Written by Lana McCarroll - Registered Legal Executive (Property)

When clients are buying sections with the intention to build their dream home, usually everything goes swimmingly. They buy the land, build their dream home and settle in nicely. No damage to the land is caused during construction of their new home and they are refunded any remediation bond that they paid to the developer before construction started. 

Sounds quite simple, but unfortunately it is not always that way. Sadly, it is becoming increasingly common that people are unable to build their dream home after buying their section (for whatever reason) and are forced to sell before any construction begins.

Of course, the damage remediation bond is paid at the outset, and in most cases, developers will only refund the bond to the “registered proprietor” at the time of the completion of any dwelling. This might not be to the person who actually paid the bond.

Often vendors forget that they paid a bond and that it needs to be allowed for when they sell their section. It is for this reason that we urge agents to check with us as to the wording in the original agreement, before drafting any on-sale agreement for a section. You MUST do your homework and determine whether you need to allow for the remediation bond in any new sale agreement. 

Recently we had a client dealing with the exact scenario mentioned above. Unfortunately, there was no mention of the original remediation bond in the new agreement. The purchaser didn’t agree to refund the bond of $2,500 to our client. There was no mention of it in the agreement. While this may seem unreasonable, they were within their rights to do this. Because the purchaser had bought privately from our client rather than through the Developer, they didn’t have to pay any bond before commencing construction. As it stands, once they complete their build, the Developer is required to pay the bond to the “registered proprietor” at that time. This mistake cost our client $2,500.

In this case, the agent realised they were responsible for not inserting the relevant clause into the agreement and subsequently paid the refund to our client from their own commission.

Thankfully the client accepted the refund without laying a complaint against their agent. However, we urge you to add this important check to your “to do” list when drafting an agreement for on-selling a section. Remember, if in doubt, give us a shout!

Written by Rebecca Clark - Solicitor (Property)

Nomination- How does it work?

We thought it timely to give a recap on how nominations work under the ADLS Agreement for Sale and Purchase (agreement). Under the agreement a vendor can agree to sell a property to a purchaser but that purchaser “nominates” a third party to actually settle the purchase.

The ability to nominate is a useful tool for purchasers for a number of reasons. For example, purchasers buying as a couple, with only one person available at the time of entering into the agreement. They may also decide for asset protection, tax reasons or otherwise that the purchasing entity should be a family trust, or other separate entity. It is quite important, particularly in places like Queenstown where clients are purchasing properties for the intention of renting or Air BnB that purchasers seek professional advice about the best type of entity for tax reasons.

For these reasons we always suggest that, where possible, the “and/or nominee” option is left untouched on the front page of the agreement, to allow our clients the freedom to decide how to proceed.

Rights under nomination

A nominated party can enforce the agreement in the same way as the original signing party. So for instance a nominated purchaser has the benefit of the warranties under clause 7 of the agreement, and can still enforce those warranties against the vendor.

A vendor may have concerns trusting a nominated purchaser they know nothing about. The original purchaser under the agreement will remain liable to the vendor under the agreement in the event the nominated purchaser defaults and does not complete settlement.

We think this should provide some comfort to both purchasers and vendors alike who are found in this situation.

Novation

Novations and nominations sound similar, and both give the purchaser the ability to transfer their interest in the agreement to a third party. However, a novation requires the agreement of the vendor. Unlike a nomination, novation will release the original purchaser from all liability under the contract. Essentially a novation creates a new contract entirely between the novated purchaser and the vendor. When acting for a vendor we are usually wary of novations for this reason.

Whether acting for a vendor or purchaser, we would suggest it is best to leave available the option to nominate under the agreement. The vendor is protected if the nominee defaults, but it provides a purchaser with greater flexibility in the transaction and may mean a more successful outcome for a purchaser client in the long term.

Written by Patrick Wynne - Law Clerk (Property)

The Residential Tenancies Amendment Bill (No 2) (the Bill) is at present making its way through Parliament. The Bill is currently proposing to make a number of changes, including the rights and responsibilities of both the landlord and the tenant where a premises is found to have been contaminated.

However, another of the notable aims of the Bill is to clarify the extent to which tenants will be liable for damage caused to the rental property. You might recall the pair of court decisions Holler v Osaki and Linklater v Dickinson which held that a residential tenant who accidentally, or even recklessly, damaged their landlord’s property could not be sued by the landlord. Those decisions held that a landlord could only recover costs if it could be proved the tenant’s damage was intentional.

The two court decisions were unpopular with landlords and their insurers, and the Bill is an attempt to curtail the effect of these decisions.

Tenants will remain liable for intentional damage. However, the Bill proposes that tenants will be liable for each incident of careless damage ‘up to the value of their landlord’s insurance excess but no more than four weeks rent.’

Landlords will be required to advise their tenants when a tenancy agreement is entered into whether or not the premises are insured. The landlord’s notice will have to include:

• The amount of excess payable under the insurance
• What relevant risks are insured against and any relevant exceptions
• What acts or omissions of the tenant or of a person for whose actions the tenant is responsible would make insurance monies under the policy irrecoverable; and 
• If any of the information described above changes in the policy, the landlord must notify the tenant promptly of these changes.

The hope is that by providing tenants with this insurance information tenants will be aware of their level of liability.

If a tenancy agreement is already in effect when the changes come into force the landlord will have to provide information about the insurance policy within 14 days of receiving the tenant’s request for this information.

The proposed punishment for a landlord failing to comply with these provisions is a maximum penalty of $500.

It will be important that property managers and landlords keep aware of these potential changes. If you have any questions or concerns about how these changes may affect future contracts or your advice to your clients please do not hesitate to get in touch.

Partner - Property

Phone: +64 3 339 5642

Email: janine.ballinger@cavell.co.nz

Solicitor - Property

Phone: +64 3 409 2705

Email: rebecca.clark@cavell.co.nz

Registered Legal Executive - Property

Phone: +64 3 335 3469

Email: lana.mccarroll@cavell.co.nz

Law Clerk - Property

Phone: +64 3 335 3459

Email: patrick.wynne@cavell.co.nz

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