Know the facts before buying
Buying a first home can be fraught with anxiety and uncertainty – but a few basis facts should help to make the decision a more informed one. First, the types of real estate title.
Fee simple: This is the most common residential title. It is preferred by many because it does not involve co-ownership or other relationship issues with sheared property arrangements such a cross leases, unit titles or leasehold titles. With a fee simple title the owner may do what they wish subject only to town planning and other local authority requirements.
Cross lease: This is a common title in city areas where more than one dwelling is on a single freehold title. Each “owner” of a dwelling on the property is a landlord and as a group of landlords, they lease their respective flats to each other. The result is that each owner has an undivided share in the freehold and a leasehold interest (usually for 999 years) in a flat. A cross-lease title records the share of the freehold plus the leasehold entitlement. With each flat will usually be an exclusive use area and often a common area such as a driveway to provide access. The lease document governs the rights and obligations of each tenant.
Problems can arise when owners build garages, decks or carports on the land without their neghbour’s consent and without completing a new “flats plan”. What is shown on the certificate of title plan is all that should be on the land. Also, older cross leases do not always include exclusive-use areas, so any owner can use any area outside the flat – and that can cause friction between owners.
Unit: A unit title is commonly used for inner-city apartments where a body corporate, made up of each of the owners is created. Its rights and obligations (and those of all the owners) are set out in the body corporate rules.
Leasehold: Most residential leases are known as “Glasgow” leases. They are perpetually renewable (usually every 21 years) with rent reviews occurring every seven or 21 years. A tenant, under a residential leasehold estate owns only the building, not the land, and must maintain the property.
If you are unsure about, for example the type of title, your ability to fund the purchase or structural integrity of the building you should seek advise from a solicitor, bank manager or builder before buying. Often there is pressure to sign a purchase agreement without access to such specialists.
Conditions: If signing without professional guidance, make the agreement conditional upon satisfying yourself about the things of which you are not sure.
A useful clause might be “this agreement is conditional upon the Purchaser’s solicitors approval of the title and financial aspects of the agreement with five working days of the date of receiving the contract”. That should give your solicitor time to confirm the title at the Land Registry Office, look over the agreement and advise you.
The standard REINZ/Auckland District Law Society Agreement for Sale and Purchase form contains a finance clause. If the agreement is subject to finance this should be completed ensuring plenty of time to apply for a loan.
You may wish to make the agreement conditional a builder’s inspection or valuation. Do not rely on these conditions to escape merely because you change your mind: the law requires reasonable endeavours to satisfy all conditions.
LIM: We recommend clients make the agreement subject to a Land Information Memorandum report from the local authority acceptable in all respect to the purchaser. That document (which the local authority must supply within 10 working days of a written request) sets out the information about the property which the council has on its records including building work, any proposed public works, problems with the property such as previous requisitions (council requirements to undertake remedial work) for unsatisfactory plumbing or building matters, and locality matters such as drainage, flooding and wind rating.
The deposit: The deposit payable on signing is usually 10 per cent of the purchase price. However, do not hesitate to negotiate a lower deposit or a staggered or delayed payment to suit your available funds.
Ensure the purchase price of the property is expressed to be “inclusive of GST”. Most residential sellers are not registered for GST purposes, but when buying from a company, developer or a builder, there will likely be GST considerations for the seller.
Chattels: As well as buying the land and the building (if any) on the land there is provision in the standard agreement to itemise the chattels carpet, drapes, any whiteware, etc – included in the sale. If there is any doubt about whether or not a particular chattel is to be included, have it specifically inserted in the agreement.
You have the right to inspect the property before settlement to ensure that among other things, the chattels included in sale are still there. It is a right you should not overlook.