much should a deposit be?
The amount of a deposit is negotiable between the buyer and the seller. It is normally between 5 and 10% of the total purchase price. If a real estate agent is involved in the transaction it is usually paid direct to the real estate agent who holds it in trust until confirmation of the contract or otherwise. Traditionally a deposit was payable by the buyer once the seller had signed the contract. It is common now for a buyer to negotiate not to pay the deposit until any conditions of the contract have been satisfied. The deposit is in part payment of the purchase price. It is only refundable to the buyer if the buyer validly cancels the contract because the conditions have not been satisfied, or if the seller commits a breach of contract that entitles the buyer to cancel the contract.
- What is a company share flat?
In a company share flat a company owns the land and buildings. You buy shares in the company. Your ownership of those shares entitles you to take out an Occupation Licence (often called a Licence to Occupy) with the company giving you the right to occupy your flat (and garage/carport if any) for so long as you are the owner of the shares. In return you must pay a levy being your share of the running costs of the company. Those running costs would normally cover insurance, rates, and common maintenance. There may also be a levy for expenses anticipated in the future such as structural repairs, painting, or such like. The Occupation Licence sets out:
- The right of the shareholder and family to occupy the flat and use common areas (such as lifts, stairwells, grounds, etc).
- The obligations of the shareholder and the company, eg the shareholder usually pays a levy to the company, which in return maintains the building, pays the rates, insurance, etc.
- Any restrictions on residents making alterations to their flats, and on how flats may be used (eg there may be a restriction on sub-tenanting or keeping pets).
- The shareholder's obligation to maintain, normally the interior of the flat only.
Flat owning companies usually require the directors of the company to approve the transfer of the shares to the buyer. Often a real estate agent will arrange that or alternatively that will need to be dealt with by your lawyer.
Flat owning companies normally appoint a Secretary to carry out the day to day administration of the company. Often that is a Chartered Accountant, who is paid for carrying out these services, or alternatively it may be one of the occupants. You should make your own inquiries of the company secretary to satisfy yourself as to the financial position of the company and as to your continuing financial commitment. The company will have an annual set of accounts. These will show you the costs of running the Company and the levies payable by the occupants. Traditionally the costs include local body rates, building insurance, common property maintenance, professional administration charges, and possibly a ‘sinking fund’ to provide for substantial items such as repainting or resealing of driveways.
You should find out:
- How much is the levy you will have to pay and how often?
- Are the levies sufficient to meet day-to-day obligations?
- Are the present occupants generally paying their levies on time?
- If any significant work appears necessary or has been proposed, is there a fund to cover it? If so, can the seller withdraw their portion; and can the company require you to pay that amount instead?
- Are any special levies proposed that you will have to pay? The company may not have formally resolved to charge such a levy, but you should ask whether occupants are considering one. Is there repair work due soon?
- Is the company involved in any dispute or aware of any legal action being taken against it?
There are costs associated with buying and selling company share flats that do not apply to other forms of ownership. The Licence to Occupy / Sub-Lease is normally prepared by the lawyer for the Company at the cost of the buyer. Sometimes the seller has to sign a deed to surrender their occupation rights. There may be a fee payable in obtaining the director's approval. These are over and above your own lawyers costs in relation to the purchase.
Some lenders will not lend on the security of a company share flat because they cannot get a mortgage over the land and building. There are exceptions, you should discuss that with your lawyer.
- Who organises houseowners insurance?
The buyer normally organises houseowners insurance to take effect from the day of settlement. If you have a mortgage, the insurance company should note the interest of your lender on the insurance policy. You will have to provide details of the policy to your lawyer as your lender will not advance funds until it has proof of insurance. Also, check that any contents insurance you hold covers your contents while in transit.
- Is there any standard time fixed for settlement?
No. The form of agreement for sale and purchase commonly used does not provide for a specific time for settlement. If settlement takes place after 4.00pm on the agreed settlement date, and the delay is caused by the buyer, the buyer is obliged to pay the seller penalty interest at the rate prescribed in the contract. The time for settlement needs to be agreed between the buyer and seller, however the seller cannot insist on settlement taking place until the property is actually vacant.
- What happens on settlement?
Settlement is the day that you pay for the property and, normally, take possession. Prior to settlement, you need to do a pre-settlement inspection to check that the property is still in the same condition as it was when you first inspected and that there are no missing or damaged chattels.
You also need to provide your lawyer with your cash contribution to the purchase (if there is one).
On settlement day, your lawyer will collect any mortgage advance from your lender and, provided the seller’s lawyer is ready to settle, pay over the amount required to settle and finalise transfer of the title to you.
If the sale is through a real estate agent, the keys will be made available from the real estate agent for you to collect as soon as settlement is completed. As everything is normally organised before the settlement day you normally won't need to see your lawyer on that day. You’ll be busy enough just moving!
- What is an escape clause?
An escape clause is often found in an agreement for sale and purchase of a property. It means that the seller reserves the ability to accept other offers from people who want to buy the house. If the seller accepts another offer from someone else, you would normally have a period of time, say 3-5 working days, to confirm your contract. If you don't your contract can be cancelled, and you lose the property.
- What is the Personal Property Securities Register?
The Personal Property Securities Register ("PPSR") is a register of securities or charges held, normally by lending institutions, over personal property such as chattels. It may be that the property that you are looking at has a new stove that was purchased on hire purchase. In that case, the hire purchase company would normally register a security in the PPSR. It is important to search the PPSR prior to settlement to find out whether there are any such securities registered. If there are, you would want to have that security released prior to settlement. Your lawyer can carry out that search for you.
- What does a normal title search show?
Most properties that are not held in a cross-lease title or a unit title are held in a fee simple title (sometimes called a "freehold title"). A search of the title will provide you with information relating to the physical dimensions and shape of the land contained in the title. It will not normally show any structures on the land or establish whether any structures on the land are physically within the legal boundaries. Only a legal survey or a physical inspection of the site and survey pegs will verify the location of the boundaries in relation to any structures. If you have any doubts over the boundaries, we suggest you contact a registered surveyor. The title search will also not indicate whether there are any council requirements that may need to be dealt with such as a requirement to fence a swimming pool. These can only be ascertained from a search of council records. A title search will show you what encumbrances are registered against the title. An encumbrance is generally an easement, covenant, or some other restriction on the title.
- What about a Unit Title?
A unit title (often called a stratum estate in freehold or leasehold) is the common title which is issued for an apartment/unit in a multi-unit development. In this case all unit owners are members of a ‘body corporate’. There is a secretary who is responsible for collection of a body corporate levy, which covers insurance and other common costs in relation to the building and common property. This is an annual levy and will be apportioned between you and the seller on settlement.
You should ensure that you know how much the body corporate levy is and what it covers. Before buying, you should discuss this with the secretary to obtain an understanding of how the body corporate is run and whether any substantial expenditure is contemplated. You should also consider looking at the last annual accounts for the body corporate. We recommend getting and approving a Section 36 (or Body Corporate) Certificate before confirmation of the contract.
When purchasing a unit you will be provided with a copy of the unit plan. This will show the outline of the unit you are purchasing, any accessory use units that you have exclusive use of, (such as a courtyard or carpark), and any common areas. It is imperative that the plan correctly shows all of the buildings on the land, especially the correct outline of your unit and accessory use areas you are entitled to use. If the plan does not correctly record what you inspected, it may defective. Most defects are capable of being remedied but that remedy could be expensive. You need to discuss that with your lawyer.
- What extra precautions do I have to take if contemplating buying a cross-lease flat?
If you are buying a flat on what is known as a cross-lease title (a cross-lease flat) you are acquiring a share in the land in common with the other flat owner/s plus the leasehold title to your unit for a period of (usually) 999 years from the date of the lease. This gives you exclusive occupation ownership of your unit, and the area of land allocated to it, but also means that you will have some joint responsibility for shared use of common areas (if there are any).
Check the common areas to see if any repairs are needed, as this could involve a big expense for you. If you have any concerns about the condition, get a qualified surveyor or a builder to inspect the property.
You should look at a copy of the flats plan that will be attached to the title. It is imperative that the flat’s plan correctly shows all the buildings on the land, especially the correct outline of buildings and the areas that you are entitled to use. If the plan does not correctly record what you inspected, it may be defective. Most defects are capable of being remedied but that remedy could be expensive. You need to discuss that with your lawyer.
- What is the difference between fixtures and chattels?
This is sometimes a difficult area and can be hard to define. Generally speaking, a fixture is something that is a permanent part of a property and a chattel is not. Light fittings, window dressings and fixed floor coverings are chattels. The distinction is important because a fixture is deemed part of the property and is included in the purchase price. Whereas a seller takes a chattel with them when they sell the property, unless it is specifically referred to in the agreement for sale and purchase.
All buyers should carefully review the list of chattels contained in the agreement for sale and purchase and make sure that any chattels that they intend to purchase with the property are included. If in doubt as to whether an item is a fixture or a chattel the best policy is simply to list it so there can be no doubt that it is included.
- How should I own a property? What is the difference between joint ownership and a tenancy in common?
There are several options to consider when deciding how you should own a property. Here are some of them:
- Joint ownership – this is where two or more individuals own the property. On the death of one party, the property passes to the survivor/s, irrespective of any provisions in a Will. You may not want this to happen, especially if you are in a subsequent relationship as it would mean children of a prior relationship will not inherit their parent's share in the property.
- Tenants in common – this means you own a specified share in the property, either in equal or unequal shares. You can leave your share in the property to beneficiaries named in your Will, for example, children of a prior relationship.
- Joint Family Home – designed to give some protection to a spouse and children from business debts of the other spouse. This is only available to married couples.
- Family trust – can protect a major asset against creditors and other risks, and also provides an effective estate planning tool.
- LAQC – an ownership structure often used for rental properties.
If you make unequal contributions to the purchase price it would be advisable to record the details in a Property Sharing Agreement. You should talk to your lawyer about this.
Another important issue to consider is the possible impact of the Property (Relationships) Act. The provisions of the Act apply to all relationships in the nature of a marriage. In relationships that last for 3 years a home will generally be divided equally on separation. Remember, you do not have to be living together for three years under the same roof for the Act to apply. This may affect you if you are in a relationship and own or are buying a property in your sole name or in unequal shares. If that is the case you need a written Property Agreement with your partner.
Individuals are also at risk if they commence a relationship after buying a property. If that relationship lasts 3 years, the property may become relationship property and be divided equally on separation. Single people should seriously consider a Family Trust owning their property to protect against this risk. If a relationship commences subsequent to purchase, you need a Property Agreement with your new partner to protect you.