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Negative equity on your property? Not necessarily a nightmare

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What is negative equity?

A negative equity position is where the value of a property that provides security for lending falls below the sum that has been borrowed. The issue is that if the bank ever required the lending to be repaid, the proceeds of the property sale may not be sufficient to repay the full loan amount. With the current property market falling, this may put some property owners, particularly those who have recently purchased, in a vulnerable position.

 

Is it scary?

On the face of it, being in a negative equity position appears frightening. Lenders, brokers and other financial service providers, however, all indicate that it doesn’t need to be scary, but it is fair to say it does make property owners uncomfortable.

The key for borrowers is to ensure they keep up regular loan repayments. Banks make money by collecting the interest paid on loans, so it makes little sense for lenders to race in and force homeowners to sell. Only where a borrower begins to stop their repayments (a ‘default’) does this risk materialise.

 

Impact of rising interest rates

The second aspect for borrowers who have seen their property slide into a negative equity position is that interest rates continue to rise. Meeting current repayments may be quite achievable, however, when it comes time to re-fix the interest rate and the repayment amounts increase, then the strain on finances becomes greater. If servicing your mortgage already stretches your household finances, keeping up with repayments at a higher rate can become unachievable.

 

What to do when times are tough?

Before leaping to conclusions and thinking the bank will turf you out of your house and force a mortgagee sale, talk with your bank first. The bank does not want to see you homeless, and it will usually work hard to help you.

 

Mortgagee sale is a last resort

Whether or not your property is in a negative equity position, the mortgagee (usually a bank but also sometimes a private entity or person) always has the legal right to exercise their mortgagee’s power of sale where a borrower is in default on their loan.

The bank’s right to sell your home when you are in default (and the process to do so) is set out in the Property Law Act 2007. The legislation states that the bank owes a reasonable duty of care to obtain the best price obtainable at the time of sale. This means that the bank cannot simply sell for a price that covers the principal debt and its own costs; it must get the best price possible. After a mortgagee sale is settled, the balance of the bank’s debt any penalty interest and the bank’s costs are paid and any remaining balance goes to the borrower.

In a negative equity position, where the best price for the property is insufficient to repay the loan amount, the mortgagee will usually transfer the unpaid balance of principal debt, interest and costs to a personal loan; it will be up to the borrower to negotiate the interest rate applied for that loan.

While banks always have the power to sell as a last resort, in practice, borrowers can find themselves months in default without their bank exercising this power. It is always in the bank’s interest for borrowers to repay rather than force a sale. Usually, the borrower will receive several notices setting out the default and the penalty interest payable.

If the mortgagee believes that there is any chance of repayment, they are likely to agree to facilitate a repayment arrangement.

 

We can help

Going through this process can be intimidating; talking with us will help determine your rights, obligations, or what options you may have and can help limit any further debt or penalty being incurred.

Working together with us may also help you realise that the issue isn’t as serious as the notice seems. We can help you negotiate an amicable way forward with your lender and, most importantly, do our best to ensure you get to keep your home.

 

DISCLAIMER: All the information published in Property eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Co-owning a property

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Think about having a property sharing agreement

For many, owning a property simply involves having your own name recorded on the title. There are some situations, however, where you might share property ownership with friends, family or business partners. This type of co-ownership seems to be rising in popularity. Amongst other things, the difficulty for a single purchaser to meet finance requirements has seen an increasing number of people sharing a roof. Lately, whole developments have been designed to accommodate this type of arrangement.[1] For others, co-ownership may come about through inheritance, for investment reasons or in situations where the property is only needed part-time, such as a shared holiday home.

Whatever the reason, co-ownership comes with many issues to consider. The greatest risk with co-ownership is making assumptions about how things will work, only to find out at crunch time that your fellow owners see things very differently.

Put it in writing

In this article, we focus on a common way of dealing with co-ownership – a property sharing agreement. Completing a written property sharing agreement before you first purchase the property allows all the co-owners to establish upfront how the co-ownership will work, rather than relying on assumptions and potentially ending up in a long legal dispute.

Some issues that you might want to consider include:

  • Recording ownership on the title: You can structure the title in a number of ways to reflect your agreements about the property such as setting out the particular shares that each owner has in the property. Bear in mind that whether you are listed as tenants-in-common or joint tenants will affect, for example, what happens to the property if one owner dies. You also should agree on who the owners will be – are you owning with another person or, for example, the trustees of a trust?
  • Funding the purchase: Co-ownership does not necessarily mean that you each contribute equally into the property. For example, one owner might be only involved to help you gain finance approval rather than contributing funds.
  • Meeting expenses: All properties have outgoings to be met such as mortgage payments, council rates, insurance costs, and repairs and maintenance. You should decide not only how these will be paid, but also what should happen if one owner fails to contribute as required and how you will decide when to incur expenses for things such as maintenance.Any agreement will sit alongside, not override, your agreements with your lender or other creditors. Usually, mortgage repayments come with joint liability and the lender can seek repayment of its loan from any of the borrowers regardless of what is stated in your property sharing agreement.
  • Use of the property: You should consider, for example, whether any of the owners may let the property to a third party or whether ownership is for personal use only. Think about how any income or capital gains will be shared.
  • Selling the property: There have been cases where people have found themselves co-owning a property that they no longer want to own.[2] To help avoid this situation, you may want one owner to be able to force the sale of the entire property where, for example, the other owners have failed to pay outgoings, an owner has died or where that owner simply wants their funds back. On the other hand, so that no one is unexpectedly required to sell, you could agree to allow the remaining owners the first option to buy the share of the owner who wants to leave.
  • Relationship property claim? To help limit the effects of relationship property claims by non-owners, you might agree that everyone with an interest in the property is obliged to enter into a relationship property agreement with their partner/spouse. If you are buying a property with a relationship partner and want to contract out of the default position under the Property (Relationships) Act 1976, a relationship property agreement is a must.
  • Resolving disputes: You can set out in your agreement the process for resolving any disputes. For example, you could agree that you must first try to resolve disputes through alternative dispute resolution methods, such as negotiation or mediation, before any court proceedings can be filed.

These are just some of the matters that you should think about before embarking on co-owning a property.

We can take you through these matters and many other issues, and help you prepare an agreement reflecting how you want your shared ownership to work.

If you are interested in other ways to structure a co-ownership model, please get in contact with us to discuss whether a trust or company structure would be more appropriate for your circumstances.

[1] For example, the Bremner Ridge development.

[2] Marks v Halse [2021] NZHC 1595.

DISCLAIMER: All the information published in Property eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Land covenants

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Rules on how you can use your land

A covenant is an instrument registered against land that governs how an owner or occupier can use their land. The land bound by the terms of the covenant is referred to as the ‘burdened land’ as that has the burden (although not all covenants are negative) of complying with the terms of the covenant. There can be either positive covenants which compel the owner or occupier to do something, or restrictive covenants that prevent the owner or occupier from carrying out a particular activity.

 

Common covenants

Generally, people encounter covenants when their lawyer reviews the Record of Title of a property and advises that it is subject to a land covenant. Often the covenant will dictate that certain activities or uses are restricted or prohibited on the property. Examples include the maximum height of buildings allowed to be built on a property or a prohibition on keeping certain animals.

Covenants are commonly seen in subdivisions where the developer intends to sell multiple sections for the construction of new homes. Often a developer will register extensive land covenants that prescribe various design features of the houses to be built in the subdivision. This helps the developer dictate the look and feel of the subdivision; it will generally include covenants such as a minimum build cost, the type of cladding permitted for the exterior of new builds and maximum heights of fences and plants, along with prohibitions on collecting rubbish on properties, the visibility of clotheslines and many other visual features which are all designed to help the developer preserve the aesthetic appeal of the subdivision.

Another type of land covenant is a reverse sensitivity covenant (sometimes called a no-complaints covenant). These are used where a party in a rural or industrial setting may wish to subdivide or develop part of their land for residential use. A no-complaints covenant would be used in this instance to protect the existing property use of the farm or the factory from complaints made by the new residential neighbours who might object to certain smells or noises generated by that existing use which will continue on the retained land. This ensures that farms and factories can continue their normal business despite the development of purely residential property next door without fear of those neighbours complaining and interfering in how those businesses operate.

If you are looking to purchase a property, particularly if it is bare land, it is important to check that it isn’t subject to covenants. If there are any covenants registered against the Record of Title, you should ensure they won’t restrict your intended use of the land or leave you bound to put up with offensive noise or smell from neighbouring properties without any right to complain.

 

Enforceability of covenants

In a similar way that the owner or occupier of ‘burdened land’ bears the obligation of complying with the terms of a land covenant, the owner of ‘benefitted land’ has the right to enforce covenants affecting the burdened land.

The covenant will often contain penalty provisions that state the burdened landowner will be penalised a punitive amount for non-compliance with a covenant registered against their land.

If the burdened landowner fails to comply, the owner of the benefitted land may have the right to have the work required to comply with the covenant completed and to recover those costs from the burdened landowner.

Covenants can also benefit a party in gross meaning that the party with the right to enforce the terms of the covenant isn’t necessarily an adjoining landowner but often the development company responsible for a subdivision, or a local or territorial authority. Covenants in gross can give the developer the control over the design of buildings in their subdivision to ensure they can maximise the profitability and marketability of their sections without having to rely on individuals to enforce covenants themselves.

As land covenants can vary so broadly depending on their purpose or the way they are drafted, it is important to talk with us early on if land you own, or are looking to buy, is affected by a covenant. It is particularly important if you have a unique plan for a build or slightly unusual use for your land in mind that might be precluded by a restrictive covenant. A quick check by us can alleviate any doubt and ensure you won’t be caught once it is too late.

DISCLAIMER: All the information published in Property eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Property briefs

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Healthy homes standards have changed

Changes to the healthy homes standards came into force on 12 May 2022. The changes primarily affect the heating standards, but there are also modifications to ventilation, moisture ingress and drainage standards.

Heating: If your rental property was built to the 2008 Building Code and the insulation and glazing meets the 2009 insulation and glazing standards, you can apply the new heating formula when assessing your property’s heating obligations. This acknowledges that modern homes are generally warmer, dryer and easier to heat than older properties. The changes allow the fitting of a smaller heating unit in your rental and, as an added benefit for tenants, a smaller unit uses less power.

Ventilation: The standards now allow for certain existing continuous mechanical ventilation systems to comply with the ventilation standards. The key is, however, that the system must extract the air outside, meaning HRV and DVS systems won’t be sufficient. If you already have a continuous mechanical ventilation system in place, you may not need to do further work to comply with this requirement.

Moisture ingress and drainage: Additional guidance is available in relation to moisture barriers, particularly where installation is not reasonably practicable in the subfloor area.

For more information on the changes, click here.

 

Rent relief for commercial tenants

We wrote an article reviewing the rent relief provisions available during the early months of the Covid pandemic in the standard commercial lease (see the the Winter 2020 edition of Property Speaking).

There continue to be a range of factors beyond the control of a landlord and tenant that could leave a tenant without the reasonable use of their premises. Some commentators have said that we may be in for another Covid wave and there may be some unforeseen situations (such as the protests in Parliament’s grounds in February-March) that could further disrupt businesses and could create genuine safety concerns preventing tenants from accessing their premises.

If your lease uses the Auckland District Law Society Deed of Lease Sixth Edition template, you will find the rent relief provisions at clause 27. Clauses 27.1-27.4 apply where the property is partially damaged so you don’t receive the full benefit.

Clauses 27.5-27.6 apply where there is an emergency and a tenant is prohibited or restricted from accessing the premises.

Access restrictions must be imposed by a competent authority (such as the Ministry of Health) as in the lockdowns that New Zealand faced in 2020-21. The rent relief provisions are, however, unlikely to apply if your workplace is infected with Covid and you need to close your premises for a week to isolate.

In each case, a landlord and tenant should discuss their particular circumstances and reach an outcome that works for both parties. If you want to know if rent relief is appropriate in your particular circumstances, please contact us.

Rising interest rates causing anxiety for borrowers

As property owners are aware, interest rates are rising. If your fixed term mortgage is coming up for renewal, you may be feeling anxious about what your repayments could look like once your current rate ends. If you have a floating rate, your rates will also be increasing.

There are some options available that you can discuss with your lender if you face unforeseen or significant financial hardship.

Mortgage holidays: A mortgage holiday is a temporary break from making mortgage repayments; these are generally given for a six-month period. The break can either cover both your principal and interest payments, or cover just your principal payments. It’s important to understand that interest on your loan will generally continue to accrue. If you opt for a total payment break then interest will accrue on both the principal and the unpaid interest as it accrues; make sure you discuss with your lender before committing to this.

Extending your mortgage term: Lenders can also extend the term of your loan. For example, if your current mortgage is due to be repaid in 10 years, you may be able to push it out to 15 or 20 years. This has the effect of reducing your weekly or fortnightly principal repayments. Remember, however, that you will end up paying more in interest in the long run. Make sure you discuss the implications of this fully with your lender.

Talk to a mortgage broker: Before you re-fix or float your interest rate, do talk with a mortgage broker. Mortgage brokers aren’t just used when you are looking for finance to purchase a property. They can also compare interest rates offered by other lenders and can negotiate on your behalf. When working with a mortgage broker there is no direct cost to you for using their services; most of the time the lender will pay your mortgage broker’s fees.

If your interest rate is coming up for renewal and this is causing you undue stress, come and see us to go over your options before talking with your lender and/or your broker. We are here to help.

DISCLAIMER: All the information published in Property eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Property eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Co-ownership arrangements

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Could be a good option to get on the property ladder

Getting on the first rung of the property ladder is becoming harder than ever to achieve. The reasons why are well known — sky-rocketing house prices, higher rents and costs of living, tight lending restrictions and a shortage of housing stock. This perfect storm presents a living nightmare for first home buyers. Is it time for prospective homeowners to give up on the Kiwi dream of home ownership? If not, there are other options.

The Kiwi dream

There are significant social and economic benefits to communities from the security that comes with having an established place to live. It brings freedom from the uncertainty and stresses of renting coupled with anxiety as house prices continue to rise. These benefits make the housing dream worth chasing and have driven private companies, the government and charities to provide innovative solutions to help Kiwis (with a variety of incomes and house price brackets) into home ownership. Necessity is, after all, the mother of invention.

Co-ownership

Co-ownership (or shared ownership) is a practical tool to get on the property ladder: by ‘shared’ we don’t mean pooling funds and cramming into one house with several other families (or your closest friends) bunk-bed style.

Co-ownership means buying the percentage of a property that you can afford now, with a silent partner (either a company, the government or a charity) providing the balance. Together you ‘co-own’ the property in those shares. The home is yours to enjoy. You are free to paint the walls, change the carpet, hammer in picture hooks and plant a garden. In return, you pay the rates and insurance, and maintain the property.

You pay a fee (or interest) for the co-owner’s share, and in time (either by an increase in the property’s value or because your financial position has improved) you can buy out your co-owner. Boom — full ownership!

Filling the deposit gap

For many prospective buyers, their inability to save a large enough deposit is the main barrier to getting a loan from a bank. Most are quite capable of servicing a mortgage but cannot save for the required (and ever-increasing) deposit amount because life gets in the way.

The gap between the deposit saved and the deposit required is just too wide for many. This is where co-ownership initiatives help people who don’t fit mainstream mortgage criteria.

Buying a first home provides Kiwis (who have been in KiwiSaver for at least three years) a ‘single use’ key to unlock those contributions which can assist towards 5% of a house deposit.  If you have 5% of a deposit, you can use the co-owner’s contribution to top up the deposit required for regular retail lending — without having to resort to a second-tier lender.

If the worst happens – what next?

As well as the upsides of owning property, what happens if the property market dips, your personal financial situation doesn’t improve or if your relationship breaks up?

If things really go belly-up, the house can be sold, the mortgage repaid and your co-owner shares in the loss (or the gain) in the percentage ratio that they contributed at the outset. Or there may be other options; always talk with your co-owner as they may be able to offer alternatives.

Some co-ownership options

New Zealand Housing Foundation: Help from this charity is limited to people buying new houses that are located only in New Zealand Housing Foundation developments. The income cap is $95,000. You can find out more here.

Kāinga Ora: The government’s First Home Partner programme is also for new houses only. You must be able to contribute a minimum 5% deposit and the total household income cap is $130,000. It will contribute a maximum of 25% of the house value or $200,000. For more information on this, you can find our more here.

YouOwn: This privately funded company operates nationwide: it manages investment from not-for-profit entities to support co-ownership in the community. It allows co-owners to buy existing properties, as well as new ones. There is no income cap or house value limit. Eligibility criteria includes a 5% deposit, minimum household income of $110,000, and no or low debt. You pay 4.95% per annum on YouOwn’s share and can buy them out after five years. Go here to find out more information.

And there are other organisations and private co-ownership schemes and arrangements that you  could investigate.

Conclusion

In high-price areas such as Auckland (actually, almost anywhere in New Zealand now) and without access to a ‘bank of Mum and Dad’ to solve the deposit gap, a co-ownership arrangement may be the best opportunity for prospective buyers wanting to escape private rentals and have a place to call their own.

Each scheme has different terms, eligibility criteria, restrictions and limitations. Come and talk to us to ensure a full understanding of the co-ownership journey.

So, check out the co-ownership possibilities and keep the dream alive. It may be you, or someone you know, who could use a helping hand onto the property ladder right now. +

 

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Checking your home is accurately insured

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Regularly review the sum insured

Recent sharp increases in building materials costs due to Covid shortages have affected the cost of a possible rebuild, or repair, of your home. It is, therefore, wise to have your home properly insured. Although most commercial property owners must obtain an insurance valuation at least every three years, there is seldom any requirement on homeowners to do this.

With most house insurance policies, it’s up to the homeowner to set the sum insured. If your sum insured is too low, you may not be able to repair or rebuild your home to the same size and quality in the event of damage or loss. If your sum insured is too high, you are paying too much for your insurance as most insurers will only reimburse policyholders for the actual cost of the loss they have suffered.

Tips for determining the sum insured

Professional valuation: If you want accurate and up-to-date rebuild figures, obtain an insurance valuation from a property valuer or quantity surveyor. The sum should be based on current building costs, not market value.

Online calculator: Using an online calculator (Cordell Sum Sure, for example) can be useful but this comes with a word of warning.  It’s an estimate; it is not as accurate as a professional valuation. We heard a recent example where a professional valuation produced a figure almost 30% higher than using an online calculator.

Whichever method you use, the valuation should:

  • Not include the cost of the land, just the property/structures built on it
  • Allow for current building standards to be implemented
  • Factor in structural improvements such as sheds, pergolas and fencing
  • Include the cost of removing debris, and
  • Include GST.

It’s up to you to check your sum insured is accurate and kept current. You should review the sum insured each year to make sure it’s still appropriate for your home.

In the unfortunate event that you experience any loss and have difficulty reaching agreement with your insurer over the value of the loss, please contact us for advice on your legal options. +

 

 

DISCLAIMER: All the information published in Fineprint is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Resource consents

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What are they and when do you need one?

The Resource Management Act 1991 places restrictions on how your land can be used; this is done by the issuing of consents. Their purpose is to limit any adverse effects that your intended use of your property may cause to neighbours’ properties or the environment. If you are a property owner, or you lease premises to operate your business, we explain below the various types of consent that you may come across from time to time.

Types of consent

Discharge consents: The Act restricts the discharge of contaminants into the air, water or land. It is important that the way you use your property doesn’t adversely affect it for future generations or damage your neighbour’s property. If your business manufactures goods or you are farming, rules restricting the use of pesticides, limiting dust and controls around dairy effluent will be familiar to you.

Consent to take water: If your farm has a spring or river flowing through it, you may use that to water your crops or herd. What you may not know is that your council may restrict how much water you can draw from that source over a particular period. Although there is plenty of water in the sea, clean fresh water is a limited resource and it needs to be controlled appropriately.

Subdivision consents: If you want to change the size of your section (a boundary adjustment) or to split your property into additional property titles, you will usually need subdivision consent. This type of consent is likely to come with some conditions.

Your local council may also ask that part of your property, normally around waterways, is transferred to the council as an esplanade reserve or esplanade strip. This is known as ‘vesting’. The council can also require that future development (for example, if you’re building a new subdivision) meets certain council-dictated design specifications.

Change of use consents: If your property is used for a particular purpose and you want to change that use, you may need to apply to the council. A common example of this is converting a commercial building or garage into a residential dwelling.

Do I need resource consent?

If your proposed activity is not listed in the district plan as either permitted or prohibited, then you will need a consent.

The district plan for each region is publicly accessible through the local council’s website; it varies for each region depending on the needs and focus of that community. For example, somewhere dry like the Wairarapa is likely to have stricter water restrictions in place than Fiordland.

The zoning of your property will impact on your consent. Councils zone certain areas based on the expected characteristics of that area. Different zones, residential, commercial, industrial and rural (the names of zones also differ from region to region) have different rules that apply based on their proximity to other zones, amenities and natural hazards. It is useful to know that when subdividing your urban residential property, you will be permitted to have smaller section sizes than if you were subdividing your rural property into lifestyle blocks.

If you are looking at doing something different with your property it always pays to check the region’s district plan first. If you’re not sure whether you need consent, get in touch with the local or regional council; council staff are experts and are generally friendly and happy to help.

What if I carry on my activity without consent?

If you ignore your responsibilities under the Act, penalties can range from $1,500 to $300,000 or you could be sentenced to up to two years in prison. If you are operating through another entity (a company, for example) you could be fined up to $600,000.

It is important that the council balances your rights as a property owner with the rights of your neighbours, future landowners and the environment. The council, however, doesn’t always get this balance right. If you believe that your consent application has been unfairly rejected, please don’t hesitate to talk with us.

Building consents

In addition to requiring resource consent, if you are building a new structure or doing structural alterations on your property, you may also require building consent. Your building work is governed by the Building Act 2004 and must be built to the standards contained in that legislation. Once the consented building work is completed, it is vital that the council approves that work so a code compliance certificate (CCC) can be issued. When you want to sell your property, any prospective purchaser will want to see the CCC. +

 

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Not sure of your boundary?

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Remedies if there is an encroachment

All property owners, whether commercial or residential, must ensure that any structure on their property is located within its legal boundaries. These boundaries cannot be moved without the property’s title also being changed. Sometimes, however, the legal boundaries do not match up with structures (such as a fence or a building) on that property. What happens when the title does not match what is literally ‘on the ground’?

Confirm the legal boundary first

The first step when a query about a boundary arises is to determine where your boundary legally lies. Online aerial maps (like those available on some council websites) give you a starting point. However, the definitive description of your boundary is on the legal title for your property. There is usually at least one diagram on your title which will have the set measurements of all of your boundaries’ locations.

On the ground, there should be markers along your boundary. You can use these boundary markers together with the title to figure out where the relevant boundary lies. Sometimes, however, the boundary markers are well hidden or missing entirely, particularly on older properties. If boundary markers cannot be found, you should engage a surveyor to establish where your boundary is and to replace missing markers.

The other situation where you may need help in establishing your boundary is where your title is marked that it is ‘limited as to parcels’. This means that when the title was issued, there may have been insufficient survey information available about your boundaries’ locations. To be sure about your boundaries and to remove this classification, you must arrange a professional survey and work through a process with Land Information New Zealand to get the boundaries confirmed.

Encroachment

Once your boundary is confirmed, you may find a structure sits over the boundary; this is called an ‘encroachment.’ The current owner of the property and the structure is legally responsible for any encroachment regardless of when the structure was erected.

How you address an encroachment issue differs depending on whether you are a prospective buyer or you already own the property.

Before purchasing a property

The best time to check any boundary issue is before you buy the property.

It is essential that you use your own judgement and get professional survey advice where necessary, rather than relying on advice from the vendor. There have been legal cases[1] where the vendor has assured the buyer that everything was fine, only for it to be discovered that buildings included in the purchase were over a boundary. This can have significant consequences for you as the buyer; under many agreements for the purchase of property, it is the buyer’s responsibility to check and raise any issues with the boundaries. The vendor is usually not required to show you where the boundaries are nor to check the boundary markers are in place unless a bare section is being sold.

If you discover an encroachment, talk with us and we can raise this with the vendor. There is usually a limited time for raising title issues – either under the standard ‘requisition’ procedure or any due diligence condition. If raised within the proper time and the vendor cannot fix the issue, you may be able to cancel the agreement and not buy the property.

Issues when you own a property

If you already own a property and discover that a structure or fence is over your boundary, different processes apply. If you discover an encroachment, you may want to talk with your neighbour first and see if you can figure out a solution together. If this does not work, there are some legal remedies to assist:

  • For fences, the Fencing Act 1974 requires that any fence is usually built with the fence or its posts as close to the boundary line as possible – unless agreed or a court has ordered otherwise. If your neighbour has unlawfully erected a fence over your boundary, you can ask the Disputes Tribunal or District Court to order the removal of the fence.
  • For a building or other structure, you can ask the District Court or High Court under the Property Law Act 2007 for help around the ‘wrongly placed structure’. Depending on the circumstances and what is ‘just and equitable’, the court can allow your neighbour rights to use the land and structure, give you the right to use the structure, require removal of the structure and/or require payment of compensation.

Navigating boundary and encroachment issues can be tricky, particularly when you have a friendly relationship with your neighbours. If you think you might have a boundary issue, please do talk to us about your options. +

[1] For example, Armstrong v Mitchell [2018] NZHC 2353.

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Property briefs

House
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Updates to the ADLS Agreement – important for buyers and sellers

On 8 February 2022 the Auckland District Law Society (ADLS) released an updated version of the Agreement for Sale and Purchase of Real Estate. This is the most- used agreement when buying or selling property. The new version incorporates several changes that are important for people buying and selling property, along with some superficial amendments to accommodate the nuts and bolts for lawyers handling the transaction.

The process for claiming compensation for a breach of the contract by one party or for a defect in the property has been clarified in clauses 10 and 11 of the agreement. One fundamental difference is that the new agreement limits parties to only one claim for compensation under clause 10. A party might use this clause to claim compensation for services in the property that don’t work or for loss suffered by that party as a result of a misrepresentation by the other party or their real estate agent. Despite parties being limited to one claim, the claim can include more than one element set out in clause 10.2 so vendors and purchasers can still be fully compensated where multiple breaches occur.

Another change to note is where parties are transferring residential property for a purchase price exceeding $7.5 million or commercial property for a purchase price of more than $1 million. In each of these two situations, for tax purposes, parties will need to agree on the value of land and buildings that make up the purchase price as well as the value of any other assets, fixtures, fittings or chattels sold with the property. These should be included as an addendum to the agreement.

Getting legal advice regarding the full terms and conditions of the agreement is always essential, particularly in light of these changes to the ADLS agreement. If you’re buying and/or selling property, talking with us early on should be your first step.

Building in the Covid landscape

The steady rise of house prices in recent years has prompted many people to consider building a house as a much more viable and affordable option than it has been in the past. Covid and its pervasive disruption of everyday life, however, has brought up a range of new issues that prospective home builders should be aware of before considering a build.

Fixed-price contracts have become a thing of the past with builders now being unable to guarantee the price of materials due to their scarcity and long delivery times. Buyers should look out for clauses in building contracts that allow the builder to increase the price where materials, labour or services become more expensive than at the time the contract was signed.

Similarly, due to the difficulty builders have getting materials and labour, completion dates are often much further out than people have come to expect. Like the price escalation-type clauses referred to above, builders will often now include an ability to extend the contract completion date due to delays in obtaining materials or labour to complete the build in the time prescribed in the contract.

With these issues in mind, it is important that you get advice regarding your building contract before you sign it. Make sure you have a good handle on your budget and there is room for a potential increase in the contract price.

Harsh CCCFA provisions relaxed

The amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) that were introduced on 1 December 2021 have resulted in many borrowers struggling to gain lending approval for a property purchase.

The amendments include regulations requiring lenders to look more closely at the affordability of loans for lending applicants and the suitability of particular loan structures based on the financial position of their customers. This has prompted banks to delve into applicants’ spending habits and has resulted in an increase in rejected applications.

Other restrictions imposed on lenders include regulating the way banks and other lenders can advertise their products. Lenders are required to adhere to minimum standards that require lending advertisements to be clear to customers and not confusing. This places a higher threshold on lenders than the requirements not to mislead or deceive customers as required under the Fair Trading Act 1986.

Finally, greater restrictions have been placed on low equity lending meaning that banks are more limited in approving applications from borrowers with less than a 20% deposit.

The effect of these legislative changes has been detrimental to the ability of first home buyers to obtain lending to enter the property market; mortgage and business advisors have openly opposed or criticised these changes since their introduction.

This opposition, combined with the perhaps unintended difficulties that the changes have created for first home buyers, has prompted the government to review the changes on the basis that lenders’ enquiries under the legislation were too intrusive for customers.

The proposed amendments will no longer require lenders to take a deep dive into the spending habits of potential borrowers in order to assess future spending for applicants. A more comprehensive list of the changes to ease the December amendments can be read here.

Despite the challenges caused by the December amendments to the CCCFA, it appears that they are only temporary and that following the finalisation and enactment of the proposed easing measures, potential borrowers will be able to proceed without the invasive or unreasonable inquest that many have recently experienced. +

 

DISCLAIMER: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

Gift or loan?

Estate, House, Kids, Latest news, Relationships, Retirement
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The importance of properly documenting advances between family members

The trusty Kiwi “She’ll be right” approach is often manifested in a reluctance to formally document intra-family lending arrangements. Catch cries of “I trust the kids to sort things out between themselves after I’m gone” and “My new partner says she will never make a claim and I believe her” are common, but all too often lead to disputes down the track.

In this article, we look at three different scenarios that are based on Maddy’s story.

Maddy’s parents help out

In 2016, Maddy’s parents decide to help her buy her first home. The bank will not lend to Maddy without a 20% deposit; her parents offer to lend her $250,000 to make up the 20%. The bank’s rules also require her parents to sign a gifting certificate, confirming that they will not require repayment of the money. Despite that, Maddy and her parents agree verbally that the money is a loan, not a gift, and Maddy will pay them back when she can. This is important to Maddy’s parents, as they also want to help their younger daughter, Sarah, into her first home in a few years’ time once Maddy has enough equity in her home to repay them. Maddy takes out a bank loan, secured by a first ranking all obligations mortgage in favour of the bank and buys her first home. Exciting times.

Let’s look at three different ways in which the failure to document that loan could play out.

Scenario 1: Insolvency

Maddy also owns a hospitality business, which she operates as a sole trader. Maddy doesn’t really understand how it all works, but is pleased that having a mortgage means she gets better lending rates for the business, which improves her caé’s cash flow no end.

Unfortunately, in 2020 Covid hits. While the business manages to hang in there for some time thanks to the Covid business loan and the wage subsidy, the recent removal of all government financial assistance and the move to red level in the traffic light system tip the business over the edge. It owes more than $500,000 to the bank, as well as the debt to the government and various suppliers. Maddy’s creditors file bankruptcy proceedings.

Maddy receive a demand from the bank to pay the $500,000-plus it is owed, which means she must sell her house. There is just enough money left after doing that to repay the bank and all the unsecured creditors.

In an attempt to salvage something from the situation, Maddy argues that the amount her parents contributed to the equity was a loan and not a gift. Unfortunately, there is no documentation to support that; the only documentation is the signed gifting certificate. The creditors rightly say that there is no evidence the money was a loan, and therefore they require repayment of their debts in full.

Scenario 2: Succession

Maddy’s parents died shortly after lending her the $250,000 house deposit. Younger sister, Sarah, is shocked when the estate lawyer says that there is only a house property to divide; Sarah says that she knows her parents had more than $250,000 in the bank which they had lent to Maddy to help buy her house.

Sarah appeals to Maddy, saying that they both know their parents lent Maddy the money. Maddy disagrees, pointing to the bank gifting certificate: she says that it was clearly a gift and she refuses to pay anything back. Lacking any evidence of the arrangements between her parents and Maddy, Sarah is forced to reluctantly accept a lesser inheritance than she believes she was entitled to.

Scenario 3: Relationship property

Maddy’s boyfriend Tom moved into her new home shortly after she bought it. Their relationship broke down four years later in 2020 and Tom claims half the equity in the home under the Property (Relationships) Act 1976.

Maddy accepts that the home is their ‘family home’ and that the equity must be divided equally. She argues, however, that in addition to the bank loan they need to take into account the $250,000 owed to her parents.

Tom says that is the first he heard of any loan from Maddy’s parents, and points to the gifting certificate that he found when he was cleaning out some drawers. Maddy is unable to produce any evidence to support her argument that money is owed to her parents, and has to divide the equity without factoring that in.

The lesson

In every scenario outlined above, a dispute could have been avoided, or minimised, had Maddy and her parents entered into a simple agreement recording the existence of the loan. A deed of acknowledgment of debt, prepared at the time that Maddy bought her house, could have been produced for a minimal fee, thus preventing a multitude of unintended consequences later on.

If you are lending money within your family, do contact us to ensure the loan is documented in a way that protects everyone — both now and in the future.

 

 

DISCLAIMER: All the information published in Rural eSpeaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of Edmonds Judd. Articles appearing in Rural eSpeaking may be reproduced with prior approval from the editor and credit given to the source.
Copyright, NZ LAW Limited, 2021.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650

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