Landlords caught out by inspection trap
Property investors are being left vulnerable by a loophole that means they sometimes miss out on properly checking properties before they buy them.
Kevin Edmunds, of property managers Quinovic in Thorndon, Wellington, said he had dealt with a number of investor buyers who had been caught out.
Usually, property purchasers have a right to an inspection before a deal settles, to ensure that there are no problems with the property. But the exception is when a property is sold with a tenant in place.
Edmunds said that would apply to up to 35 per cent of properties in the market. In those cases, buyers usually have no right to demand one last check.
He had seen buyers become anxious about what damage might have happened to a property.
The issue was becoming increasingly important, he said, because a court ruling last year meant tenants were no longer liable for accidental damage.
‘‘You need to determine when the damage happened, whether it was under the new owner and his insurance or the previous ownership and their insurance. Tenants often say ‘I don’t know when that happened’.’’
He said in one case his firm identified damage and alerted the owner, who said it was not worth worrying about.
But that information was not passed on to the new owner and the property managers were told not to allow a final inspection before settlement.
Getting issues sorted after settlement was a longer and more expensive process, Edmunds said.
‘‘I raised this with the Real Estate Agents Authority (REAA) some time ago, in September 2016, and was told they are not concerned about it.
‘‘However, rental properties are about 35 per cent of all properties in the country so those sold with tenants intact will have the right to inspection voided by the REINZ current sales and purchase agreement which precludes the right to inspection when there is not vacant possession,’’ he said.
‘‘We have advised many of our investor owners considering a property purchase to ensure they put a special clause in allowing final inspection when a sitting tenant will be involved.’’
Then it would just be a matter of arranging the inspection with enough notice to the tenant, he said.
REAA chief executive Kevin Lampen-Smith said the issue highlighted the importance of good legal advice when buying and selling property.
‘‘When a property is sold with a current tenancy there is no right to final inspection prior to settlement, so a buyer would be wise to have this inserted as an additional condition in the sale and purchase agreement.’’