Articles: Conveyancing Articles
"Guide for Residential Property Sellers" - by Miles Agmen-Smith
© Copyright ASCO Legal June 2013
We have prepared this Guide to outline some key issues for property sellers and answer some frequently asked questions. The Guide is general in nature and every transaction is different, but we hope that you will find that the information is handy, helpful and it may answer some questions for you. It may also help you avoid a few problem areas. It is not a substitute for proper legal advice. Do let us know if you would like to find out more on these or any other matters where we may be able to assist.
Before you sign ANYTHING
In New Zealand, properties are are most commonly sold through licensed real estate agents and the agents usually prepare draft agreements.
Should you decide to use real estate agents to sell your property, they will require you to sign a listing authority: we recommend that, before you sign, you check with us some of the details. A common problem is clients commit themselves to listing terms, which are more favourable to the agents and less favourable to the client than they need to be. also agents are now asking for warranties about properties which may be inappropriate.
Recent changes by the Real Estate Agents Authority to their Code of Professional Conduct and Client Care means the decision on whether or not or on what terms to engage a real estate agent should be carefully considered. Real estate agents are now obliged to make reasonable enquiries about any defects your property may have, and disclose these to potential buyers. This is contrary to the general rule that buyers need to carry out their own inspections to satisfy themselves of the condition of your property.
The same comment applies to sale agreements: essential terms required for your protection need to be inserted before agreements are referred to prospective purchasers. The only way to safely ensure this is to establish from the beginning what terms need to be in your contract and to instruct the agents that they must have the agreements checked before they are referred to purchasers.
There are special new laws which apply relating to the sale of properties on unit titles. These include a requirement for property prepared disclosure documents to be supplied to buyers before they enter into any agreement. They must be in the correct form and contain the required information. Also, no later than the 5th working day before the settlement date for any sale, the seller must provide a further disclosure called a “Pre-Settlement Disclosure Statement”, which again must provide the required information. This must include a certificate from the Body Corporate (which it may withhold, if there is an unpaid debt due to or claimed by the Body Corporate from the seller). In addition, the Act also requires in some situations a further form of disclosure (an “Additional Disclosure Statement”.)
Preparing for Sale
As well as ensuring that the property presents as well as is practical for selling, there are some legal steps which need to be taken. These include having your title checked at Landonline (something we can do by internet right away at any time) and making sure that there are no surprises there. Surprises can take the form of old mortgages, co-owners’ names still on the property, caveats, notices of claim or interest registered by a former spouse or partner and other types of unexpected or overlooked entries.
It is often also a good idea to obtain a Land Information Memorandum (“LIM”) from the Council. There are two main reasons for this. The first is that the information will show if there are any adverse entries relating to the property and, secondly, because under the new processes now required, buyers commonly expect the seller to provide a LIM, and there can be significant issues relating to this. If a LIM is already available and especially if it discloses entries which are or might be considered adverse by buyers we can then recommend to seller clients options to smooth the process, and protect against possible difficulties.
Repairs and Alterations
Generally we would not recommend to our clients that they incur any significant costs on repairs or improvements to a property pre-sale, beyond ensuring that the property is clean, tidy, free of rubbish and possibly carrying out any essential maintenance where appropriate. Sometimes more may be suggested, but additional expenditure should not be incurred without careful consideration beforehand as to whether or not it will actually be worthwhile.
Dealing with agents
Many new rules now apply to how real estate agents must operate and what they must do. Among other things, these may include providing information packs in relation to the sale of a property.
Most importantly, almost always when a firm of agents is instructed on the sale of a property, they are supposed to be acting for the seller: only. Commonly, agents “forget” this, particularly if they are personally dealing with a prospective buyer. In fact, the primary goal of all agencies is to achieve a sale. This is of course what you want as a seller, but not necessarily on any terms or at any price. So, some care is required in seeing that the agents represent your best interests.
New laws and interpretations impose duties of disclosure on agents in various circumstances and on various matters, which can mean that, if you provide information about matters which are unfavourable to the property, you may create a situation where they are obliged to share that information with buyers. (Equally, failure to disclose certain legally relevant types of information may also in some cases be a misrepresentation by sellers). So, considerable care needs to be taken in finding what your, and their, legal disclosure obligations are.
New Zealand is well served with sets of standard “printed” property sale and purchase agreement documents. There are several different types of these covering the usual forms of transaction, including the ordinary negotiated sale and purchase transaction, sales by auction and sales by tender, all published by the Auckland District Law Society and adopted throughout New Zealand, in conjunction with the Real Estate Institute of New Zealand. It is essential that agreements are correctly completed for every transaction. This includes having all the correct information inserted, deleting in some cases some of the standard provisions, which may not be appropriate for your particular transaction, and adding correctly worded extra clauses to properly protect your interests as a seller. Where extra clauses are added, it is essential that these are checked beforehand on your behalf to ensure that they are in the form which actually serves your best interests, not those of any of the other parties involved. Not all similar looking clauses actually work the same way or serve the same interests. These are some of the reasons why we strongly recommend that any proposed agreement is sent for inspection, by us, before it is seen by the buyer or signed by anyone.
Title and formalities
In New Zealand, the titles to almost all land are registered in the Landonline (“LINZ”) system operated by Land Information New Zealand, which is a New Zealand Government organisation.
Transactions are carried out by authorised lawyers (which we are) on a lawyer-to-lawyer basis, under the supervision of LINZ. This means that most (but not all) transactions can be carried out and information obtained very quickly. It also means that the traditional documents previously used have largely been replaced and different forms of document are now required. These include “Authority and Instruction” forms (“A&I forms”).
A special requirement for A&I forms is that formal evidence of personal identity is now required to be supplied beforehand, to meet both LINZ requirements and also some other new laws. This may be by way of sight of passports or New Zealand driver’s licences or certain other forms of identification. We prepare the A&I forms and the certificates for LINZ once the formal evidence has been sighted.
We strongly advise you when selling to keep insurance on your property fully in force, until after the sale price has been paid in full and the transaction has been settled and completed in all respects.
We also advise that you maintain insurance on your household contents and make sure that your contents cover will properly protect you for the value of your possessions while they are being moved from your house to a new location, and also that they will be covered at the new location.
In the standard agreement the buyer is entitled, after giving reasonable notice in writing, to enter the property on one occasion prior to the settlement date for the purpose of examining the property and chattels which are included in the sale and checking that everything is there and their state of repair. We suggest that this be arranged for a day or two before settlement. These arrangements are usually made through the real estate agent.
Keys and Moving In
We do not recommend that keys to the property are released to the buyers until after the purchase moneys have been paid in full and settlement arrangements completed. If buyers are allowed into a property before settlement, they can acquire extra legal rights which can be a significant difficulty for the seller. If a special arrangement is required, we recommend our clients to consult with us so that the arrangements can be made on a basis which is appropriate and will not prejudice their interests.
Settlements tend to take place later in the day on settlement day, mainly because of the multiple parties and requirements involved in many transactions. These can include both sellers and buyers, their respective lenders, the purchasers from your buyers of their property and others. It is best, therefore, not to assume that the proceeds from a sale will be received until later on the settlement day. If that may be an issue, this is best discussed at an early stage so appropriate arrangements can be made.
Rates and other apportionments
The water meter will be read as close as possible to settlement date and the account up to the actual reading will be sent to and paid by us on your behalf as the seller. Water rates from after that date will be the responsibility of the new owner. General rates will be apportioned in the settlement statement so that you will only pay your fair share from up to the settlement date. We provide a notice of sale. Future instalment notices will then be sent to the buyer direct.
Gas, Electricity, Telephone etc
You should make arrangements direct with your preferred supplier for the reading of these and payment of final accounts.
Unit Titles and Leasehold Property
Payment for your share of Body Corporate levies, and if the property is leasehold or has tenants, the rent and other payments, are normally calculated and apportioned in the settlement statement.
As part of settlement, we will register the discharge of any mortgages you may have and the authorisation for the transfer into the buyer’s name. Once the title changes have been registered we will send a copy to you with our settlement confirmation and reports.
Please contact us at any time if you have any questions or would like advice or more information on these or any other matters.
The purpose of this advice sheet is to give our clients some indication of what is meant when the term is used. It is not a substitute for taking proper professional legal and expert technical advice beforehand.