Edmonds Judd

Property

Health and safety lessons

The eruption of Whakaari/White Island on 9 December 2019 was a tragedy. Of the 47 people on the island when it erupted, 22 people were killed. The other 25 people were severely injured, many with life-changing injuries. The last of the prosecutions brought by WorkSafe due to the eruption concluded on 31 October 2023. We look at the lessons landowners and company directors can learn from these prosecutions.

 

After the eruption, WorkSafe brought charges against 13 parties under the Health and Safety at Work Act 2015. These included charges against tourism operators, two government agencies responsible for advising on volcanic risks and the landowners. The charges against the landowners are the most legally significant.

 

Whakaari Management Limited

Whakaari/White Island has been in the Buttle family since 1936. The family currently owns it through the Whakaari Trust; the trust leased the land to Whakaari Management Ltd (WML). The directors of WML are three members of the Buttle family. WML used to contract with tourism operators to allow them to conduct tours on the island. WML had no presence on the island and its staff did not work there.

 

Charges brought against WML and its directors

WorkSafe charged WML under sections 36 and 37 of the Act. Section 36 requires employers to ensure that, as far as is reasonably practicable, the health and safety of their employees. Section 37 requires an employer to take all reasonably practicable steps to ensure the safety of anyone who enters a workplace controlled by the employer, whether they work for the employer or not.

 

WorkSafe also charged WML’s directors under section 44. Where an employer is a company, section 44 requires directors to take reasonable steps to ensure that their company complies with its obligations under the Act.

 

The court’s decisions[1]

The charge against WML under section 36 was dismissed. The court held that section 36 only applied to the employer’s business activities, and WML did not carry out its business on the island. Section 36 will generally only apply to an employer’s premises or anywhere else its staff are working.

 

WML was convicted[2] under section 37 because Whakaari was a workplace that it controlled, and it had failed to obtain expert advice on the risk posed to visitors by a volcanic eruption. The court found that WML could exercise control over the activities of tour operators on the island and that it had been involved in managing their activities in the past as it had actively engaged with the tour operators regarding their operations. WML could also control the workplace by terminating, or threatening to terminate, its agreements with tourism operators that allowed them to access the island.

 

Implications for landowners

If you are a landowner and allow other parties access to your property for commercial purposes, you may have health and safety obligations as WML did on Whakaari. Section 37 will not usually apply if you operate solely as a landlord because a landlord will not usually have sufficient control to meet the section 37 requirements. Section 37 also contains a specific exemption to prevent the section from applying to farmers who allow people onto their farms for purely recreational purposes such as walking or hunting.

 

The charges against the directors of WML under section 44 were dismissed, despite WML being convicted under section 37. The court held that it could not conclude that any directors had breached their personal duty under section 44 based on the company’s failure to meet its obligations as it had no information about how the directors had made their decisions. For example, one director could have argued that WML should have sought expert advice on the risk of volcanic eruption but was outvoted by the remaining two directors.

 

What directors need to do

Following the Whakaari/White Island decision, WorkSafe will likely seek full disclosure of all board documents before bringing similar future prosecutions.  To avoid any potential criminal liability, any company director who is uncomfortable with their fellow directors’ stance on a health and safety matter should ensure that their dissenting view is recorded.

 

As a company director, if you are concerned about any decisions that your board proposes to make, or has made, about a health and safety matter, it would be useful to talk with us to clarify your position.

[1] WorkSafe New Zealand v. Whakaari Management Ltd [2023] NZDC 23224.

[2] Sentencing will take place in late February.

 

 

 

DISCLAIMER: All the information published in Commercial 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 Commercial 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


Over the fence

Family home v homestead: implications for relationship property

When a relationship breaks down, it is always difficult dividing up your joint assets.  It is important when deciding the division of relationship property under the Property (Relationships) Act 1976 (PRA) following a separation, or when forming a contracting out agreement, to accurately classify the home in which you and your partner/spouse live. The overall structure of the property will define whether your home is classified as the ‘family home’ or a ‘homestead.’

Family home: The PRA defines the family home as a property, including all land, buildings and improvements, which a couple generally, or primarily, reside in as their family residence. The property within the whole title must be used for the benefit of the relationship to be classified as the family home. In this case, all land under that title must be shared equally in a separation situation unless you as a couple have a contracting out agreement specifying the division of the property.

Homestead: Where only part of the property within the whole title is used for the benefit of the relationship, the portion attributable to the relationship may be considered the ‘homestead’ instead of the ‘family home.’ In this case, the remainder of the property may not be subject to the PRA principles of equal sharing, particularly if it is owned by a third party such as parents of one of the parties.

A family home will be considered a homestead if a portion of the property within the title is used by a couple as their general, or primary, family residence but the remainder of the title is used for the overall economic gain of another entity. This is more common in the rural context where couples reside on the farm but only a portion of the overall title contains the family home and the remainder is used for the economic gain of their rural business.

In this case, only the portion of the title considered to be the homestead would be considered in the division of relationship property, with the remaining property possibly not subject to the equal sharing principles of the PRA.

 

Road user charges and when to pay them?

The government imposes taxes on fuel through a road user charge (RUC) to collect funds for the maintenance and development of our roads. For most people, this tax is included in the petrol price.

Some vehicle owners, however, must pay the RUC and their fuel separately. If you own a vehicle weighing more than 3.5 tonnes, or a vehicle weighing less than 3.5 tonnes that runs on untaxed diesel, you must pay the RUC.

Your RUC licence is paid in advance to allow you to travel the distance purchased – usually in blocks of 1,000 kilometres.

You must always display the appropriate RUC licence on the inside of the passenger’s side of the front windscreen of your vehicle. Once your vehicle has travelled the distance covered by the RUC licence, you must renew your licence.

Owners must keep records of their vehicle use and have a hub odometer installed to accurately measure the distance it travels. Most vehicles that are subject to RUCs are sold with a hub odometer pre-installed.

Electric cars (EVs) do not currently incur RUCs. The new government, however, has indicated that EVs will pay the RUC from 1 April 2024 onwards.

 

Casual employees v seasonal workers

Seasonal workers are employed in certain sectors (particularly agricultural and horticultural areas) with the exclusive purpose of doing seasonal work, usually to assist with an increase in seasonal production requirements. Although seasonal work is temporary by nature, employers must be aware of the minimum entitlements for seasonal workers. There is a distinction between ‘casual’ workers and ‘seasonal workers’ in general. The Employment Relations Act 2000 requires specific clauses in employment agreements for these workers.

Casual employment: a casual worker is employed to work on shifts that are offered and accepted. There is no requirement for them to accept work you offer. In between periods of work, this worker is not considered to be employed by you.

Seasonal work: generally speaking, a seasonal worker is employed to work the entire season. These people are permanent employees on a fixed-term basis who are likely to be employed under a fixed-term agreement[1]. It is important that your seasonal worker’s employment agreement is drafted according to the specifics of the job.

If you need help with employing this summer’s casual and seasonal workers, please don’t hesitate to contact us. It’s vital to get these employment agreements correct – both for you and your employees.

[1] Section 66, Employment Relations Act 2000.

 

 

 

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, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


To be repealed by new government

The 2023 election has resulted in a National Party-led coalition, that campaigned on a commitment to repeal the Labour government’s Three Waters legislation and the Resource Management Act 1991 (RMA) replacement legislation. It has confirmed that these statutes will be repealed within its first 100 days in office.

 

Three Waters to be Local Water Done Well

The previous government introduced Three Waters to reform water management by shifting it away from New Zealand’s 67 councils, and handing it to four large co-governed regional entities. It was entitled ‘Three Waters’ as the legislation related to three main types of water infrastructure: storm water, drinking water and wastewater. In April this year, after much criticism, Three Waters was renamed Affordable Water with 10 publicly owned water services entities to be established.

The new government intends to introduce its Local Water Done Well plan that will:

  • Repeal Three Waters and scrap the co-governed mega-entities
  • Restore council ownership and control
  • Set water quality and infrastructure investment rules, and
  • Ensure water services are financially sustainable.

Within one year of repealing Three Waters, councils will be required to deliver a plan detailing how they will transition their water services to the new model that meets water quality and infrastructure investments rules, while being financially sustainable in the long-term. Communities, via their local council, will retain ownership of their assets.

Under Local Water Done Well, a Water Services Regulator will be introduced; its role will be to set and enforce water quality standards across New Zealand. It will also be responsible for developing and enforcing rules around the management of stormwater and wastewater that will include setting standards for acceptable discharge and mitigating environmental risks to rivers and beaches.

Local councils will have to present a model for the delivery of water services that is financially sustainable and meets the strict rules for water quality and water infrastructure. If a council cannot achieve financial sustainability by, for example, gaining access to long-term borrowing, the government will provide limited one-off funding to bridge the gap. Support will be decided on a case-by-case basis; Crown funding can only be used for projects needed to transition to a sustainable footing, not for day-to-day delivery of water services.

 

Resource Management Act 1991

In February 2021, the Labour government announced that the RMA would be repealed and replaced with three new statutes: the Spatial Planning Act, the Natural and Built Environment Act and the Climate Adaption Act. The first two statutes were passed in August; the Climate Adaption Bill did not pass before October’s general election. Early in its election campaign, the National Party labelled the RMA-replacement legislation as complex and pledged to repeal them within its first 100 days of office.

The National Party had agreed that the RMA needed fixing but instead campaigned on its own changes.

The National Party’s coalition agreement with ACT and New Zealand First reflects all parties’ commitment to reduce red tape. In particular, the government wants to make it easier to obtain consents for infrastructure (including renewable energy), building houses, and aquaculture and other primary industries. The coalition agreement also presents a desire for ‘allowing farmers to farm’ which suggests the red tape cut from the RMA will lead to a reduction in bureaucracy and more time spent actually farming.

The new government has stated that it will begin to work on a longer-term programme to repeal the RMA, however the detail of this plan is yet to be announced. We will keep you informed during that process.

 

 

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, 2022.     Editor: Adrienne Olsen.       E-mail: [email protected].       Ph: 029 286 3650


Postscript

Mainzeal case

The implications of the Mainzeal case[1] are being felt far and wide amongst the directorship community. We summarise below the findings of the Supreme Court case.

 

In August, after the case worked its way through the High Court and Court of Appeal, the Supreme Court found that the directors should be personally liable for $39.8 million plus interest payable  at 5% pa from the date of liquidation – together more than $50 million. The chief executive of Mainzeal (who was also a director) is responsible for the full sum, and the personal liability of the three other directors was capped at $6.6 million each plus interest.

 

In 2013, Mainzeal went into receivership and liquidation. It was calculated the company owed around $110 million to unsecured creditors. The liquidators believed that the directors of the company had breached s135 (reckless trading) and s136 (trading whilst insolvent) of the Companies Act 1993 and should be held personally liable for the losses of the company’s creditors.

 

Many directors may want to take a moment to reflect on what the Supreme Court decision may mean for them now and in the future. Becoming personally liable for a company’s debts is a significant risk associated with accepting (or continuing) a director role.

 

If you are considering taking on a directorship, you should take independent legal and accounting advice to not only carefully assess whether your skills are a good match for the company and the sector in which it operates, but also to be clear on any potential personal liability.

[1] Yan v Mainzeal Property and Construction Limited (in liquidation) [2023] NZSC 113.

 

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 Fineprint 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


What are the differences?

It’s been a challenging time for many businesses since the pandemic hit our shores. If you find your company in financial difficulty, you may be forced to make some difficult decisions.

This may involve receivership, voluntary administration or liquidations – but what are the differences?

 

Receivership

Receivership occurs where a receiver (typically a licensed insolvency practitioner who may also be a chartered accountant) is appointed to deal with secured assets or manage the business of a company for the benefit of the secured creditors.

 

A receiver can be appointed by a court order or by a secured creditor under the terms of a deed or agreement, under which a contractual right to appoint a receiver has been granted by the company (or any other entity).

 

The specific powers of a receiver include the right to demand and recover income of the property in receivership, issue receipts, manage property and inspect any documents relating to the property. The receiver may also have additional rights in the deed or agreement under which it has been appointed.

 

The receiver’s primary duty is to try and bring about a situation in which debts are repaid, and the company’s property is managed – not for the benefit of the company, but for the secured creditors. To do so, a receiver will collect and sell one or more secured assets on behalf of a secured creditor, and manage other preferential claims against the company. The directors of a company in receivership have restricted powers. They must co-operate with the receiver so that the financial affairs of the business can be resolved fairly and equitably. Directors must provide company accounts, records and other information required by the receiver.

 

Voluntary administration

Voluntary administration is an option aimed at giving a business the opportunity to survive and avoid liquidation. An administrator can sometimes save a failing business; administrators are generally appointed by the company directors to deal with all a company’s creditors and its affairs.

 

In considering whether voluntary administration is an option for the company, directors must weigh up whether it has the support of creditors, and whether creditors are likely to gain more financial benefit from the company avoiding liquidation and continuing to trade.

 

Other considerations include the extent of the company’s debt, the attitudes of suppliers, its history with creditors and the availability of cash flow.

 

Liquidation

In receivership and administration situations, there is a chance a business can be saved and return to normal trading. Liquidation, however, is the end of the road.

 

Previously known as ‘winding up’, liquidation can be voluntary or compulsory. The main reason a company will face compulsory liquidation is if it is unable to pay its debts and it is insolvent. A voluntary liquidation can be used if the shareholders want to cease trading.

 

A liquidator’s principal duty is to preserve and protect the company’s assets to enable distribution to its creditors and, in a solvent liquidation, its shareholders.

 

Liquidators will recover what they can and distribute the proceeds to a company’s preferential, secured and unsecured creditors and, in a solvent liquidation, to its shareholders. Although the liquidator has control of the assets, the company keeps ownership of them and holds the assets on trust for the creditors. When the liquidation is complete the company is removed  from the Companies Register.

 

Ask for guidance

When your business is facing financial strife, it’s easy to feel overwhelmed. We recommend you contact us for guidance to support you through the process.

 

 

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 Fineprint 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


You, or someone you know, may be considering a move into a retirement village. It is a big decision, involving lifestyle choices as well as a significant financial commitment. Understanding the rules that govern retirement villages is crucial – and those rules are set to change.

 

Why the Act is under review

The Retirement Villages Act 2003 is the cornerstone of retirement village governance. It was designed to provide a clear legal framework for village operators when the industry was new. Two decades have passed, however, and both the sector and our elderly population have grown substantially. The number of villages increased by 24% between 2012 and 2021, and unit numbers surged by 65%. With our ageing population, it is vital to ensure that the legislation is still fit for purpose.

 

A balanced approach

Te Tūāpapa Kura Kāinga/Ministry of Housing and Urban Development initiated a comprehensive review; submissions on which closed in mid-November. The aim was to strike a balance between safeguarding the interests of residents and encouraging innovation within the sector. A discussion paper was published which you can read here: https://consult.hud.govt.nz and go to ‘review of Retirement Villages Act 2003’.

 

What happens now?

Although all retirement villages have slightly different arrangements, there are some common features identified in the discussion document.

 

  • Before you buy, you are faced with large quantities of paperwork that can be difficult to understand and is sometimes inconsistent; there is little or no room for negotiation
  • You pay an ‘entry fee’ for the right to live in your unit. This is equivalent to the capital value of the unit. In most cases the retirement village owner benefits from any increase in value
  • You pay a weekly fee that covers rates, insurance, upkeep of the grounds and buildings, etc. Sometimes this is charged even after you have left the unit
  • The retirement village operators charge a fixed deduction, often referred to as deferred management fee. This is a percentage of the entry fee, generally between 20–30%, that is deducted when you leave your unit
  • Many villages charge for the repair of items that come with the unit (such as heat pumps and white goods) and for damage that goes beyond fair wear and tear
  • The options for moving into care can be confusing and expectations as to availability are not always met, and
  • Complaints are handled by the operators themselves; there is no independent body for dealing with disputes.

 

What changes are being considered?

Transparency before moving in

The review recommends re-writing the documents you are given before moving into a village, particularly the occupation right agreement (ORA) and the disclosure statement to make them easier to understand.

 

Feedback was sought on making it easier to complain about misleading statements made during the sale process and giving you the benefit of the doubt where there are inconsistencies between the ORA and the disclosure statement.

 

Day-to-day living

There are proposals to require operators to pay for the repair or replacement of the fixtures that come with the unit.

 

The paper promotes a new independent complaints and dispute resolution scheme. It considers whether free advocacy support should be made available to make it easier to make a complaint.

 

Moving into care

While there are no proposals to change the current regime, the review urges operators to give clearer and more comprehensive information on the residential care services they offer and the financial implications including:

  • Making it clear that being moved into care on the same site is dependent on the availability of a suitable room, and
  • Detailing the costs, including where the operator charges a second deferred management fee if you move from a unit and buy a care suite.

 

What happens at the end of the ORA?

The ORA can end in several ways, the most common being the death of the resident.

 

During the time you have lived in your unit, its market value may have increased. At present, the operator benefits from the capital gain and from the deferred management fee.

 

The discussion paper put forward several different options:

  • Requiring the operator to repay the capital within a fixed period, say six or 12 months
  • Giving the operator the option to share the capital gain with you. If so, then it would be exempt from the requirement to repay the capital within the fixed period, and
  • Paying interest on the entry fee after the unit has been empty for six months.

 

In some cases, the operator continues to charge the weekly fee while the unit remains vacant and there is no limit on how long this can last. The paper considers this to be unfair and proposes to amend the legislation so that operators can continue charging for no more than four weeks after the unit has been vacated.

 

Finally, the discussion paper sought feedback on whether there should be any limits on the size of the deferred management fee.

 

Honouring Te Tiriti o Waitangi (Treaty of Waitangi)

The paper acknowledged that retirement villages have mostly been home to older Pākehā. While the review accepted that many of the solutions to address Māori housing needs for older people sat outside the scope of the review, it nevertheless sought information on experiences and aspirations of Māori and Pasifika about retirement village living.

 

Other matters

The paper considered widening the definition of retirement village so that it encompasses a greater range of occupancy arrangements including residential tenancy agreements, right to occupation by way of share ownership or outright purchase of the unit.

 

It also examined insurance cover for retirement villages. Of particular concern is what happens if an entire village is damaged or destroyed by a fire, flood or earthquake and cannot be rebuilt. Most insurers will pay out the sum insured – which could be less than the operators are required to pay out to the residents. The paper proposed that the operators should maintain insurance policies that are sufficient to pay out all the residents’ capital sums.


Next steps

Once the consultation period is completed, advice will be given to the relevant minister.

It remains to be seen whether this will result in an overhaul of the current legislation. We will keep you up to date with developments.

 

 

 

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 Fineprint 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

First Home Partner scheme: on pause

The coverage of the First Home Partner scheme has been extended, but its availability is currently on pause.

The scheme appears to be a victim of its own success. In late September, Kāinga Ora announced that it is no longer accepting applications as the scheme is now full.

As part of government assistance for first home buyers, the First Home Partner scheme was established to bridge the gap if you are struggling to save a full deposit. As long as you meet eligibility criteria, including being financially able to make the mortgage repayments, Kāinga Ora can pay additional deposit funds up to the lesser of 25% of your home’s equity or $200,000. In return, Kāinga Ora becomes a co-owner until you repay its contribution.

Since August, the scheme has covered purchases of existing homes instead of being limited to new builds. The eligibility criteria were also extended to allow households with a total income up to $150,000 to apply (the previous limit was $130,000) and joint purchases by whānau groups of up to six people who normally live together.

The scheme may reopen in time as Kāinga Ora works through existing applications; we recommend you ask us or Kāinga Ora about the scheme’s availability if you are interested in applying.

 

Council delays for property developers

Subdividing off the back section or otherwise developing your property may seem like a way to ‘get rich quick’; but be prepared for a long process.

Resource and building consents have never been an overnight job. The last few years particularly have seen developers face significant delays for reasons varying from staffing shortages to larger numbers of consent applications. In some areas, councils have struggled to meet mandatory timeframes for processing applications, with some taking many months longer than expected. The extent of ongoing delays differs from council to council, depending on current resources and the number of other developments underway in the area.

Regardless of your local situation, preparation remains key. A detailed application can help avoid additional information requests from the council that may cause delays. If you are undertaking any land development, do talk with us about the process involved and, particularly, the current timeframes so you can get a clearer measure on how your proposed development might progress.

 

Short-term accommodation – take care

As the summer holidays approach, the lure of offering a spare bedroom or sleepout on websites such as Airbnb or Bookabach to earn extra money is tempting. You should take care, however, to ensure you are aware of the rules around offering short-term accommodation.

Some of the constraints include:

  • Resource consent: The extent of council restrictions will depend on the rules applying where your property is located. Some councils require a resource consent where your property is let out for more than a certain number of days or for a certain number of guests per year.
  • Other restrictions: Properties with a body corporate, title covenants or a mortgage all may be subject to restrictions around letting the property for short-term accommodation. Likewise, if you are a tenant, both commercial and residential tenancies are usually subject to limits on how the property can be used or sublet.
  • Tax: Depending on your situation you may need to pay both income tax and GST on the revenue. Further information can be found here.
  • Insurance policy limits: Check with your insurer that your policy will cover you letting the property.

In addition, you should ensure the booking site’s terms and conditions suit your individual circumstances; their T’s and C’s are not all the same. You should also check they include all obligations you might expect of a guest as they will form the main part of your agreement with these visitors.

To help avoid penalties or other legal disputes, we strongly recommend that you consider these points well before listing your property. If necessary, talk with us and your accountant to ensure you are not inadvertently breaking the law and to ensure your guests have a good experience.

 

Election impact on property issues

The election’s outcome is set to determine the future of many property issues, such as the fate of the recently passed Natural and Built Environment Act 2023 and the Spatial Planning Act 2023 as well as policy around foreign buyers, property tax rules and public housing.

At the time of writing, the election results have yet to be formally confirmed, but we will keep track of any developments and provide a fuller update in later editions. In the meantime, if you have any questions regarding the effect of government policy on your property plans, please do contact us.

 

 

 

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


Auction and tender guide for sellers

We are starting to see more upward movement in the property market which is positive news for property sellers.  A more buoyant market means that sellers and their real estate agents will be looking at alternative ways to secure a buyer. Rather than sticking to traditional sales methods – advertised price, deadline sale or by negotiation – sellers may want to consider a closed tender or auction process.

 

Closed tender

The closed tender process is similar to a deadline sale. Your real estate agent will prepare the tender document for prospective buyers. Buyers must submit their offer by the date and time you specify. Under a closed tender, neither you nor the agent can look at any of the tender offers before the closing date.

You can place conditions in the tender document before it is provided to prospective buyers, for example making the agreement conditional on you purchasing another property. Tenders may also contain buyer conditions. The top offer isn’t always the driving factor. For example, you may get a ‘cleaner’ offer (with no or few conditions) but at a lower price. Typically, you will have a short period of time after the closing date to consider all of the tenders received and decide which you want to accept.

A tender process gives a sense of urgency with a fixed date and, in contrast with auctions, buyers and sellers have more flexibility, for example, by adding conditions. It is, however, less transparent than an auction as prospective buyers have no idea of what price other bidders are offering.

 

Auction

A property auction is, of course, quite different from a tender process. Once a prospective buyer is interested in bidding for the property, the real estate agent will hand over all of the information on the property, and the buyer must complete any due diligence they may have on the possible purchase before the auction date.

On auction day, prospective buyers bid until there is a last-bidder-standing and the auction price has reached or passed the reserve (the minimum offer you will accept).If you have a successful buyer at the auction, then you have an unconditional agreement for the sale of your property.  It is important to note that if you want to bid on your own property at the auction (known as a ‘vendor’s bid’) there are strict rules around this, so talk to the auctioneer before the auction.

For first home buyers, it can be challenging to buy a property at auction because they will generally have lower equity and need to provide more information to a lender and may, for example, need a building report or valuation. They may also need to pay the deposit from their KiwiSaver funds.

 

Similarities between methods of sale

Whatever the method you choose to sell your property, there are some standard provisions in the Agreement for Sale and Purchase that a potential buyer will expect to see.

Unless the property is tenanted, the buyer is entitled to undertake a pre-settlement inspection prior to settlement and, if the property isn’t in the same condition as when the agreement or tender was signed, or when the auction is held, then the buyer can ask you to remedy any issues.

The standard vendor warranties are undertakings that you provide to the buyer about various things. These include:

  • Whether you are aware of any potential claims relating to the property, such as breaching a resource consent, not complying with your obligations as a landlord, or disputes about shared driveways or boundary fences
  • Whether you have provided your neighbours with consents for them to subdivide or build on their property. This will be of particular interest to a buyer if it is going to impact on the character of the home
  • Checking whether the chattels included in the sale are all in working condition. During the pre-settlement inspection, a buyer may identify a problem chattel. If, however, this isn’t picked up at the pre-settlement inspection, a buyer could seek to enforce the warranty after settlement, and
  • Confirmation that any work you have completed to the property that required a building consent or a resource consent has the appropriate consent and code of compliance certificates.

You can, and should, remove some or all of these warranties if appropriate. This can, however, be a flag for buyers to ask further questions. If you know of any issues with the home or a particular chattel, it is important to disclose these early to avoid having to compensate the buyer under any of these warranties.

 

Downsides

If your property does not sell at auction, you will still incur costs for the auction. You may also incur costs from your real estate agent or lawyer depending on the listing arrangements and amount of work involved.  Although there are positive signs the property market is recovering, it is still a tough market. If you are considering selling your property, it could be worthwhile exploring all selling options to market and sell your property.

 

 

 

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 Property Speaking 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


Choose carefully

Building a new home is an exciting process. It can, however, be quite daunting with risks of unexpected delays, cost increases and, in the worst scenario, your project going completely off the rails. In this article, we discuss how choosing your builder carefully can help to give you some peace of mind as you embark on your build.

A careful choice of builder, checking references and talking with previous customers can help give you peace of mind when starting a build. Asking us to review the contract with your builder before signing will also help.

Guarantees offer the best protection if your builder gets into financial difficulty, goes into liquidation and/or is unable to complete your project. Guarantees vary and how they apply to your build is determined by the type of guarantee that is included in your contract.

 

Building franchise guarantees

Nationwide builders who operate under a franchise agreement usually have a guarantee from the franchisor who will ensure that your build is completed if the local franchisee fails financially. Franchise builders value maintaining their reputation on a national level and often have significant funds to pull from other areas of their national business to ensure a customer gets their build completed. These types of guarantees provide a high level of confidence in the builders that include them in their contract and allow customers to engage with their builder with confidence.

 

Association guarantees

Master Build Guarantees have the Registered Master Builders Association guarantee that provides comprehensive cover for their members’ work, along with cover for 10 years if your builder goes into liquidation. An important aspect is that the guarantee is only valid if you have received written confirmation from Master Build Services.

Master Builders advertise that they are Registered Master Builders but if you are not sure, simply ask them or contact the association. You will often find that franchise builders are also Registered Master Builders, so if your franchise builder cannot complete your home, you can elect whose guarantee you want to rely on. You can find more information about the operation of the Master Build Guarantee here.

Similarly, the New Zealand Certified Builders Association (NZCB) offers a 10-year residential build guarantee (a Halo Guarantee) if your builder is a NZCB member.

You should note that NZCB guarantees only apply after the completion of your build; they will not be helpful if your builder goes into liquidation or stops working as a builder before your build is complete. However, if your builder stops working as a builder after your project is completed, the Halo Guarantee will cover claims you would have ordinarily made with your builder under any defects liability period or up to 10 years after the completion of your build.

While these types of guarantees are the best form of protection for customers they often come with a restriction or limit on the claimable amount. These subtleties highlight the importance of getting advice on both the guarantee and the build contract before your build begins.

 

Other situations

When your builder’s business fails and they are not a Registered Master Builder, or you are unable to rely on a guarantee from their national franchisor, there is no certainty your build will be completed. In this instance, before you engage a builder who cannot offer you guarantees, you should review the contract even more carefully.

If the builder goes into liquidation, you can engage a new builder to finish your home. There may be difficulties, however, if the progress payments are weighted in favour of the builder and the money you have paid  does not accurately reflect the progress of your build. You could end up paying more than you budgeted to have the job complete with little ability to recover your losses from the builder in liquidation. If you end up in this position, consult with us immediately to navigate the cancellation of your contract and how best you can move forward.

 

Get advice before you start

In an industry feeling the lingering economic effects of Covid and operating in what now is a cost-of-living crisis, make sure you get the best advice and have the best protection in place before you before you sign a contract and begin your build.

Be sure to speak with us if you are thinking of building or have any concerns with your current building contract.

 

 

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 Property Speaking 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


Comes into force on 5 October

The Construction Contracts (Retention Money) Amendment Act 2023 was passed on 5 April this year with the legislation coming into effect on Thursday, 5 October 2023.

If your business retains funds as part of a construction contract, or a contractor retains funds from you, you should ensure you are familiar with these upcoming changes.

The primary intention behind the amendments is to provide greater clarity and to strengthen the rules regarding retained funds under the Construction Contracts Act 2002. The government wants these changes to provide more reassurance to subcontractors that they will be paid for work completed – even if a head contractor becomes insolvent.

 

Retention monies must be held separately

Previously, there was no obligation for the business retaining money to hold it in a separate account unless a trust relationship had been created. From 5 October, all funds retained under a construction contract must be held in a separate bank account that meets specific criteria.

This bank account must be held at a New Zealand bank, with a chartered accounting or law firm, or by a trustee company; and the account provider must be told that it is an account holding funds on trust. If you are required to retain funds, you may use that account for multiple contracts (you do not need an individual account for every contract with retained funds), but the account may not be used for any other purpose.

 

Reporting obligations

If you are retaining funds under a construction contract, you will also need to comply with reporting obligations on your retained funds account. If there is more than one party for whom you are holding funds, you must maintain a ledger that clearly indicates whose funds are coming in and out of the account, and report to each party individually.

On receiving funds to be retained, you must report as soon as practical to the party for whom you have retained funds. Your report must include:

  • The amount being retained
  • The date it was received
  • Details of the bank account in which the funds are being held, and
  • A statement that shows the funds in the account, including any deposits or withdrawals relevant to their retained funds.

You also must ensure that you regularly report to all parties; the Act specifies this means at least once every three months. These reports must also be produced promptly upon request from the party for whom you are retaining funds. As well, you may not charge for the administration of producing these reports.

Do note, however, that as the retention holder, you are entitled to the interest on the account; this presumably may help cover the account fees and maintenance.

 

Use of the funds

There must be agreement in place around when the funds are to be accessed. If there are any issues that arise during the contract that would result in the retained funds being used, before accessing the funds the holder of the retained funds must (at a minimum) provide notice of the intention to use the funds and why, and give at least 10 working days to the other party to rectify the issue.

 

Penalties

Significant penalties have been introduced to enforce the new legislation; failing to comply with the retained funds management regime is considered a criminal offence. For each breach of the Act, a company can be fined up to $200,000 and each director can be fined up to $50,000.

Given that these charges are applicable per offence, there are serious financial consequences for non-compliance. The amendment also has added a fine for failure to report, or for false or inaccurate reporting (even if the funds are being held in a compliant manner), of $50,000.

 

Alternatives

Given the new significant penalties and associated additional administration for retained funds, many construction contracts are being amended so that the retention holder obtains a security bond in lieu of a retention. The NZS 3910:2013, that is commonly used by the construction industry, does not set comprehensive criteria for how a bond should be provided or released. Therefore, any contractor who prefers to avoid running a retained funds bank account by using bonds, should carefully (and urgently) review and amend their contracts to ensure they comply with this new legislation.

If you are engaged in construction contracts and would like to discuss your obligations under the new amendments, please don’t hesitate to contact us.

 

 

DISCLAIMER: All the information published in Commerical 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 Commercial 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