We have a new physical postal address - but the good news is we haven't moved.  

Confused - well you might be. After being 450 Kamo Road since 1990 we became 2B Meldrum Street earlier in 2017. Then, because of confusion with the flats at 2 Meldrum Street (known as 2A, 2B, 2C, 2D and 2E) the Whangarei District Council (in association with Land Information NZ) has now renumbered the office as 2 Meldrum Street.

After 6 and a half years, as an elected representative on the Council of ADLS, David has reluctantly stood down. He completed his term on Friday 14 October 2016. This was 5 months before the scheduled end of his term. The demands of a busy Whangarei based practice had simply become too great, and of course David’s commitment to his clients always had to come first.

David is very grateful for the support he received from friends and colleagues during his time on the Council . Recognition of his contribution has been forthcoming from several members of the legal profession. A senior colleague in Whangarei, Ian Reeves, recently thanked David for the huge personal commitment and skill he devoted to the role. 

Purchasers beware approving early release of the deposit

It is always in the interests of vendors to get their hands on their purchaser’s deposit payments as soon as they can. Why? After deduction of land agent commission, the balance can be used to repay part of the mortgage prior to settlement and save some interest. Also possession of the deposit gives additional power to the vendors in any dispute. 

Unless the parties agree otherwise, there is a statutory minimum of 10 working days where the agent must hold the deposit. 

People may not be aware however that the deposit paid on a property purchase belongs to the purchasers until the vendors have met all of the vendors’ obligations under the agreement.

Assuming the agreement is the standard ADLSI/REINZ form, these obligations include, but are not limited to:

  • giving vacant possession
  • remedying any matters which need to be attended to after the purchasers have exercised their right to a pre-settlement inspection
  • complying with any requisitions made since the deposit was paid
  • paying the purchasers any amount due for any late settlement by the vendors.
  • providing on settlement a registrable Transfer and discharge of the vendor’s mortgage.

Also there are circumstances (under General Conditions 4 and 10 of the ADLSI/REINZ agreement) where the vendors have agreed that the purchasers will be entitled to a full refund of the deposit. 

It might be difficult for the purchasers to recover the deposit if the purchaser’s lawyer has authorised the release of it in the meantime. 

With this background in mind, where we act for the purchasers, Northlaw’s practice is not to authorise release of the deposit until directed to do so after we have explained the options to them.

An example of what can happen 

A property is completely destroyed by fire prior to settlement but after the agreement has been declared unconditional and the agent’s commission deducted.  The agents resist refunding the commission (on the basis they have earned it by achieving for the vendors an unconditional sale). This could be very disadvantageous to a purchaser who had authorised early release of the deposit and deduction of the commission.  The vendor’s liability to the agents for their commission is of no concern to the purchaser if and when the purchaser is entitled to a refund.

There would be the same problem if a purchaser’s lawyer authorised the release of the deposit if the purchaser clients subsequently had difficulty recovering it following a default by the vendors.

As always make sure you talk with your lawyer about these issues so you don’t get any nasty surprises.

Impact on the Transfer of Property (Conveyancing) process

The Government has made changes to improve Tax Compliance in the property sector. These will have a significant impact where we are transferring property for our clients. We are now required to provide tax information by way of a “Tax Statement” to Land information NZ (LINZ) who will then provide this to IRD. A transfer of land will not be able to be actioned unless the required information is provided.

We will therefore now need a lot more detail from our clients than we are presently obtaining. Costs will increase because;

  • A New Zealand IRD number will be required by both vendors and purchasers as part of the land transfer process.  
  • “Offshore persons” will need a New Zealand bank account before they can get an IRD number.
  • As part of the land transfer process, “offshore” buyers and sellers must also provide their tax identification number from their home country.

An individual is exempt from the above rules if they are not an “offshore person” and they are purchasing or selling their main family home. However:

  • The main home exemption does not apply if the property was or will be owned by a trust.
  • The main home exemption does not apply if the person has used the exemption twice or more in a two year period.
  • For the main home exemption to apply the land must be residential land.
  • If a person has multiple homes the exemption for providing the information for the main home can only apply once.

The requirements apply to all contracts entered into on or after 1 October 2015.

In addition to the above changes, IRD proposes that residential land withholding tax (RLWT) will apply to sales of residential property in New Zealand from 1 July 2016 where the vendor is a foreign investor and the property is sold within two years of purchase.

The amount of RLWT withheld would be the lower of:

  • 33% of the vendors gain on that property; and
  • 10% of the sale price of that property.

It is also proposed that the lawyer involved in the transaction will withhold and pay the appropriate amount of RLWT to Inland Revenue.

David has been instrumental in the revision of the  Guidelines adopted by the Property Law Section of NZLS and ADLS Inc for incorporation in the latest edition of its widely used agreement for sale and purchase of real estate.

The Guidelines assist the day to day smooth running of transactions involving the sale and purchase of properties, the registration of mortgages and their subsequent discharge and relationship property protocols.

Many of the Guidelines are of a technical nature. However there is much in them that help all law firm clients - including Northlaw’s - understand the matters considered when we act in respect of property transactions. 

Here is a link to the 80 page edition of the Guidelines (updated and operating from 13 April 2015):

http://www.lawsociety.org.nz/law-society-services/law-society-branches/auckland/documents/Property-Transactions-and-E-Dealing-Practice-Guidelines-amended-April-2015.pdf

Downton Abbey fans have, in Episode 1 of Season 4 of this TV blockbuster, seen the anguish created when a young husband and father is taken from his family without leaving a will.  Northlaw would like fans to take heed of the message in the drama about the importance of making a will.

The first episode of Season 4 talked about the rules on intestacy (where there is no Will) - giving the infant child a greater share in the estate than his mother.  Adding to the widow's anguish was talk of a life or widowhood interest.

The programme features the sudden death in a car accident of Matthew Crawley, who had been the joint owner of Downton Abbey.  It appeared that Matthew had not left a will.  The predicament facing Matthew's family illustrated how important it is for even young couples to seek the expert advice of a lawyer about their wills.  Making a will ensures that treasured belongings and particularly a home will pass to those we choose to benefit in the way we think they should benefit.

A talk to a lawyer means that your personal wishes can be expressed in a way which will minimise problems for family and friends left behind grieving at the death of their loved one.  Northlaw has never seen a situation where the arbitrary rules of an intestacy benefit the deceased's family appropriately.

In the TV drama, it was subsequently revealed that, before his death, Matthew had written a letter expressing his intention that his widow (Lady Mary) should inherit his share of the Abbey.  The Earl's lawyer has advised the family that Matthew's letter is as good as a will.

In New Zealand the scenario that played out may not have had the same results or even if it had, there is likely to have been a very drawn out and expensive process involving an application to the High Court. New Zealand has seen a recent change (2007) to the old Wills legislation which provides some latitude around the strict requirements for the signing and witnessing of a Will. However Northlaw strongly recommends to all clients, and anyone reading this article, that a lot of cost, upset and surprise can be avoided if people make sure their Wills are current and properly signed and witnessed.

So don't put it off and if you haven't reviewed your Will recently then get hold of your lawyer. David Roughan is one of the most experienced lawyers in New Zealand when it comes to Wills and is only too happy to talk with you about what's involved and the costs. So call David now.

Mary Holm endorses David's advice re family loans. Does your Will need amendment....

Well known financial commentator Mary Holm answered (Herald 25 October 2014) a letter concerning how best to handle the common situation involving a loan to a family member to avoid future complications and family upset.

David wrote a letter in reply which appeared in the Herald on 8 November 2014, along with Mary's supportive reply. The text of the letter (with a little more detail) and reply are reproduced here;

As a lawyer since 1972, I agree with all that you said about documenting loans to children.

I would like parents to consult their lawyer, not only about the form of the IOU documentation (no-one can advise about that better than we can –particularly about the IOU being a joint one if the child is in a relationship and the loan/gift is to benefit both the child and the partner) but also about the benefits of amending the parents' wills to include a hotchpot provision.

The provision should:

(1)   Record the loan or gift.

(2)   Mention any past or future loans or gifts to be brought into account (possibly excluding any below a certain dollar figure or before a certain date).

(3)   Provide for those gifts and any unpaid loan balance being deducted from that child's share of the parent's estate.

(4)   Thereby prevent "double dipping".

In an estate of $800,000 left to children A, B, C, and D, with a loan or gift of $40,000 to child B still outstanding when the parent dies, the $40,000 is treated as part of the estate. So there is $840,000 to distribute. That's $210,000 each.

Children A, C and D would each receive that amount. Child B would receive $170,000 ($210,000 minus $40,000). And that would deal with the $800,000 estate because $210,000 x 3 = $630,000 + $170,000 = $800,000.

The hotchpot clause means that the parent doesn't need to involve the other members of the family at the time the loan or gift is made. A parent might want to help a child without other children knowing at the time. The will can also be changed if the parent later decides that the loan/gift should be a benefit that the child receives in addition to that child's equal share of the parent's estate. Properly drafted the clause doesn't have to be changed for future loans or gifts.

The greatest benefit is harmony and fairness among the children after the parent has died.

One bonus I've seen is where the remaining siblings acknowledge that the favoured child needed and deserved greater help than the rest of them and resolve to ignore the hotchpot provision and direct the executors to divide the parents estate equally. The parents have given the siblings the chance to show how they care if they choose to override the hotchpot.

Mary Holm's reply was

"When I started reading your letter, my reaction – to be honest – was, "Here's a lawyer just drumming up business for himself and his colleagues." But you put up a pretty good argument, which I suppose is what we should expect from a lawyer!

The hotchpot idea makes a lot of sense and I particularly like your point that it can remove the need to tell other family members about a loan. While open communication is often good, there are situations when it may not be.

By the way, I love the name "hotchpot", which Wikipedia says means "the blending or combining of property in order to ensure equality of division". Apparently the word comes from a kind of pudding"

The Lawyers Complaints Service has been operating for only 6 years. And in that time it has received over 12,000 complaints about lawyers.

That`s bad news isn`t it? Especially when there are now 12,000 lawyers in NZ in total. (there were only 3,000 NZ lawyers when I became one in 1972).

But hold on. What`s this? According to the NZLS report received on 25 November 2014, the Lawyers Complaints Service take no further action in over 87% of the complaints they investigate; because either its obvious from the start (or after a thorough investigation taking months) there is nothing of substance in the complaint.

But isn`t even 13% of 12,000 complaints over 6 years (about 5 per week spread around the 24 Lawyers Standards Committees operating throughout NZ made up of appointed lawyers & lay people) too many?

Perhaps – although less than 1 complaint a week has gone as far as the Lawyers Disciplinary Tribunal.

What is really interesting from the latest report is that now 47% of complaints against lawyers are made by non clients. And that percentage is growing. 

So we have a system where if your lawyer does a great job for you, one or more of the people on the other side can lodge a complaint against your lawyer.

That could result in younger, less experienced lawyers, having some apprehension about doing their very best for their client – fearing that someone on the other side will go to the Lawyers Complaints Service. That’s the really bad news. Lawyers shouldn’t be constrained by this issue hanging over them. They need to be confident that they can represent their clients with passion and determination – accepting of course that they have obligations to act fairly and lawfully.

David wants to assure his clients that he will continue to “go in to bat” for them – focused on their interests – as he has now for over 40 years.

What they are and how they came about?

Cross lease titles are relatively common for residential properties in New Zealand. They emerged in the late 1960s as a way to avoid the more time consuming and, especially, costlier methods of development, like freehold subdivisions and, more recently, Unit Title developments.

Cross lease titles have two parts. Firstly the joint ownership of the whole property (usually in equal shares) as “tenants-in-common” by A, B, C, D etc.

Secondly the leases of the buildings that all the owners (A, B, C, D, etc) grant to each owner (A only) – giving that owner (A only) exclusive use of specified parts of the land and of particular buildings. Typically that would include the main dwelling and things like garages.

Where parts of the land are used by all the owners (for example driveways) these retain the underlying joint ownership status of the first part and are called “common use areas”.

The leases themselves are usually set for 999 years.

To create a cross lease title requires the depositing of a Flats Plan -to identify the buildings (and any other areas of exclusive possession) and common areas. Originally, this type of plan didn’t incur the same costs nor require the same survey standards as a freehold Deposited Plan.

With the advent of the Resource Management Act in the early 1990s Councils were able to impose more or less similar rules and costs, including Reserve Contributions as for other standard freehold subdivisions. This meant the number of cross lease developments dwindled.

However there remain more than 200,000 cross lease titles in New Zealand. It is estimated that nearly half of them are in Auckland.  Northland certainly has its share!

 

What are the problems with Cross leases?

People often don’t understand them. In 1999, the Law Commission identified that most consumers and very often real estate agents do not really understand what a cross lease title is all about. This can mean that people enter into agreements for the purchase of a cross lease property without knowing what their rights and responsibilities are. That was true in 1999 and is still the case this century.

Alterations are often carried out without the consent of the co-owner(s) of the underlying land, or any update to the flats plan to identify  the alterations. This can mean that a house extends beyond the leased area - a serious issue when it comes time to sell or otherwise deal with the property.

 

Other problems can occur when the consent of co-owners is withheld unreasonably. Then the process to challenge that withholding can finish up being substantial - and there is no compensation for the cost of dealing with the unreasonableness. In the pressure cooker environment of a sale, some unscrupulous co-owners take advantage of an opportunity to gain a financial benefit in return for granting their consent.

Another issue relates to the “legal fiction” under which the lease for 999 years has been granted. This time period was selected because all leases need to have a definite end time to be legal, and it was thought that 999 years would cope with any concerns about taking title to a lease. The reality is that all houses will need to be rebuilt  within 999 years - yet there are usually no provisions governing the rebuilding processes and any new building has to have the same footprint as the building it replaces.

There can be problems with insurance ( particularly where all the owners are not  with the same insurer) and reinstatement .

There are difficulties with the “rules” in the leases (pets, tenants, colour schemes) not being observed.

Where the Flats Plan omits areas of exclusive possession, the flat owner steps out of the flat into the underlying   “mire” of co-ownership with limited privacy and the constant danger of obstruction – a nightmare situation when difficult neighbours are involved.

 

A solution?

In 1999 the Law Commission issued a report which proposed the following 3 changes (and drafted the legislation required for them) :

  1. Prohibiting any more cross lease titles
  2. Cost effective  mechanism to convert existing cross lease titles to freehold or Unit Titles.
  3. A sunset clause (after a decade) requiring mandatory conversion then of any remaining cross lease titles before those properties could be sold. Imagine what will happen to the value of your cross lease title immediately such a clause is implemented!

The Law Commission’s recommendations have not yet been adopted. Some changes made under the Unit Titles Act 2010 allow for a conversion process suitable for larger developments with shared walls. They aren`t useful however for the typical cross lease situation where houses are separate and complex shared ownership provisions are necessary.

We are pleased to see a revitalisation of the debate   on cross leases in recent times by members of  ADLSI. In NORTHLAW’s   view  changes need to happen to avoid further  angst and expense.

In the meantime if you have a cross lease property or are considering buying one, then ensure you get proper legal advice before taking any further action.

David Roughan would be happy to discuss the issues with you and help guide you to the make the best decisions. Contact David

 

Postscript 22 July 2013 

Justice Minister Judith Collins has responded to a letter from ADLSi (which promoted the Law Commission’s report as an effective way to address cross lease issues) by saying that the Commission’s Report does not need further review, but that her officials will further investigate current cross lease issues particularly as they relate to the Christchurch earthquakes. Northlaw believes this is a small step in the right direction and hopes the investigation will open the door to eventual implementation of the Report’s recommended legislative change. Watch this space.