Signing a Sale and Purchase Agreement (SPA) is a significant step when buying a house and lot in New Zealand. Before you put pen to paper, it’s crucial to conduct thorough due diligence to avoid potential pitfalls and ensure you’re making a sound investment. This checklist outlines essential steps to take before signing that agreement.
Legal Review and Understanding the Agreement
The first and arguably most crucial step is to have a qualified solicitor review the Sale and Purchase Agreement. Don’t just skim it; understand every clause. Your solicitor will explain the implications of each section, identify potential risks, and ensure the agreement aligns with your interests. Consider it an investment to prevent expensive issues later. For instance, are there any unusual clauses regarding chattels, access rights, or sunset clauses for new builds? What are the penalties if you can’t secure financing? These are critical areas a solicitor can help you navigate. A thorough review can cost between $500 and $1,500 but is worth it for the peace of mind and protection it offers. Also, ask your solicitor about the standard clauses and variations that are common in your region. This insight gives you a better negotiating position and helps you avoid overlooking critical protection for your financial and legal interests. The New Zealand Law Society can help you find a qualified solicitor.
Property Title Search
A title search verifies the legal ownership of the property and reveals any encumbrances, easements, covenants, or caveats registered against the title. These can significantly impact your usage and enjoyment of the property. For example, an easement might grant your neighbour the right to access part of your land, or a covenant could restrict what you can build or how you can use the property. Land Information New Zealand (LINZ) holds records of all property titles. Your solicitor will typically conduct this search, but it pays to understand the key aspects. Pay close attention to any registered rights-of-way, mortgages, or other claims against the property. Check for outstanding rates or other financial obligations that could become your responsibility upon purchase. The title search will confirm the legal description of the property and identify any cross-leases or unit titles, which come with their own set of rules and considerations.
Building Inspection
A pre-purchase building inspection is non-negotiable. A qualified building inspector will assess the property’s structural integrity, identify any existing or potential problems (such as rot, leaks, or pest infestations), and provide a detailed report outlining their findings. This report can empower you to negotiate repairs or a price reduction with the seller, or even walk away from the deal if the issues are too significant. Expect to pay between $500 and $1,000 for a comprehensive building inspection. Ensure the inspector is independent and has professional indemnity insurance. Specifically ask them to check for the following common issues in New Zealand homes: moisture ingress (particularly around windows and cladding), the presence of asbestos (especially in older homes), and the condition of the foundations. Consider engaging a specialist for specific concerns, like a weather tightness expert for monolithic cladding homes. The Consumer Protection website offers guidance on finding building inspectors.
LIM Report (Land Information Memorandum)
A LIM report, obtained from the local council, provides a wealth of information about the property, including zoning, resource consents, building consents, drainage plans, and any known issues affecting the land. This report can reveal potential future developments that could impact your property, such as planned roadworks or new building projects. It also discloses any outstanding council rates or charges, as well as any notices or orders issued by the council regarding the property. A LIM report typically costs between $300 and $500. Request this through the local council as soon as possible as turnaround times can be between 10 to 15 working days. Crucially, review the LIM report for any unconsented works done on the property. For instance, has a garage been converted without the necessary permits or does the deck exceed the boundaries? These issues can lead to costly remediation work later. Also, check for any potential natural hazards, such as flooding or landslides, that could affect the property’s value and insurability.
Methamphetamine Testing
While not always necessary, methamphetamine testing is becoming increasingly common, particularly in certain areas of New Zealand. A positive test can indicate previous use of the property as a methamphetamine lab or consumption site, which can lead to contamination and health risks. Remediation of a meth-contaminated property can be expensive and time-consuming. A basic methamphetamine test typically costs between $150 and $300. If the initial test reveals elevated levels, a more comprehensive assessment might be required. It’s worth discussing the potential for methamphetamine contamination with your solicitor and building inspector, especially if you have any concerns. Even if the test comes back negative, it’s a good idea to add a clause in the Sale and Purchase Agreement about remediation if further contamination is found. Tenancy Services provides information on methamphetamine testing and decontamination.
Insurance Assessment
Before signing the SPA, contact insurance companies to get quotes for insuring the property. Factors like the property’s location, age, construction materials, and history of claims can affect the cost and availability of insurance. Some properties located in high-risk areas (such as those prone to flooding or earthquakes) may be difficult or expensive to insure. Obtain insurance quotes from multiple providers to compare coverage and premiums. Crucially, confirm that the insurance provider is willing to insure the property based on the building inspection and LIM report. A negative finding in either report might make it difficult to secure insurance. Also, inquire about the excess payable on any claim and any exclusions to the policy. It’s prudent to add a clause to the Sale and Purchase Agreement making the purchase conditional on obtaining satisfactory insurance. This is critical because some lenders require you to have insurance in place before settlement.
Financial Due Diligence and Mortgage Approval
Confirm your financing is secure. Get pre-approval from your lender before making an offer, but remember that pre-approval is not a guarantee of final approval. Your lender will conduct a valuation of the property and assess your financial situation before granting final approval. Provide your lender with a copy of the Sales and Purchase Agreement, building inspection report, and LIM report. Be aware that changes to your financial circumstances (such as job loss or taking on new debt) can affect your ability to secure a mortgage. Don’t make any large purchases or take out any new loans between pre-approval and final approval. Understand the terms of your mortgage, including the interest rate, repayment schedule, and any associated fees. Shop around for the best mortgage deal, comparing interest rates, fees, and terms from different lenders. Also, understand your Loan to Value Ratio (LVR) and the implications of having a high LVR.
Chattels Verification
The SPA lists the chattels included in the sale (e.g., appliances, curtains, blinds). Verify that all listed chattels are present and in good working order during the pre-settlement inspection. If any items are missing or damaged, notify your solicitor immediately so they can address the issue with the seller’s solicitor. Don’t assume that anything is included unless it’s specifically listed in the agreement. If you want to purchase additional items from the seller (such as furniture or artwork), negotiate this separately and include it in a written agreement. Be clear about who is responsible for removing rubbish and unwanted items from the property before settlement.
Pre-Settlement Inspection
Schedule a pre-settlement inspection with the real estate agent a few days before settlement. This is your opportunity to ensure the property is in the same condition as when you signed the SPA, taking into account fair wear and tear. Check that all agreed-upon repairs have been completed to a satisfactory standard. Verify that all chattels are present and in working order. Note any discrepancies or issues and notify your solicitor immediately. Take photos and videos during the inspection to document any problems. If you find any significant damage or issues, your solicitor can negotiate with the seller’s solicitor to resolve them before settlement. This might involve the seller completing the repairs, providing compensation, or delaying settlement.
Cross-Lease or Unit Title Considerations
If the property is on a cross-lease or unit title, understand the specific implications. Cross-leases involve owning a share of the land and leasing a specific area for your dwelling. Unit titles involve owning an individual unit within a larger complex. Review the body corporate rules and regulations for unit titles and cross-lease agreements, which govern aspects like maintenance, renovations, and pet ownership. These rules can significantly impact your enjoyment of the property. Check the long-term maintenance plan and financial health of the body corporate. Be aware of any upcoming major maintenance projects that could result in increased levies. Talk to other owners in the complex to get a sense of the community and any potential issues. It’s also prudent to have your solicitor review the body corporate disclosure statement to ensure there are no hidden problems.
School Zones
If you have children or plan to have children, confirm the property’s zoning for desired schools. School zones can change, so verify the information with the school directly. Even if a property is currently within a zone, there’s no guarantee it will remain so in the future. Popular school zones often command higher property prices, so carefully weigh the benefits of being in a particular zone against the cost. Also, consider the proximity of the school to the property and the availability of transportation options. The Education Counts website provides information on school zones.
Future Development Potential
Research the long-term development potential of the property. Check the local council’s district plan to see what future zoning changes are planned for the area. Consider factors like the size and shape of the land, its location, and any existing restrictions on development. Even if you don’t plan to develop the property yourself, future development potential can significantly increase its value. Also, be aware of any proposed infrastructure projects, such as new roads or public transport, that could impact the property’s value and accessibility.
Council Compliance and Code of Compliance Certificates
Ensure that all building work carried out on the property has the necessary council consents and code compliance certificates (CCCs). A CCC confirms that the work complies with the building code. If any work has been done without consent or CCCs, it can create problems when you try to sell the property in the future. Your solicitor can help you verify that all necessary consents and CCCs are in place. If there are any missing documents, you may need to negotiate with the seller to obtain them or rectify the situation before settlement. Failure to do so could result in you being liable for any non-compliant work.
Negotiating Special Conditions
Don’t hesitate to include special conditions in the Sale and Purchase Agreement to protect your interests. For example, you might include a condition making the purchase conditional on a satisfactory builder’s report, LIM report, or finance approval. You can also include conditions requiring the seller to complete specific repairs or provide certain documentation. Your solicitor can advise you on what special conditions are appropriate for your situation. Remember that the SPA is a legally binding document, so it’s important to carefully consider all the terms and conditions before signing. Negotiation is a normal part of the process, so don’t be afraid to ask for what you need to feel comfortable with the purchase.
Settlement Day Procedures
Understand the settlement day procedures. Settlement typically involves your solicitor transferring the purchase funds to the seller’s solicitor in exchange for the transfer documents. Ensure you have completed all necessary paperwork and provided your solicitor with the required funds well in advance of settlement day. Arrange for the keys to be delivered to you on settlement day. Conduct a final inspection of the property to ensure it is vacant and in the agreed-upon condition. If any issues arise on settlement day, contact your solicitor immediately. A smooth settlement is the final step in the buying process, so it’s important to be prepared and organized.
Caveat Lector – Let the Buyer Beware
New Zealand operates under the principle of caveat emptor – let the buyer beware. This means the onus is on you, the buyer, to conduct thorough due diligence and satisfy yourself about the property’s condition and suitability. Don’t rely solely on information provided by the seller or real estate agent. Take the time to conduct your own investigations and seek independent advice from qualified professionals. Remember that the Sales and Purchase Agreement is a legally binding contract, so it’s crucial to be fully informed before signing.
FAQ Section
What happens if the building inspection reveals significant problems?
If the building inspection reveals significant problems, you have several options. You can negotiate with the seller to reduce the purchase price to reflect the cost of repairs, request the seller to complete the repairs before settlement, or withdraw from the agreement (if you included a condition making the purchase conditional on a satisfactory building inspection). Your solicitor can advise you on the best course of action, and you should always get quotes from licensed contractors to understand the repair costs before considering your options.
How long does it take to get a LIM report?
The turnaround time for LIM reports can vary depending on the local council. Typically, it takes between 10 and 15 working days to receive a LIM report. It’s essential to request the LIM report as soon as possible after making an offer to allow sufficient time for review and to address any issues it reveals.
What is a “subject to finance” clause?
A “subject to finance” clause is a condition included in the Sale and Purchase Agreement that makes the purchase conditional on you obtaining satisfactory finance approval from your lender. If you are unable to secure finance, you can withdraw from the agreement without penalty, provided you act reasonably and promptly in seeking finance approval. This clause protects you from being obligated to purchase the property if you can’t get a mortgage.
What is a sunset clause?
A sunset clause specifies date on which the SPA expires. Primarily, sunset clauses are used in the purchase of new-build subdivisions and apartments. Essentially, these clauses allow either purchaser or seller to terminate the agreement if certain conditions are not met by a specific date. Such condition often applies when the property is not fully finished, or there are some pending elements to be completed before the final purchase may occur.
What if the pre-settlement inspection reveals that the property is not in the agreed-upon condition?
If the pre-settlement inspection reveals that the property is not in the agreed-upon condition, you should immediately notify your solicitor. Your solicitor can then negotiate with the seller’s solicitor to resolve the issue. Depending on the nature and extent of the problems, you may be able to negotiate a price reduction, request the seller to complete the necessary repairs, or delay settlement until the issues are resolved. If the problems are significant enough, you may even be able to withdraw from the agreement, however, this depends on the specific terms and conditions of the SPA.
What is the process of transferring utilities into my name?
On settlement day, your solicitor will notify the Council about change of address and ownership. However, utilities such as electricity, gas and internet will need to be arranged through the providers. After settlement date, you’ll need to contact the companies with your account details and service requirements.
What happens if I breach the Sale and Purchase Agreement?
Breaching the Sale and Purchase Agreement can have significant legal and financial consequences. If you breach the agreement, the seller may be entitled to cancel the agreement and claim damages from you, which could include the costs they incurred in re-selling the property, any losses they sustained as a result of the breach, and legal fees. It’s crucial to understand your obligations under the SPA and to seek legal advice if you are unsure about any aspect of the agreement.
References
New Zealand Law Society
Consumer Protection
Tenancy Services
Education Counts
Ready to take the next step towards owning your dream home in New Zealand? Don’t let this comprehensive checklist overwhelm you – let it empower you. Start your journey with confidence, knowing you’ve taken every precaution to protect your investment. Contact a qualified solicitor today to review your Sale and Purchase Agreement and ensure you’re making an informed decision. Your future home awaits!
