Property - Parry Field Lawyers

Buying your first home is exciting but it can also be quite overwhelming with lots of words being thrown at you that you don’t quite understand. As a house purchase is likely to be one of the largest investments you make, it is important that you are fully informed when starting the home buying process.

When my husband and I purchased our first home we were nervous and a little unsure of what was to come. Once we had worked our way through making an offer, working through our conditions and ending up at settlement day, picking up the keys to our first home is still one of our greatest memorys. I’m a young first home buyer and in this article I am going to break down some of the keys things I wish I had known/think other first home buyers should know.

1. Chat to the professionals

Once you are thinking about buying your first house, it is a really good idea to chat to your lawyer and bank/broker early on in the process. Having a strong team of professionals backing you from the get-go will ensure that the process is less stressful overall.

Bank

Your bank will be able to talk through the finance side of things with you to determine how much you can afford. They will also be able to work with you to determine if you are eligible for a KiwiSaver first home withdrawal or a HomeStart Grant. Your bank might also have special conditions that they need you to fulfil before they give an unconditional offer of finance. It is a good idea to find out what these conditions are (preferably in writing from the bank) and chat to your lawyer about them as early as possible. Common conditions that we would see include the bank receiving and being satisfied with a registered valuation or a builder’s report and having confirmation that your Kiwisaver funds are available for use. If you are purchasing in Canterbury, they may also wish to see all documentation relating to any earthquake claims associated with the property.

Lawyer

Contacting your lawyer early on means that you can get a better idea of what the process is going to look like and what you should be looking out for when you do find the right place. We would always suggest that you chat to your lawyer before you put an offer in on a property (sign a Sale and Purchase Agreement) as that way your lawyer can ensure that all the conditions are in your offer that need to be there.

2. Be prepared for extra costs

It is important to bear in mind that you will be putting more money into your purchase than just the purchase price. There will be additional fees such as your lawyer’s fees and builder’s fees if you choose to get a building report done. There are also extra fees that your lawyer will need to pay to Land Information New Zealand to transfer the title to the property into your name and register a mortgage and also to the local Council for ordering a LIM report.

3. There will be deadlines

There will be certain deadlines in your Sale and Purchase Agreement that you need to be aware of. Often, once you have signed your offer you will have 10-20 working days (about 2 to 4 weeks) to work through your due diligence and satisfy all your conditions. It is important to note that if you don’t meet the deadlines, the Vendor (the person selling the house) will have the option to cancel the Agreement on you.

Your lawyer will be able to advise you of the deadlines and will work with you ensure that the deadlines are met or that an extension is requested where needed.

4. Set time aside for meetings and phone calls

You should be aware that you will need to put time into getting things across the line. Your lawyer will be putting in a lot of work behind the scenes but there are certain things that they can’t do without you.

Signing KiwiSaver Withdrawal Documents

If you are looking to withdraw your KiwiSaver funds you will need to meet with your lawyer to sign some documents which they will then send away to your KiwiSaver provider. If you can’t meet with your lawyer to sign the documents, you will be able to do this with a local Justice of the Peace.

Phone Calls and Emails

While you are working through your purchase conditions, you will likely need to talk with various people. For example, if you are obtaining a builder’s report, you will need to arrange this with a builder and review the report that they send through. Likewise, you will need to talk about your bank/broker about finalising finance and with your lawyer as you work through the various conditions.

Settlement Documentation

Prior to settlement your bank will send your lawyer some loan documents which will need to be signed in order for your bank to pay out your loan on settlement. There will also be a couple of other documents that your lawyer will need to sign with you before they can transfer the title to the property into your name(s). These documents can normally all be signed in the same meeting.

5. Get excited!

If you are reading this article then congratulations on getting this far in the home buying process. Buying a house is a big deal and it will be a great feeling picking up the keys to your new home.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Our property team at Parry Field Lawyers love helping first home buyers into their first homes. We explain things to you in an easy to understand way and are here every step of the way to answer your questions. For more information, contact us on 03-348-8480 or by emailing Paul Owens – paulowens@parryfield.com, Judith Bullin – judithbullin@parryfield.com or Luke Hayward – lukehayward@parryfield.com

Are physical signatures necessary when executing legal documents?

Not always. The rules are found in the Contract and Commercial Law Act 2017 (CCLA). The core principle is that a signature must be RELIABLE in order to have any legal effect. In determining whether the signature you have provided is reliable, the questions are:

Does the signature adequately identify you?
Does it indicate your approval of the information in the document?
Given the nature of the transaction, is the means by which your signature was provided (physical or electronic) appropriate?

An electronic method must satisfy the first two aspects above in order to be recognised as an “electronic signature” in New Zealand. Generally, an electronic signature is presumed to be reliable provided:

1. The means of creating the electronic signature is:

(a) linked only to the signatory;

(b) under the control of the signatory alone; and

2. Any alterations to either the signature or the information in the document, is detectable.

However, this presumption may be overturned if the electronic signature is held not to be ‘as reliable as is appropriate’ given the purpose and circumstances in which the signature is being required. This is very much a fact-specific determination that will depend on the context of each situation. It is suggested that the following factors be considered:

the size of the transaction (i.e. the level of risk e.g. documents involving large sums);
how often you transact with the other party concerned; and
whether the other party (and yourself) often enters into the sort of agreement represented by the document.

Practical examples of these principles

Below are some case law examples that help illustrate the standard:

Wilfred v Lexington Legal Ltd

An electronic signature (in the form of an email from a client to their lawyer signing “best regards — Harmon”) sufficed as being a reliable for the purposes of entering into a contract for legal services.

Company Net Ltd v Registrar of Companies

Original signatures were required by the Registrar of Companies in relation to company incorporation documents — albeit in this case, there were issues of identifiability that caused concern. The companies office makes clear that they do accept electronic signatures for most documents.

See: https://companies-register.companiesoffice.govt.nz/help-centre/managing-your-online-account/filing-documents-with-electronic-signatures/

Welsh v Gatchell

Agreements for sale and purchases of land can be signed electronically. Notice to the other party about electronic signatures is already provided in the standard terms of the Auckland District Law Society document which is commonly used for these types of transactions.

Consequently, although electronic signatures will generally be considered reliable, where there is a lot riding on a particular document (i.e. a sizeable transaction as opposed to a mere box ticking activity), it appears prudent to require physical signatures. Where physical signatures pose significant inconvenience and you wish to sign electronically, we advise that you give express notice to the other party that an electronic signature will bind all parties to the contents of the document, and that you expressly specify the form of electronic signature required.

What documents can be signed electronically?

As noted above, documents can be signed electronically as long as the signatory is identifiable and the signature is reliable. However, there are two main caveats to this:

Legal Requirement

Where there is a legal requirement on you to give information to a person (thus requiring your signature), you must obtain that person’s consent to receiving the information through means of electronic signature.

Documents of Integrity

Electronic signatures have no effect on documents that concern “matters of integrity” such as:

Documents relating to citizenship, elections, fish and game, civil aviation, corrections, credit contracts and consumer finance, disabled persons community welfare, fisheries, medicine regulations, misuse of drugs, passports, and court procedural documents;
Documents that relate to affidavits, statutory declarations, documents given on oath or affirmation (although there are some short term changes due to Covid-19 which we discuss below);
Powers of attorney and enduring powers of attorney, Wills, codicils and the like;
Negotiable instruments;
Bills of lading;
Warrants to enter, search or seize; and
Fair Trading Act 1986 provisions in relation to consumer standards information on goods or services, and products or safety standards.

Is it sufficient to provide electronic pdf versions of the signed documents or are originals always required?

The inclusion of a counterparts clause in documents allows parties to exchange pdf copies of signed agreements through email or fax. The party last to sign the document effects a binding contract upon their provision of the signed document to the other party/parties. It is common practice for physical signatures to be exchanged in this manner i.e. physical signature presented in electronic form/through electronic means will suffice.

The absence of a counterparts clause in the document itself however means that wet-ink physical signatures will be required. A signature may be deemed unreliable where it is performed in a manner that wasn’t agreed to between the parties as evidenced in the document.

Provision of the originally signed documents is also required when executing deeds. Section 10 of the Property Law Act 2007 requires a signed deed to be delivered in order to take effect. Delivery is commonly understood as being the physical handing over of documents either in person or through post. If the intention is to effect delivery otherwise, we advise that this be made clear in the document itself by recording that the deed shall be deemed delivered upon transmission of a scanned copy of the original executed document by one party to the other.

This article is not a substitute for legal advice and you should contact your lawyer about your specific situation. Please feel free to contact Steven Moe at stevenmoe@parryfield.com should you require assistance.

The law recognises that in certain events which are beyond the control of a party that it is not fair for that party to have to continue to comply with the contract.

The first step is to check what the contract actually says. It won’t apply if there is no such provision in the contract. Normally it will be called a “Force Majeure” clause. The courts will generally have a high standard if a party wants to rely on this as a grounds to not fulfill the contract. The sort of factors which will be relevant are:

How are the events described? Is it generic or specific? In this particular case it will be relevant to see if there is any reference to “disease” or better, epidemics? If there is a reference to an “Act of God” then that might arguably cover this too. The most important thing is to check the specific words.
Even if there is an event, does that mean that the performance cannot be done? Just because something costs more doesn’t make it impossible – it may be that you still have to comply. Again, the context is key.
A party needs to be in control – one of the things I have seen is some arguments that a “strike” should be a force majeure event – if it is listed then it may be, but typically the management can control a strike occurring, or not. So, it might not qualify as a force majeure event.
The last factor relates to mitigation. A party should take steps to ensure that the contract is complied with (ie they are mitigating and stopping the impact, if they can).The key point here is perhaps that the wording of the contract needs to be reviewed. If there is no such clause then it might be possible for the doctrine of frustration to apply – this is where an event makes performance impossible compared to what had been agreed. Again, context is key. The other thing to look for in contracts would be a “material adverse change” clause – these can apply where an event occurs that means the contract is affected. You should also review any termination clauses just to see what they provide for eg 30 days written notice? Start by reviewing your contracts and consider your current situation and what the next few weeks and months will hold. If you would like to discuss your contract and situation then we would be happy to do so.

This article is not a substitute for legal advice and you should consult your lawyer about your specific situation. For any questions, feel free to contact Steven Moe stevenmoe@parryfield.com or Kris Morrison krismorrison@parryfield.com at Parry Field Lawyers.

The Overseas Investment Act 2005 imposes various requirements and conditions on “overseas persons” when investing in New Zealand assets. A recent case* illustrates the costly consequences of failing to comply with this Act.

In December 2019, the High Court fined two property development companies, FFG Investment Limited and Grand Sky Limited, for failing to comply with the Overseas Investment Act 2005. Under section 10 of the Act, an overseas person must get government consent when making an:

investment in sensitive land; or
investment in significant business assets

In this case, both companies had the same three shareholders and were considered to be an overseas person for the purposes of the Act. FFG purchased sensitive land in

Auckland and later sold it to Grand Sky. However, neither party obtained consent from the Overseas Investment Office. While Grand Sky was an overseas person when they entered into the agreement to purchase the property, it was no longer an overseas person when the purchase was completed.

Both companies were found to have breached the Act by failing to obtain consent. While Grand Sky was no longer an overseas person when the purchase was completed, it was sufficient that they had obtained an interest in the property when entering into the agreement. The companies were fined $123,000 and ordered to pay court costs.

This case highlights the importance of the Overseas Investment Act 2005 and the ramifications of non-compliance.

If you have any questions or concerns arising out of this article, please contact Kris Morrison or Steven Moe at Parry Field Lawyers (+64 3 348 8480).

Several months ago we wrote an article on the key changes to the Overseas Investment Act coming into force later in the year (the article can be found here). The Overseas Investment Amendment Bill passed its third reading on Wednesday the 15^th of August and received royal assent on Wednesday the 22nd of August. The changes are expected to come to effect in October 2018.

These are the key changes that you need to be aware of if you are a non-resident foreign buyer hoping to purchase property in New Zealand:

Scope of “sensitive land” to include “residential land”

The biggest change to the Overseas Investment Act is that the scope of “sensitive land” within the overseas investment regime is being broadened to include “residential land”. This is going to make it more difficult for overseas investors to purchase residential land in New Zealand, as they will need to apply for consent from the Overseas Investment Office which will require that the investment is going to, or is likely to, benefit New Zealand.

You will not need to apply for consent if you hold a residence class visa, have been living in New Zealand for at least 12 months, have been present in New Zealand for at least 183 days of those 12 months and are a New Zealand tax resident.

We have also published a more detailed article on the effect of this change, which can be accessed on our website here.

Forestry rights and interests:

The amendment will also impose stricter regulations on the purchase of forestry rights and interests, requiring the application for consent under one of two pathways – the “modified benefits test” or the “special benefits test”.

It should also be noted that it will be the obligation of the purchase to ensure that they are complying with the Overseas Investment Act.

If you would like to have a look at the Overseas Investment Amendment Bill, you can access it here.

If you have any questions or concerns arising out of this article, please feel free to get in touch. This article is not a substitute for legal advice and you should talk to your lawyer about your specific situation.

Kris Morrison – krismorrison@parryfield.com

Paul Owens – paulowens@parryfield.com

Options for parents to help

It’s every Kiwi’s dream to own their own quarter-acre share of paradise. Unfortunately for many first home buyers today, not only are the quarter-acre sections fast disappearing into multicomplex developments, but it’s also becoming harder than ever before with an ever-rising property market. Every time you turn on the news, we hear something about the housing unaffordability in Auckland. Those south of the Bombay Hills start to get a bit glassy-eyed when listening to this on repeat. However, since the government’s introduction of the ‘LVR’ rules in October 2016 aimed at improving affordability in these markets, we must pay attention as all of New Zealand is affected.

The LVR explained

The loan-to-value ratio (LVR) is a measure of how much a lender will lend against a mortgaged property compared with the value of that property. Borrowers with LVRs of more than 80% (that’s less than 20% deposit) are often stretching their financial resources. As well, they are more vulnerable to an economic or financial shock, such as a recession or an increase in interest rates. The LVR rules permit lenders to make no more than 10% of their residential mortgage lending to high-LVR borrowers who are owner-occupiers. The effect of this means that in order to buy your first home, you now must have a 20% deposit. In the Auckland and Queenstown markets where the average property price is over $1 million, this is a big savings hurdle for the buyers who want to take their first step onto the property ladder.

Be informed

If you are financially able and willing to open your wallets to help, there are options to support your children who are struggling to meet the LVR requirements. In this article we outline some of the more common options available. Most importantly, the decision to offer a helping hand needs to be informed and time needs to be taken for each party to obtain the appropriate legal advice. Depending on the option/s chosen, there may be significant paperwork to be prepared that records the complexities of the ownership and security arrangements. This is not something that can be completed overnight. You should get the ownership structure agreed before anybody signs on the dotted line.

Option 1

Gifting some funds

In this option, your child acquires the property in their own name and a gift of equity of the shortfall of the 20% deposit is made from you to that child. Lenders typically want confirmation that the 20% deposit is the purchaser’s equity and therefore any financial assistance is generally required to be gifted. The gift would need to be documented by way of a deed of gift. If a gift is made, there’s no ability for parents to later on demand partial or full repayment. This is an important consideration from both a relationship property perspective for your child and also for your own future financial needs. You must be careful that your generosity towards your child does not get in the way of your own retirement planning. If you want to protect the gift made for relationship property purposes (if your child is in a relationship), your child should enter into a contracting out agreement to record the gifted amount as their separate property.

Option 2

Loan from parents

If you can persuade the lender to agree to a loan to your child rather than a gift, then the shortfall of the deposit amount can be lent to your child. The terms of the loan would need to be recorded, generally, in a deed of acknowledgement of debt. This would include naming your child as borrower, interest to be payable (if any), dates for repayment, the ability for the loan to be transferred to a second or subsequent property and, most importantly, the ability to register a mortgage as security for the loan.

Option 3

Guarantee from parents

Under this option your child would purchase the property outright and any shortfall in the 20% deposit can be guaranteed by you as parents. The guarantee should be limited to the amount of the shortfall. The lender would also generally require that the guarantee is supported by a mortgage over your own property. If you choose this option, it’s important that all parties talk to the lender early on. As well, there would be a requirement for you and your child to each receive independent legal advice. The benefit of a guarantee is that there is no money required upfront. There is, however, considerably more risk should your child default in their obligation to the lender.

Option 4

Joint purchase of property

If your child can’t afford to buy their own property, you could buy a share of that property. The title to the property would then have you and your child registered as tenants in common in the shares owned. This option provides some security and potential capital gain return for you as parents. With joint ownership, careful discussion still needs to be held with the lender regarding the required securities. With this option, it’s essential that a property sharing agreement is entered into between all of the co-owners. This records the terms of the purchase, who will pay for outgoings, repairs and maintenance, management of the property, what happens if your child fails to perform their obligations and, most importantly, an exit strategy for you as parents. Again, you and your child will need independent legal advice.

Option 5

Family trusts

A family trust could be used in many of the ways explored above, if the terms of the trust deed allow this. Family trust funds could be used to distribute or lend money to a child beneficiary to help them buy a first home. Likewise, the trust could provide a guarantee or be a joint purchaser. A trust, of which the child is a beneficiary, could also be used as the purchasing entity. Once again, specialised legal advice needs to be sought regarding the trust and structuring of any lending. If your child is reliant on a government grant for part of their cash contribution, the property must be owned personally for the first six months. No family trust ownership is allowed. Although trusts have historically been used to provide relationship property protection, this is no longer the case. Trusts can also be open to claims. Whichever of the five options above you choose, you should also review the terms of your Wills or Memorandum of Wishes for your trust. As well, it’s important to ensure that any assistance, gift, loan or any potential liability under a guarantee or co-ownership arrangement is taken into account when dealing with all your children on an equal basis (if this is what you want to happen). This will help protect against claims by disgruntled siblings if similar assistance has not been provided to them.

Important to get advice

If you are financially able and willing to lend a hand to your child to help them into their first home, there are options to assist with meeting the criteria of the LVR rules. Our adviceis to ensure you take control of the decision making and get expert legal advice on the options available to you before your child commits you to something that may not be the best option for you. Parents can provide valuable support but it must work for all involved.

How can we help you?

We have dedicated teams based in our Riccarton, Hokitika and Rolleston offices who regularly advise on and assist with a variety of property matters. If you have any questions arising out of the issues raised in this article, please feel free to get in touch. You can contact Paul Owens – paulowens@parryfield.com or Luke Hayward – lukehayward@parryfield.com, ring us on (03) 348 8480 or pop in to one of our offices.

Used by permission, Copyright of NZ Law Limited, 2017

If you’ve ever wondered what the Personal Property Securities Register (“PPSR”) is, and what the benefits of registering security interests are, this article sets out the basics that you should know.

What is it?

The PPSR, which was established as a result of the Personal Properties Security Act 1999, is a New Zealand government website that registers information about security interests over personal property (other than land). This information can be recorded, altered and searched through the PPSR website.

Why do I need to know about it?

It is particularly important to be aware of the PPSR if you are giving a loan and want to be able to recover the debt if the debtor ever defaults. Utilising the PPSR and registering a security interest will give you a far better chance of recovering that debt.

You can also search the PPSR when you are purchasing a car to check if any security interests have been registered against, it to avoid any nasty surprises!

Example:

Jane, who owns Apple Construction Ltd., is selling a piece of equipment worth $5,000.00 with payment due in monthly instalments over a 2 year period. 6 months in to the 2 year period, the purchaser stops making payments altogether, and Jane wishes to recover the debts by repossessing the equipment.

Because Jane had not registered a financing statement on the PPSR, she is an unsecured creditor. This means that if there are secured creditors also seeking to recover debt, they will be given a higher priority over Jane. If Jane had registered a financing statement, she would be given a higher priority and would therefore be more likely to be able to recover the debt.

How do I register a security interest?

To register a security interest you will need to sign up as a user on the PPSR website – full instructions on registering an account are available on the website. You will then need to register the Secured Party Group.
Once you have registered as a user and have set up the Secured Party Group, you will be able to register a financing statement which records the security interest. To do this, you will need to supply: an expiry date, the debtor’s details, collateral details and the Secured Party Group details.

Your contract with the customer needs to have a clause allowing the security interest to be registered. We can help with that and provide other input on contracts to keep you safe.

For further information:

If you have any questions in relation to PPSR, registering or searching for security interests, please feel free to get in touch with Steven Moe at stevenmoe@parryfield.com or on 03 348 8480. We have teams in Riccarton, Rolleston and Hokitika who would be happy to assist you.

New Extension of the Bright Line Test

In October 2015 the Government introduced the ‘Bright Line Test.’ The purpose of this test was to tax people on any “capital gains” made from the sale of residential land when that sale occurred within two years of the party acquiring the land and when an exemption to the tax did not apply.

Recently, a rather significant amendment has been made to this test that may affect you if you acquire property after 29 March 2018. Below we discuss this change and note the keys points that you should be aware of.

The Amendment

The timeframe under the Bright Line Test has now been extended from 2 years to 5 years.

Application of the Bright Line Test Moving Forward

Application of the Bright Line Test is now as follows:

If you acquired your property prior to 1 October 2015, the Bright Line Test will not apply (this position has remained unchanged);
If you acquired your property from 1 October 2015 to 28 March 2018 (both days inclusive) the original 2 year timeframe under the Bright Line Test will continue to apply;
Any property acquired from 29 March 2018 will now be subject to the 5 year timeframe under the Bright Line Test.

The date you acquired the property is typically the date that you entered into an Agreement for Sale and Purchase to purchase the property (although this position can vary).

Residential Land Withholding Tax

Residential land withholding tax criteria has now also changed for offshore RLWT persons to align with the change to the Bright Line Test. For property acquired from 29 March 2018 onwards, tax will be withheld by the solicitor/conveyancer for an offshore RLWT person and forwarded to the IRD on the sale of residential property sold within 5 years of its acquisition (if an exemption does not apply).

Does the bright-line test apply to all residential property?

All residential property is subject to the Bright Line Test however, the original exemptions to the Bright Line Test continue to apply. Primarily if the land was used as your main home, was transferred to you as part of an inheritance or was transferred to you as an executor or administrator of an estate. In all other situations, you will need to look to the test to determine whether you are obligated to pay tax.

If you have any concerns or questions regarding the Bright Line Test and RLWT, and how it applies to your situation, we have teams based in Riccarton, Hokitika and Rolleston who would be happy to assist. Please feel free to contact us to discuss further..

Contacts:

Paul Owens – paulowens@parryfield.com

Luke Hayward – lukehayward@parryfield.com

Judith Bullin – judithbullin@parryfield.com

New changes to the Overseas Investment Act (OIA) will be enforced later in the year restricting non-resident foreign buyers from purchasing existing homes in New Zealand in an effort to make housing cheaper for New Zealanders. These changes mean that all land considered “residential” or “lifestyle” will be deemed “sensitive land” and will be more difficult for overseas investors to purchase. The anticipation of these changes has raised some concerns and confusion for those hoping to purchase property in New Zealand.

This article aims to address some of these concerns, and clarify the confusion.

What are these upcoming changes?

The government is “tightening” the overseas investment regime by broadening the scope of “sensitive land” to include residential land, which will primarily be available only to New Zealand and Australian Citizens (and permanent residents who meet the criteria – more on this below). This will make it more difficult for overseas investors to purchase property in New Zealand as they will be subject to consent from the Overseas Investment Office (OIO). The consent/screening will require that the investors are committed to staying in New Zealand. If they obtain consent and subsequently breach the regime, the investors may be required to take certain actions such as selling their property within 12 months of the “trigger event”. The definition of a trigger event will be provided in a regulation in the act.

Along with this major change, stricter rules are likely to apply to the purchase of farm land or forestry by overseas investors.

NB: “Sensitive land” is land that cannot be purchased by overseas investors unless they obtain consent from the Overseas Investment Office.

Criteria for permanent residents:

A permanent resident may be classed with New Zealand and Australian citizens and therefore not need to obtain consent from the OIO where they have been residing in New Zealand for at least 12 months and have been present in New Zealand for at least 183 days. If they don’t meet these requirements, then they will be placed in the same class as residents for the purposes of purchase of sensitive land and will be subject to the same consent/screening criteria (showing that they are committed to residing in New Zealand).

Example:

Frank and Jill are planning to move to New Zealand from overseas and want to get in the property market over here. They are concerned that these upcoming changes to overseas investment in New Zealand will prevent them from doing so, so they want to buy property in New Zealand before it is too late. Frank and Jill are wondering whether it would be best for them to quickly buy an average house to ensure that they are in the property market before these new changes come into force.

Should Frank and Jill quickly buy property in order to get in the market?

At this stage, it is unclear when these changes will actually come into force. This poses a difficulty in determining when will be too late to purchase property before the new requirements are imposed. It is certainly a possibility that Frank and Jill could buy an average house in the meantime to simply get on the property market, and it is advisable that they do purchase property before the changes do come into force if they wish to avoid the screening criteria. If they enter into a sale and purchase agreement now, they will not be subject to the criteria when the changes do kick in.

That being said, purchasing an average property as a way of getting in the market would not give Frank and Jill a free pass to then on-sell and buy a new house later down the track. They would still be subject to the screening tests once they are enforced – that is, until they either meet the permanent resident requirements noted above, or until they become a New Zealand citizen.

Other options available to Frank and Jill:

Another option is that Frank and Jill rent a house until they have satisfied the permanent resident criteria, and then purchase a house at that stage. They will need to ensure that they have met the 12 month/183 days residing in New Zealand requirements in order to qualify by this means.

It is important to note that these changes do not by any means mean that Frank and Jill will not be able to purchase property in New Zealand; it simply means that they must get consent in order to purchase unless they meet the residency requirements.

What about agricultural/farm land and forestry?

As mentioned above, stricter requirements are also likely to apply to the purchase of farm land and forestry. If an overseas person is seeking to invest in farm land, questions in relation to jobs, new technology, increased exports, increased processing of primary and oversight and participation by New Zealanders. An overseas person investing in forestry land may be subject to certain conditions such as entering into agreements with locals.

For a more general article on the changes to OIO rules, see our article here.

If you have any further questions regarding these upcoming changes, please feel free to get in touch with us. We have teams in our Riccarton, Hokitika and Rolleston branches who would be happy to help you.

Kris Morrison – krismorrison@parryfield.com

Paul Owens – paulowens@parryfield.com

Steven Moe – stevenmoe@parryfield.com

When looking to purchase a house, you may note that some properties are marketed as “cross leases”. This article seeks to clarify what cross leases are, and what you need to look out for should you purchase one.

Cross leases were originally created as a convenient and cheaper alternative to a fee simple subdivision. As they are now included under the definition of subdivisions, cross leases are becoming a less desirable form of ownership. It is important to understand exactly how they operate, as they involve greater obligations than a fee simple title.

Fee Simple vs. Cross Lease

A “fee simple” title grants you the most freedom and access. It bestows the full, permanent and absolute occupancy (tenure) in the land and will last indefinitely (subject to the rights of the Crown in some instances).

A cross lease property still involves an underlying fee simple title; however each cross lease owner owns only a share in the overall property. In addition, each owner leases individual flats from all the fee simple owners. The lease term will typically be limited to 999 years. The Certificate of Title will include a Flat Plan, which highlights the area of each flat, the common areas (such as a shared driveway) and restricted areas that each owner has private use of, such as a garden.

Example

Alex, Bradley and Charlotte own three cross-leased properties: Flat A, Flat B and Flat C, on 1 Example Street. As a group, they collectively own the land, with no exclusive ownership of any specific part of the land. Instead, they each hold a one-third “undivided” share in the fee simple estate.

As a group, Alex, Bradley and Charlotte lease the flats to themselves individually. So Flat A is leased to Alex, Flat B to Bradley and Flat C to Charlotte. Their leases (which are registered on the title), provide exclusive use and enjoyment of the flats for each owner.

Should Alex wish to sell Flat A, he will be selling his 1/3 interest in the underlying fee simple title and his interest in the Flat A lease.

Tips on things to look out for:

Cross lease covenants: These are contained in the lease and each flat owner must comply with them. Examples of covenants include:
- Not altering or improving the leased structures without written consent from all other flat owners;
- Having a comprehensive insurance policy in place; and
- Allowing the inspection of each other’s flats to ensure compliance with the covenants.

In our experience, many cross lease owners simply ignore their obligations, which can cause issues down the track, most commonly when you come to sell the property.

A title condition in the Agreement for Sale and Purchase: This allows your lawyer to look over the title and related documents to ensure they are accurate and check for any issues.
How will the common areas be maintained? Before buying the property, it is important you are clear on expectations in relation to “shared” areas. How different insurance policies might respond to these areas, such as driveways, is also relevant.
Explore the relationship with the neighbours: As you will need their consent for alterations, it will be important to maintain a positive relationship with the other cross lease owners. Though be aware that the vendors may not want to disclose anything adverse given their desire to sell, hence you may need to carry out your own enquiries where possible.
Be careful to check that the actual property matches the Flat Plan: If any physical improvements or alterations have not been included on the flat plan, the title will, strictly speaking, be defective. This could affect whether you have leasehold title to the common or restricted areas, or to certain improvements. To remedy this, you will need to obtain the consent from the other owners, and have the flat plans amended. This can be time consuming and costly, so ideally you would require the vendor to sort this before you purchase the property. Indeed, in some instances the costs involved may mean it is prudent to explore converting the cross lease ownership to a fee simple one – the greater “freedom” of the latter might even result in the property increasing in value, which could offset any costs.

Cross leases can be complicated. If you are considering purchasing a cross lease property, it is essential that you obtain legal advice. Likewise, if you are thinking of selling your cross lease, you should also discuss your options with your lawyer before you take the property to market.

This article is not a substitute for legal advice and you should talk to a lawyer about your specific situation. Please contact Tim Rankin at Parry Field Lawyers (348-8480) timrankin@parryfield.com