Traps for the house buyer
There can be multiple issues to watch out for when buying a property. In a recent example a couple signed a conditional offer to purchase their first home which was a cross lease property.
As they began ticking off all their due diligence checks in order to arrive at an unconditional contract, they decided they were prepared to rely on their own judgment when reading the LIM report they ordered from the council.
What the LIM report revealed was that there was no consent for a garage that had been built at the property. This became an issue when the couple went to their bank for finance. The bank flatly denied the couple an offer of finance due to the unconsented garage.
It transpired that the real estate agent had previously disclosed to the couple that there was no consent for the garage, prior to them submitting their offer to the vendor.
When the couple applied for insurance, the insurance company refused to cover the property for the same reason – unconsented works at the property.
It was only at this point that the couple re-connected with their lawyer regarding the garage that was blocking their ability to obtain finance and insurance for the property.
They then were advised that council consent was only one issue in relation to the garage. It also created issues with the cross lease title.
Cross lease properties are a type of title where two (or more) owners own the underlying land and are granted a ‘‘lease’’ of their own flat from the other owner.
The ‘‘flats plan’’ is a document that accompanies the Certificate of Title to a cross leased property and shows the outline of the building (flat) on the land.
An important feature of a cross lease title is that the flats plan accurately identifies the flat you are purchasing.
If there have been any alterations made to the exterior dimensions at the property that results in a different boundary to what is recorded on the flats plan then the title may be deemed defective.
For instance, an enclosed conservatory that has been added might extend the flat beyond the defined boundaries. A garage that is on a shared area also requires the consent of the other owner and the flats plan to be amended. Without that, the title will be ‘‘defective’’.
A bank will not be likely to provide finance for a property that is subject to a defective title, nor will an insurance company be likely to provide insurance.
Once you become an owner you must be careful not to add on to your flat so that the flat extends beyond the boundaries shown on the flats plan.
If you plan to renovate the property, the agreement of the other flat owners is required along with an amended plan and new lease.
It is important that all information about the property, particularly in respect of unconsented works, is communicated to your legal advisor and it is also highly recommended that they review the LIM report and title for you.
This may allow you to terminate a contract if need be, or in a worse case scenario, save yourself the costs involved in correcting a defective title further down the track.
Column courtesy of RAINEY COLLINS LAWYERSphone 0800 733 484 www.raineycollins.co.nz If you have a legal inquiry you would like discussed in this column please email Alan on firstname.lastname@example.org