What is involved in conveyancing?

From WikiProperty

Conveyancing is the term used to describe the legal work required for completion of a property transaction - usually a sale or a purchase. There is a misconception that conveyancing is a paper shuffling exercise but in reality the range of tasks involved is often complex and difficult.

Many sale and purchase agreements contain conditions, which may need to be fulfilled before the transaction can proceed. It is important that these contractual conditions are expressed clearly. Examples of common conditions in sale and purchase agreements are:

• The purchaser securing suitable finance to complete the purchase.
• Receipt of a satisfactory building report or valuer’s report on the property.
• Receipt of a Land Information Memorandum (LIM) from the local authority.
• The purchaser’s lawyer searching and approving the title.

The property lawyer can advise as to the wording of these conditions to ensure that they meet the client’s requirements and can also assist in carrying out work to determine whether the conditions are met.

Where there is more than one purchaser the property lawyer can advise about various joint ownership issues including the implications of ownership as joint tenants or as tenants in common. If de facto partners are buying a property it is particularly important that they seek advice from their property lawyer as to the issues which may arise under the Property (Relationships) Act. One of the advantages of engaging a property lawyer is that they are qualified to advise in all aspects of the law which may need to be dealt with as part of the overall transaction - for example making a will, setting up a trust and taxation implications.

People enter into property agreements without legal advice now don’t they? Yes they do and many risk their savings by failing to get proper legal advice from the beginning.

Seeing a lawyer before you sign any documentation is the best way to ensure that your interests are protected, now and in the future. If things go wrong, having your lawyer involved at the outset means that the right action can be taken quickly to avoid incurring legal liability and ensure that the matter doesn’t proceed to litigation, unless absolutely necessary.

There are legal and practical implications for a vendor or purchaser who fails to settle, even if settlement is delayed through, what appears to be no fault of the person concerned. For example, notices could be registered against the title by a third party or the vendor or purchaser may be in default through complications with their mortgagee and unable to settle on time. Do the right thing, and see a lawyer at the outset.

What does conveyancing cost?

Property lawyers provide a valuable service for a very reasonable fee. Lawyers’ fees compare very favourably with the fees charged by other professionals and institutions such as real estate agents and mortgage lenders, government charges and local authority fees for the issue of Land Information Memoranda (LIMs). Property lawyers offer a high quality service. They are equipped with comprehensive legal skills to advise on all aspects of your property transaction and are backed by stringent safeguards administered by the New Zealand Law Society.

Do I need a Land Information Memorandum (LIM)?

A LIM is a report on the property provided by the local authority from their records. It will, among other things, give information on the zoning of the property and will identify whether the proper building consents have been obtained for any additions and alterations. If a client is purchasing a property with a multi fuel burner or similar device it is particularly important to ensure that the burner has the necessary building consent. Lack of such a building consent could result in insurance being invalidated in the event of a burner causing a fire in the property.

What other research should be done before I commit to a property purchase?

A valuation report from a registered valuer will allow you to assess the proper market value of the property and may also provide other useful information. A lender will require a valuation report if you are borrowing significantly for the purchase. A building consultant’s report and/or an engineer’s report may also be appropriate. If you have any doubts as to the condition of the property, structural building issues or concerns about the land generally, you should talk to your property lawyer about arranging for a qualified builder or engineer to inspect the property and report fully on its condition. Your lawyer will ensure that a condition is inserted into the contract making the purchase subject to the purchaser being satisfied with the results of that report. If the report identifies problems your lawyer will advise you on your options and if you still want to proceed can negotiate to have the problems fixed at the vendor’s cost before settlement or seek a reduction in the purchase price. Without a condition in the contract, or with a badly worded one you might have to complete the purchase and take on any problems yourself.

Why is it important to check the title?

The title documents, held by Land Information New Zealand (LINZ), record who owns the property and any mortgages or other restrictions that apply to the property, which might prevent you from enjoying the use of the land, such as covenants or easements. The most common form of title is a freehold one, but cross leases and unit titles are becoming more common. These have special features and involve owners in rights and obligations on which the property lawyer is qualified to advise. The title may be subject to or have the benefit of easements such as rights of way and drainage rights. The property lawyer will search the terms and conditions of these easements. For example, with a right of way, an intending purchaser will want to know how many property owners have the right to use this and what obligations users have to maintain it.

What is a conditional agreement? Can I back out of a conditional purchase agreement?

An offer to buy can be unconditional - that means once you sign it you are bound to proceed with the deal on the agreed date at the agreed price, no matter what. You should never consider entering into such an agreement without taking legal advice. You would need to ensure that you not only wanted to buy the property but that you already had all required finance confirmed. A conditional offer is one that hinges on certain things happening. Such an offer is also a binding contract once all your conditions are satisfied and you are bound to proceed with the purchase. Conditions may relate to securing finance, search and approval of title, receipt of a satisfactory builder’s report, or the unconditional sale of the purchaser’s property. The property lawyer can advise on the wording of the conditions to ensure they meet your requirements and can assist in carrying out the work to determine if the conditions are met.

How will the new Property (Relationships) Act affect my partner and me?

The new legislation will apply to couples who are married or have lived in a de facto relationship for 3 or more years. De facto relationship is defined widely to include relationships between people of the same sex. This is a particularly important issue for people in de facto relationships and for people entering into second relationships or marriages. In the latter case each person might bring their own property to the relationship and may wish to ensure that on separation or death their share goes to their children rather than their partner. The Act has far reaching implications and your property lawyer is qualified to advise you on all aspects of this. In many cases a written agreement will be required to record the parties’ intentions. Any agreement must be certified and witnessed by a separate lawyer for each party before it is valid.

If I want to lend my son some money to purchase a property how can I protect my interests?

You will need to seek separate legal advice to arrange the terms of the loan and to ensure that these are adequately recorded, and protect your interests. In this case, your interests are quite separate from those of your son. The Property (Relationships) Act could have implications for you, should your son be in a relationship that breaks down after 3 or more years. You will want to ensure that the loan is formally recorded.

Do I need a new will?

If you have a valid and up to date will you don’t need to make a new one if you purchase property. However, it’s a good idea to check your will and revise its provisions if your circumstances have changed. If you do not have a will you should see a lawyer about this. Your lawyer will explain the implications of the new Property Relationships legislation, which can affect the provisions of your will.

How useful is a trust and when should this be formed - before or after a property purchase?

Family trusts are set up for a number of purposes but their main purpose is to rearrange asset ownership in order to protect the assets owned by the trust. Assets can be added to the trust at any time, by sale or by gift - outright gifts of more than $27,000 a year will attract gift duty. Trusts need to be properly administered and to comply with legal requirements, including the requirement to pay tax. There are also legal provisions, which can defeat the very purpose for which the trust was set up in the first place. A lawyer can advise you if a trust is going to achieve the outcome you want. There may be better ways to protect your property.

Which is the best form of ownership for my partner and me, if we purchase property together?

Where there is more than one purchaser you should seek advice about joint ownership issues, including the implications of ownership as joint tenants or as tenants in common. With a joint tenancy, if one of you dies, the other gets full ownership of the property in which you both have a joint interest. With a tenancy in common, you will each own a separate interest in the property. This means if you die you can decide who will inherit that share. The new Property (Relationships) Act will have implications for you in this case and you should seek legal advice about this. If de facto couples are buying property it is particularly important that they seek advice from their property lawyer as to the issues that arise under the Property (Relationships) Act.

Commonly used terms

Agreement: (also called the Agreement for Sale and Purchase) This is the written contract for the sale and purchase of the property between the vendor (seller) and the purchaser (buyer). Never sign this without discussing it with your lawyer.

Auction: This is a method of selling the property where the vendor, either privately or through the real estate agent invites all interested purchasers to meet on one specific day to bid to purchase the property in a public auction process. Usually the vendor will set a reserve price below which they will refuse to sell the property, but if the top bid is over that reserve, the vendor will sell. Auctions can become very pressured for both the vendor and purchaser. The vendor often pays advertising costs - which can be substantial. Auctions should be treated with caution.

Back-up offer: A second offer accepted by the vendor, who already has an existing contract that is conditional. Dates and times need to be carefully adhered to. These arrangements can create pressure for both vendor and purchaser.

Chattels: These are the movable objects found in a house or elsewhere on the property that are included in the sale. Most often they include the stove, television aerial, carpets, blinds, curtains, drapes and light fittings. However, they may also include dishwashers, refrigerators, heaters and so on. It is important that these are specifically listed in the Agreement for Sale and Purchase.

Commission: A flat fee or percentage of the sale price paid by the seller of the property to the real estate agent responsible for arranging the sale.

Conditional agreement: This is a legally binding agreement but it is subject to certain conditions being satisfied. These might relate to: the purchaser arranging suitable finance to complete the purchase, receipt of a satisfactory builder’s report or valuer’s report; receipt of a satisfactory Land Information Memorandum (LIM); or the purchaser’s solicitor approving the title to the property. They may also require the seller to do something by a certain date. Once the conditions are satisfied the agreement becomes unconditional. Whether you are a buyer or seller, it is important to get legal advice to ensure that the conditions are expressed clearly in the agreement.

Cross-lease (title): This type of ownership is common where there is more than one property (often called flats) on a single title. The owners of each property co-own the land and each leases their own property, which together form the cross-lease title.

Deposit: Part of the purchase price (usually 10%) paid by the purchaser when the agreement is signed or on confirmation or conditions confirmed.

Equity: This is the amount of the property that the purchaser actually owns - rather than owes! That is, it is the value less any amount owed. Initially, it will be the amount of "cash" the purchaser contributes towards the purchase price for the property - not counting any amount borrowed against the property (mortgage). Over time the amount of equity increases as the value of the property increases, provided the mortgage isn’t increased. In shared property arrangements if co-owners contribute in unequal shares to the property, the amount of equity each has provided should be recorded. Co-owners should seek legal advice on these issues, in the light of the potential impacts of the new Property (Relationships) Act.

Freehold (title): This form of title means that you own the land and the buildings on the property, with few restrictions (although no buildings are shown on the title documents). It is the most common form of title in New Zealand.

General authority: With this authority, the vendor gives several different real estate agents the right to try to sell the property.

GST: This tax - not usually applicable in the case of residential properties - is important to consider in the case of lifestyle blocks, farms, commercial and investment properties.

Interest: This is the sum charged by the lender to the borrower over the term of the loan. It will be expressed as a percentage of the loan and collected at intervals such as fortnightly, monthly, quarterly or sometimes six monthly from the borrower.

Land covenants: Many subdivisions now have a covenant or obligation registered on the title limiting the type of structure (including fences) that the owner can build or limit certain activities. These must be thoroughly checked.

Leasehold (title): This is where someone other than the occupier of the property owns the land and charges rent for a specific term to the lessee. Sometimes buildings on the land belong to the lessee, subject to the terms of the lease. The lessee may have an option to purchase the freehold, giving them full unrestricted title to the land in addition to the buildings. You need to know if you are buying a freehold, leasehold or other form of property ownership as this will determine what you can do with the property and will affect the amount you pay.

LIM: A LIM (Land Information Memorandum) is a report on the property provided by the local authority from their records. It may give information on many matters including the zoning of the property, whether the proper building consents have been obtained and fulfilled for additions or alterations to the buildings, payment of rates or public works in the area. This information varies from local authority to local authority, depending on the extent of its records. Failure to check some matters could have dire consequences. For instance, a LIM will show if a fire burner has been installed legally. If it has not this could invalidate insurance on the property in the case of fire.

Mortgage: This is the security the borrower gives the lender and which is registered against the title to the property being purchased. Except in rare cases the property cannot be sold without the loan being repaid and the mortgage removed from the title (discharged). If the borrower fails to meet obligations under the loan, the lender can, after giving notice to the borrower and following legal procedures, take steps to sell the mortgaged property to recover the loan. The obligations of parties to a mortgage and their on-going liabilities, need to be fully understood.

Multiple listing: This is a process of selling in which contributing real estate agencies list the property with the Multiple Listing Bureau (MLB) to give it as wide a coverage as possible.

Possession: This is the date on which you take physical possession of the property.

Principal: This is the total amount of the loan borrowed.

Private sale: This is where a homeowner sells the property without using a real estate agent. With a private sale, it is especially important to get it right by seeing your lawyer first.

Purchaser: This is the person buying the property.

Settlement date: This is the date on which you pay for the property. Usually it is the same date as the date you take possession but that is not always the case.

Sole agency: This is a process of selling whereby the seller gives one real estate agency the sole right to sell the property. It is advisable that this should be for a limited specified time only as it does restrict the exposure the property has to the market. Be aware that if you sign a sole agency agreement with one agent you can be liable to pay the agent a commission even if you, or another agent, introduce the buyer.

Tenders: This is a process of selling either privately or through a real estate agent where the vendor invites purchasers to submit purchase prices in writing by a set date. The tenders are opened after that date and the vendor selects the tender that suits them best. This may not be the highest price as it can depend on a variety of factors including the price, the settlement date and any conditions the purchaser is seeking. The vendor is not obliged to accept any tender.

Term: This is the period of time over which the loan is to be repaid. The longer the term, the more interest the borrower will pay overall.

Title: The Certificate of Title is the document that describes the property and gives legal right of ownership to the property. In New Zealand it can be a freehold, leasehold, cross-lease or unit title.

Unconditional agreement: This form of agreement is not dependent on any conditions. You need to ensure that you have the full purchase price arranged and have carried out your checks on the property before signing the agreement. You should never sign an agreement, conditional or unconditional, without taking advice from your lawyer.

Unit title: A form of ownership of apartments and units where each owner has freehold title to his/her individual unit and any garage/parking space or similar attached to it, as set out on a unit plan. Owners of units have common legal areas and share duties for any common property, such as driveways. Buyers should be aware of their on-going obligations to the body corporate and rules that limit what can and can’t be done to the property.

Valuation: Your local authority uses a valuation for rating purposes (previously the Government Valuation). This provides a guide only to the market value of the property. A private valuation, carried out by a professional valuer, will reflect the market conditions at the date of valuation. Quotable Value New Zealand will also carry out a market valuation.

Vendor: This is the person selling the property. The vendor pays the commission to the real estate agent who arranges the sale of the property.

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