Buying a House: Guide for Buyers of Residential Property - Henderson Reeves Connell Rishworth Lawyers

Buying a House: Guide for Buyers of Residential Property

Buying a house in Whangarei? Before you buy - see our guide for buyers of residential property, for important advice about sale and purchase agreements.

This guide gives general information about some points you should consider before buying a house. This guide is not transaction specific and is intended for general information purposes only.  The guide is not intended as a substitute for specific legal advice – each property transaction is different – so please contact us for advice about your specific situation and needs.

This guide refers to the Real Estate Institute of New Zealand and Auckland District Law Society Agreement for Sale and Purchase (called “the standard agreement”). It highlights a number of important areas of the standard agreement and some other areas which may be of interest to you.

Signing the Agreement

We recommend you engage us to advise on the agreement before you sign. Our involvement at that stage can save costly mistakes and delays.

Conditions to agreement

Any agreement you sign should have sufficient protections included for you in written “conditions” to cover such things as:

  • Finance: arranging suitable finance;
  • Building inspection: time to have the building inspected by a builder or engineer;
  • LIM (Land Information Memorandum): time to get a LIM from the local authority;
  • Due Diligence: time to allow a wide range of investigations to be conducted. We recommend this because the right to withdraw from an agreement (if you are dissatisfied with something) may not be available to you through the LIM or Title requisitions;
  • Other: any other matter which is important and needs to be binding on the parties to the agreement.

Title approval and requisitions

Your lawyer will search the title, easements and encumbrances which appear on the title. You can serve a notice of requisition (or challenge) on the seller for some things which may cause you concern on the title within. If you do not serve your notice within 10 working days of the date of the agreement, you lose your rights. This is important.

There is then a strict procedure which can lead to either party accepting the requirement or pulling out of the agreement.  Sufficient time to the settlement date (e.g. 3 to 4 weeks) should be allowed for this to occur before settlement, otherwise difficulties can arise.

Issues Relating to Title

Is it the correct property?

You should check the property you are buying is the one shown on the plan attached to the title. Refer to the Local Authority planning maps and photographs as a double check.

LIM report

We strongly recommend that you obtain a Land Information Memorandum (LIM) from the Local Authority as a condition of your agreement. A LIM provides the answers to a series of standard enquiries such as rates, water charges, public works affecting the property, building drainage and health requisitions, building consents, resource consents, sewerage connections, public and private drains affecting the property, whether there is any fill on the land, zoning restrictions, or whether a woodburner has a consent etc. If there is a swimming pool on the property, whether the pool has a current Compliance Certificate, or if there are requisitions noted on the property file under the Fencing of Swimming Pools Act 1987.

Obtaining a LIM, as a condition of the agreement, allows you to require the vendor to rectified various matters, and if not, you can pull out of the agreement. There are strict time lines which need to be complied with if you are getting a LIM.

Flood prone and unstable land or other hazards

You need to know whether the property is subject to flooding or built on unstable land. You may be declined insurance if these apply. Other hazards can also be identified in a LIM.

Notices on Title: Sections 72 – 74 of the Building Act 2004 or Section 36 of the Building Act 1991.

Great care is needed when such a notice is on the title of the land you are purchasing. It indicates:

  • Possible restrictions on further building on the site (because of danger of slipping, flooding etc);
  • Likely difficulties obtaining insurance (your insurance company must be informed that there is a notice on the title). You may not be able to get insurance, and consequently fail to get a mortgage;

You may not get a mortgage. You (and we as your solicitors) have a duty to inform any lender to you of the existence of the notice. The lender may not lend because it is concerned about the risk.

The Earthquake Commission may decline to pay out on any claim you make if you have flooding or a slip (Earthquake Commission Act 1993 Schedule 3 Clause 3).

In some circumstances, you should not purchase the property.

Boundary pegs and fences

If you are purchasing bare residential land, clause 6.1 of the agreement allows you to require the seller to identify the boundary pegs. We recommend this be done. If you are purchasing a house, the seller cannot be required to put in the pegs.

It is always dangerous to rely upon visible boundaries, such as fence lines and hedges, as these may be incorrectly located. The only way to establish the true boundaries is to locate pegs, and if they cannot be found, to instruct a surveyor to locate them.

Nearby developments

Your neighbourhood can change through developments that are consented to by the Local Authority, but not yet constructed. You should enquire of both the seller and the Local Authority for information. A LIM is a possible source of information.

Builders/Engineers Reports

We recommend the specialists you employ for these reports be independent professionals who are experienced in their respective fields and provide a written report. This will ensure you receive the best possible advice concerning the property and ensure that you have legal rights if problems arise in the future, should the report prove to be flawed. If you rely upon an oral report, or a report from someone who is not a specialist, or someone who is not independent of you, your rights to claim damages from the advisor may fail.

Escape clause

The contract may contain an “escape clause” or “cash-out clause”. This will allow the seller to accept another offer and for your contract to be cancelled, if it is not confirmed as unconditional by you within the time set.

Chattels

The chattels included in the purchase are detailed in Schedule 1 of the contract. If you think there are any other chattels which should be included, but are not described in the contract, please advise us immediately.

Swimming pool and fireplace

Is there a swimming pool or fireplace on the property? If so, you will need to check the Local Authority records that the compliance requirements for each are up to date.

If you do not have your fireplace/chimney checked on a regular basis, your home may not be covered for fire insurance.

Local Authorities have strict conditions regarding swimming pools and their surrounding fencing. If there is a pool, we recommend you make enquiries.

Confirmation of contract

If your contract is subject to any conditions, please contact us on or before the dates for confirmation of these conditions, as we are generally required to provide written confirmation of satisfaction of any conditions to the seller’s solicitor. The seller may cancel the contract if written confirmation is not provided in time.

When all conditions in the contract have been satisfied, the contract is then “unconditional”.

Mortgages and Guarantees

Are you obtaining a bank loan to assist in financing the property? If so, your loan will be secured by a mortgage over the property. This is called an “all obligations” mortgage. It not only secures the particular loan now being made to you, but also secures any other obligation you may have to the bank, whether now or in the future. For example, if you have signed a guarantee in favour of the bank for someone else, that will also be secured by the mortgage. If you have any obligations you want to have excluded from the mortgage, you need to tell us urgently so we can make arrangements with your bank to exclude them.

Utilities

Rates

These are apportioned as at the day of possession, with the seller being liable for the period up to that date, and you being liable for the balance of the rating year. The apportionment will be set out in our final statement to you. You are not required to attend to any matters in respect of rates as we will take care of these for you, but you will need to pay us funds to reimburse the seller for rates paid in advance – we will advise you of this.

Water Rates

We will arrange with the seller’s solicitor for their client to obtain and pay for a special water meter reading to the date of settlement. You will be liable for water consumption after you settle the purchase.

House Insurance

If the contract becomes unconditional, you should have sufficient house insurance risk over the dwelling. We suggest you arrange insurance cover as soon as possible, with the cover to take effect on the date of settlement. The policy must be in the names of the registered proprietors, e.g. yourselves, company name, or your Trust’s trustees. Your bank (if you are obtaining a mortgage) must be noted as first mortgagee. Once you have arranged the insurance, please ask your insurer to fax a Certificate of Currency to our office as we will need to supply this for your bank, before we can uplift your loan money.

Contents Insurance

You will need to notify your insurer of the change of address for contents cover.

Telephone

In some areas it is not easy to obtain a telephone immediately. We suggest you contact a telephone company to see what should be done before the vendor arranges cancellation of the connection to the property.

Power or gas supply

You will need to make arrangements for supply of electricity and gas from your chosen supplier prior to settlement.

Relationship property

If you have commenced a relationship prior to purchasing property, you should consider a Property Agreement with your partner setting out your contributions to the purchase, and how the property is to be distributed in the event of separation.

If you commence a relationship after purchasing property, and the relationship lasts 3 years or longer, or there is a child of the relationship, the property will be divided equally on separation. Please discuss this with us. A trust is often a good protection in these circumstances.

If you and your partner are purchasing property, and the cash contributions are unequal, it is advisable to record the details in a Property Sharing Agreement. Again, purchasing in the name of a trust might be advisable.

If you wish to discuss any of these issues, please speak with us as soon as possible. Our fee estimate does not cover any advice on the application or otherwise of the Property (Relationships) Act, and unless specifically agreed, we are acting for you in relation to the conveyancing aspects of the transaction only.

Notification of change of ownership

We prepare Notices for the local Council. These are sent to the Council by the seller’s solicitor, so that your name will be included in the Council records as the new owner of the property.

Preparation for Settlement

It is wise to allow four weeks until settlement to allow time for title requisitions to work through logically.

If settlement is to occur on a weekend, or day which is not a “working day”, then the settlement is moved to the working day before the settlement date in the agreement.

You must sign authorities to us to allow the electronic registration of the transaction to proceed. Once the agreement becomes unconditional, we will contact you to make an appointment to sign the authorities. You will need to bring your current driver’s licence or passport or other government issued photographic identification with you. If there is any difficulty with this, please advise us.

At the same time you can sign bank loan documents, and discuss the settlement procedure with us.

Right to Inspect

The Agreement provides that you are able to inspect the property prior to settlement. You can do this up to the day before settlement and can contact the real estate agent to make a time to do this, but it must be on “reasonable notice”. When you inspect, you are checking to see that the property and chattels are in the same condition they were in the day you signed the Agreement to purchase the property. If they are not, please urgently advise us.

Payment of balance of purchase price

Prior to settlement, we will advise you of the balance needed from you to complete settlement. This will include our costs. That balance will need to be paid to our Trust Account on the day before settlement by direct credit or three days prior to settlement by bank cheque (it takes three days to clear).

If there are surplus funds available to you on the settlement date, you will need to provide us with an original or a faxed copy of a deposit slip of the account in which you wish the balance of funds to go. This will enable us to deposit cleared funds to that account through our on-line banking system. If we do not hold your deposit slip (faxed or original), we will be unable to provide this service to you and the funds will be sent to you by cheque.

Possession

It is normal for you to take possession of the property only after we have paid over all the purchase monies to the vendor’s solicitors in exchange for the title to the property.

Keys

The seller is entitled to retain the keys to the property until payment has been made. Frequently, settlements occur on Fridays with the parties carrying out their moving arrangements the following weekend. On most occasions, arrangements regarding keys are made directly between the parties and real estate agents. We suggest you contact the vendor or the real estate agent prior to settlement to make arrangements for you to collect the keys following settlement.

Any remote control devices for access should also be held by the agent, and made available to you immediately following settlement. Any codes should also be supplied at the same time.

Settlement Day

We do not need to see you on that day. However, we do ask that you contact us during the morning to confirm that there are no unforeseen issues that could affect settlement.

Provided we are holding all funds required to complete settlement, we always endeavour to complete settlement as early as possible but other factors may affect the time of settlement. If delays occur, we shall endeavour to contact you. We are aware that the removal company you have engaged will be charging for its time. For this reason, we suggest you do not organise your removal company to move you too early in the day.

It is our policy to contact you as soon as settlement has occurred so that you may collect the keys from the real estate agent.

After Settlement

You will receive a detailed statement showing all receipts and payments through our trust account.

Cross Leases (if applicable)

If the house is on a cross lease, there are special provisions in the standard agreement relating to this type of ownership:

  • It is important to check that there have not been any alterations to the building (flat) since the Flats’ Plan was deposited.
  • If there have been any alterations then the consent of all other owners in the cross lease development should have been obtained.
  • If alterations extend the dimensions of the building (flat) and are closed in, then the Flats Plan should have been amended to show the alteration. If this is not the case, you can require the seller to rectify the title by obtaining the consent of the other owners, depositing a new cross lease Flats Plan (and possibly cross leases) and getting a new title issued.
  • In the case of buildings and structures erected on “exclusive use” areas after the deposit of the original Flats’ Plan, you generally have no right to requisition the title provided the consent of the other owners was obtained to the building or structure. You can, however, requisition to obtain a copy of the written consent. If the seller cannot satisfy your requisition to provide written consent you may cancel the contract.

It is therefore important that you thoroughly check whether any changes have been made to the building or the cross lease development. This can sometimes be very difficult to detect. We recommend you have a builder inspect the property, with the original building plans, to thoroughly investigate this aspect. In particular to check whether the “footprint” of the building is as shown on the Flats’ Plan.

It is important because a change in the footprint of the cross lease can negate the title, which will be very difficult and costly to rectify (if is possible at all). It may cause difficulty in your selling the property in the future, and also satisfying the requirements to your bank.  If there have been changes to the flat without the consent of all the other cross lease owners, then you can be in breach of your lease and liable to remedy that breach.

Unit Titles (if applicable)

Similar provisions apply in respect of Unit Titles as to cross leases. It is important to ensure that no changes have been made to the boundaries of the building within the unit title, otherwise rectification in the future can be extremely costly.

The Unit Titles Act 2010 provides that the seller must give you “pre-contract disclosure” through a statement which is prescribed in the legislation. This must be done before the agreement is signed. You can seek further information, but you may be required to pay for the cost of supplying that additional information.

Likewise, not later than the fifth working day before settlement, the seller must provide you with a “pre-settlement disclosure statement” setting out the information prescribed, At the same time, the seller must also supply a certificate from the body corporate certifying that the information in the statement is correct.

If the seller owes money to the body corporate, the body corporate can withhold the certificate, but this can generally be rectified by the seller’s solicitor giving an appropriate undertaking to the body corporate to pay any outstanding amounts on settlement.

The supply and checking of this information is most important because unit tiles are complex. For that reason, unit titles are not governed by the normal Smart Move fixed fee service.

Kiwi Saver Deposit

If you are planning to uplift Kiwi Saver contributions, you must comply with all the qualifying conditions including:

– A trust cannot be a purchaser

– Contributions cannot be used to repay a loan eg. You cannot settle early with loans from parents and then expect to uplift the Kiwi Saver contributions later to repay the loan.

– You must allow at least 10 working days to uplift funds prior to settlement.

Housing New Zealand Housing Deposit

– You must intend to live in the house for at least 6 months as your principal place of residence.

– You must obtain and supply a Code Compliance Certificate within 12 months for a new build.