What is a land covenant?

Written by Adrienne Parratt - Senior Registered Legal Executive (Property)

Land covenants have become a popular way for developers to control the standard and integrity of their subdivision, in order to maintain the value of the properties within. These covenants are usually recorded in either a transfer or easement which is registered at the same time as the titles issue.

The covenants can dictate almost any requirements in relation to the property. These rules bind all parties over all properties recorded under the covenant. While all the owners of the properties will be bound by the covenants and can usually enforce them against each other, a developer or “grantor” has the right but not the obligation to enforce them. Councils have no responsibility to ensure the compliance of the land covenants by land owners. 

Common covenants might require an owner to receive the developer’s consent for their building design. This might also include approving the colour schemes and landscaping plans. Other covenants may affect a property owners day-to-day use of the property, such as requiring sections to be kept tidy, or restricting loud noise and certain breeds of dogs.

A common covenant that caused a lot of stress with clients post-earthquake was the requirement that a dwelling could not be occupied until the code compliance certificate was issued.  Purchasers need to be fully aware if this is the case and they may not be able to settle and move in immediately.

Covenants run with the land, not the land owner, and stay registered on the title for eternity or until removed. Some covenants are limited as to duration so that they only apply for a limited time (say 10 years) after registration.  This is especially helpful when a developer cannot be located or the development company is no longer trading.

Fencing covenants are slightly different to land covenants.  Under the Fencing Act 1978, occupiers of adjoining lands not divided by an adequate fence can be made to contribute in equal proportions to work on a fence. If a fencing covenant is registered on the title to a property after 1 April 1979, it will automatically expire 12 years after the date it was registered.

Fencing covenants usually come about in one of two scenarios. Firstly, where a developer wants to avoid fully fencing the lots in a subdivision. Secondly, where a developer does not want to be liable for each individual fence between a lot sold to another party and a lot still held by the developer. Once a lot is no longer owned by the party who lodged the fencing covenant, the provisions of the Fencing Act apply. In other words, once the neighbouring lot has been sold a purchaser can have their new neighbour contribute to the cost of building the boundary fence. This would normally mean each owner contributes one half share for the lengths of fence running along their shared boundary.

To remove or vary a land covenant is very difficult and expensive. All land owners and their mortgagees have to provide their consent so it is always helpful to inform clients about their obligations as soon as possible. Likewise, when selling a property that is bound by covenants, the owner should try and find old copies of their developer’s approval if they have it. A purchaser’s lawyer will likely ask for this. Titles are frequently requisitioned for non-compliance with covenants, so taking these steps at the beginning of a transaction can save a lot of headaches down the line.

For assistance with covenants of all shapes and sizes, come and speak to our friendly residential property team today.

ADLS agreement for sale and purchase: Clause 10 "conditions and mortgage terms"

Written by Rebecca Clark - Solicitor (Property)

We continue in this newsletter with our review of a clause of the ADLS agreement for sale and purchase. This week, we look at clause 10 “conditions and mortgage terms”.

Clause 10 is one of the more crucial and better-known clauses in the agreement.  Unless exceptions are inserted in the further terms, clause 10 regulates the conditions found on the front page of every ADLS agreement.

Clause 10.1 relates to finance. Unlike the other conditions noted on the front page of the agreement, the finance condition requirements can be outlined on the front page of the agreement. More commonly however we see a finance condition contained in the further terms. Finance conditions should not be overlooked; it is a requirement of the standard finance condition that the purchaser uses their best endeavours to arrange finance. Cancelling an agreement on this condition can be difficult, and we have seen scenarios where purchasers have had to turn to second tier lending to finance a purchase.

LIM Report
Clause 10.2 outline requirements if a LIM is needed. LIM reports need to be requested on or before 5 working days of signing of the agreement, and the condition usually needs to be met within 15 working days. If something is wrong in the report, and a purchaser doesn’t approve a LIM, notice must be given to the vendor of why the LIM isn’t approved and how they can remedy those matters. If no notice is given and the purchaser is silent on the LIM it is deemed to be accepted.  If notice is given, the vendor has 5 working days to give a return notice of whether they can comply with the purchaser’s notice prior to settlement.  If the vendor gives notice advising they will comply with the purchaser’s notice they must fulfill the requirements prior to settlement, and the LIM condition is fulfilled. If the vendor doesn’t respond or won’t fulfill the notice then clause 10.8 applies as outlined below.

Builders Report
As outlined in 10.3 (and a builders report has been indicated as required) the purchaser must obtain this within 10 working days of signing the agreement. If the purchaser seeks to then cancel the agreement due to this report, they must provide a copy to the vendor immediately upon request.

OIA Consent
10.4 , 10.5 and 10.6 cover a specialised area of the law on overseas investors. If this clause is required by a purchaser please seek out specialist legal advice.

Operation of conditions
Clause 10.8 outlines how each condition discussed above is to be treated under the agreement. Firstly, it is a requirement prior to settlement occurring that these conditions are met (conditions subsequent). The parties involved need to do everything reasonably necessary to enable the condition to be met. Conditions are not seen to be fulfilled unless notice is served by either party. If notice isn’t given, either party may choose to void the agreement and provide notice to the other of this.  It is also important to note that a purchaser can decide to waive any of the conditions it sees fit by way of notice.

Time Frames
It is important with any conditions to ensure that working days are calculated correctly, and they take into account any public holidays and weekends. If the agreement isn’t amended, working days usually start from the day after the contract is entered into.

If acting for a purchaser, it pays to confirm that the time frames provided in the standard terms give them sufficient time to complete their investigations. Some councils for example give the ability to order urgent LIM reports that have a quick turnaround time.  Other councils may only allow for standard time frames of 7-10 days. If possible give your clients ample time to have these reviewed so if there are any concerns raised by these reports, they have adequate time to address them prior to the date the condition needs to be met.

Deposit, deposit or deposit?

Written by Louise Maginness - Registered Legal Executive (Property)

We are finding that many clients, especially first home buyers, get confused about the word “deposit” as this term may have many meanings in relation to a conveyancing transaction. 

Here are some different meanings of the word ‘deposit’ used in a first home buyer purchase:

  • Deposit payable under agreement – this is a percentage of the purchase price paid by the purchaser to provide comfort that they will do what the agreement says. The front page of the agreement should set out how large the deposit will be, when it will be paid, and who it will be paid to.
  • The ‘deposit’ a purchaser has saved (cash contribution) – the most common cause of confusion for first home buyers is the deposit payable under the agreement vs the amount they have saved (what we call a cash contribution).  Purchasers often see this amount as their ‘deposit’.  It is important to discuss this difference with purchasers, so it is clear that the amount they need to pay under the agreement is the amount written on the front of the agreement, not their cash contribution.
  • Withdrawing KiwiSaver funds to use towards the payment of the deposit (payable under the agreement) – Many purchasers tell us they have the deposit saved in readily available cash, but they actually need to withdraw the funds from their KiwiSaver account. 
  • Deposit required under the Housing New Zealand KiwiSaver HomeStart Grant - it is important that the purchaser has checked their eligibility for the grant and allowed Housing New Zealand at least 20 working days to process their required paperwork.  For more information on KiwiSaver and the HomeStart grant see our article “Understanding KiwiSaver and the First Home Deposit Subsidy”
  • Term deposit – the purchaser’s savings may be held at a bank or financial institution on term deposit for a fixed amount of time. The purchaser should take care to match the timing of when they will be required to pay any monies due under the agreement with the timing of their term deposit’s expiration. If they need to break their term deposit early they may forfeit interest, or even have to pay their bank a break fee.
  • Interest Bearing Deposit – occasionally lawyers are required to hold funds on interest bearing deposit (IBD) in their firm’s trust account during a property transaction. An example of this might be when funds are being retained until certain promised works are completed. The agreement as to how the funds will be held should be carefully worded to avoid any ambiguity.

It is important that a purchaser understands when their obligation to pay the deposit under the agreement will kick in. If a deposit is not paid on time and in full then there are several remedies available under the agreement, and this could even result in the agreement being cancelled. If the purchaser is at all unsure as to how they will fund their deposit then it is recommended that their check with their lawyer before the agreement is signed.

Janine Ballinger

Partner - Property

Phone: +64 3 339 5642

Email: janine.ballinger@cavell.co.nz

Rebecca Clark

Solicitor - Property

Phone: +64 3 409 2705

Email: rebecca.clark@cavell.co.nz

Louise Maginness

Registered Legal Executive - Property

Phone: +64 3 339 5643

Email: louise.maginness@cavell.co.nz

Adrienne Parratt

Senior Registered Legal Executive - Property

Phone: +64 3 339 5615

Email: adrienne.parratt@cavell.co.nz

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