What you Need to Know About the Storm and Flood Damaged Buy-out Scheme

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Step 1 – Assessment

In order to qualify for the buy-back scheme, an applicant’s property must be determined as a Category 3 risk level.

The risk level of a property is determined by the Auckland Council who will conduct a detailed on site risk assessment. If a property has a residential dwelling on it and is confirmed as Category 3, an applicant will be eligible for a buy-out offer. An applicant has 3 months to dispute the categorization of their property after Auckland Council has confirmed in writing the category of the applicant’s property.

Vacant sections are not included in the buy-out scheme, however properties that aren’t the owner’s main home (secondary properties) classified as Category 3 are also eligible for a buy-out. This is because the purpose of the buy-out policy is to remove people from places where there is a risk to life during extreme weather.

Following the determination an applicant will have three months to dispute their property category or to opt-in to the buy-out process.

Step 2 – Valuation

A property’s valuation will be determined by a panel of registered valuers selected by the Auckland Council. A pre-weather event date of 26 January 2023 will be used when determining the market valuation of the property.  An applicant is not committed to accepting a buy-out offer by receiving a valuation and can opt-out of the process at any time until they sign a sale and purchase agreement (the agreement).

Step 3 – Offer

Once a valuation has been determined, an applicant is presented with an offer which contains a copy of Auckland Council’s valuation and a conditional agreement which contains the buy-out offer. The offer is the market valuation, less a 5% homeowner contribution (for insured homeowners), any insurance payout and Earthquake Commission (EQC) funds received.

Once the offer has been presented, the applicant has one month to consider and/or dispute the offer. An offer is accepted when the applicant signs and returns the agreement. If the applicant does not accept the offer then they can dispute the valuation via the disputes process or can opt-out of the process in its entirety.

Step 4 – Agreement for sale and purchase signed

Once the Agreement is signed, settlement is conditional upon the applicant settling their private insurance claim and EQC insurance claim.

If an applicant has already been paid by their insurer, then the buy-out offer from Auckland Council will be the market valuation as determined in step 2 minus the insurance settlement and the homeowner contribution.

Step 5 – Insurance and EQC settled

Opting in to the process will include an obligation on the applicant to lodge a claim with their private insurance and EQC claim. The applicant is to provide Auckland Council with their insurance details, the level of cover as well as information contained in damage reports and claim assessments. These details will be confirmed in a statutory declaration.

Where an applicant has spent insurance proceeds on repairs there is an ability for that amount to be credited back to the applicant. Auckland Council would want to see evidence of the amount spent on those works confirmed in a statutory declaration.

Step 6 – Settlement

Settlement is to occur 20 working days (or as otherwise agreed) after Auckland Council is satisfied that all insurance claims over the property are settled. If there is a desire to move more quickly, then the applicant can negotiate this with their Auckland Council property advisor.

Any mortgage registered over the property will be discharged on settlement and the applicant will also be required to close any utility accounts. Auckland Council are in the process of clarifying their position on rates, however it is likely that due to the damage incurred by the weather events there may be a rates remission but any prior arrears will need to be cleared on settlement.

There will be a $5,000 contribution offered by Auckland Council to the applicant so that they can meet their professional fees. In most cases this contribution would be paid at the point that the applicant opts into the scheme.

Key take-aways

  1. The buy-out scheme follows the usual sale and purchase process. It is voluntary and there is no statutory basis for the scheme.
  2. If the applicant is insured then the purchase price is made up of 95% of the market valuation as at 26 January 2023 minus the private insurance/ EQC settlement funds.
  3. The sale of a category 3 property can only occur once insurance and EQC claims settle.

Acknowledgements to Auckland Council “Category 3 property buy-out information between Auckland Council and the government” (25 January 2024) Te Kaunihera o Tamaki Makaurau Auckland Council https://www.aucklandcouncil.govt.nz/recovery-extreme-weather-disasters/property-categorisation-resolution/Pages/category-3-property-buyout-information-auckland-council-government.

Henderson Reeves is a full service law firm, where Rosebank and Patiki Roads meet in West Auckland.  Our experienced team is available to help you if you are working through this process.  We have a team member in Muriwai able to meet locals to make things easier.  Let us know if we can help you 09 281 3723.