New Zealand: The Basics: buying or selling a house in Canterbury - post-earthquake property transactions

Buying or selling a home can be a confusing process at the best of times but doing so in Canterbury brings with it a whole set of issues.

Of course, there's the usual things any purchaser will need to check out with a house purchase anywhere: title to the property (including easements and land covenants), a Council land information memorandum (LIM), a building report to identify maintenance and building code issues, and a specific weather tightness report for properties built since 1990 to check the property isn't affected by the leaky homes syndrome.

The agreement for sale and purchase should contain conditions covering all of these things and allow 10 to 15 working days for the necessary due diligence. Most buyers will also need conditions covering arranging finance and possibly the sale of an existing property. And in the case of a section, the buyer may want the sale to be conditional on getting a satisfactory building contract in place.

But in Canterbury, earthquake related issues affecting properties further complicate matters. While the fineprint of the standard agreement deals with most issues, it is not so helpful in dealing with earthquake damage and special conditions need to be added. You don't have to delay making an offer until your enquiries are satisfied because you can walk away if you are not happy with a condition. What exactly is required in your agreement depends entirely on the property. Your lawyer will be able to advise you.

Due diligence on earthquake damage
The fundamental question is, has the property been damaged by the earthquakes? If it has, you need due diligence done on that damage.

Has the damage been fixed? If not, has the vendor made EQC and insurance claims? Most earthquake damage hasn't been fixed yet, and so if you want it fixed by EQC or the vendor's insurer, you need to have the vendor's EQC and insurance claims assigned (i.e. transferred) to you as part of the deal. Conditions that deal with assignment of earthquake related claims are commonplace in contracts for the sale of Canterbury properties and provide for a Deed of Assignment. This will transfer the benefit of the EQC and insurance claims from the seller to the buyer, to be completed on settlement.

There is no such thing, though, as a "standard" clause for the assignment of claims. You'll need to be sure you understand the nature of any insurance claims so that when you consult a lawyer, they can advise whether the provisions of the assignment are suitable before you sign the contract.

If there is earthquake damage, the next key question is how much will it cost to fix the damage? You may need to engage your own professionals to assess this in borderline cases. If it is under $15,000 including GST, then EQC is likely to pay out the cost of repair in cash, and may already have done so. The parties need to agree who is entitled to this cash payment and that needs to be factored in the purchase price. More importantly, if the cost of repair is over the EQC "cap" of $115,000 including GST, then the vendor's insurer will be responsible to deal with the claim and may not allow that claim being assigned to the buyer with all of the benefits that the original owner had. Extreme care is needed with these cases.

No public register
However, more and more houses are being offered for sale where the earthquake damage has been fixed or the EQC and insurance claims cash-settled. These properties have their own issues. There is no public register of EQC or insurance claims and settlements, and so it is impossible to know exactly what settlement may have been reached. In some cases where cash settlements have been taken, the house may only have had cosmetic repairs or no repairs at all. Where repairs have been completed, you need to be satisfied that they have been done properly and that you will be entitled to the benefit of any guarantees or warranties offered by the builder. The key is doing due diligence on the settlement and asking the vendor for the right information.

You also need to consider whether there are any "out of scope" claims with the private insurer affecting the property and whether there are any potential claims relating to damage to the land. Think about a geotechnical report where you have concerns about the suitability of the land. Assuming the property is in the Green Zone, check what technical category it is (easily done on www.landcheck.org.nz). Getting finance is more challenging when buying a property on TC3 land and there can be more hoops to jump through.

Insurance is now more freely available in the residential market than it was immediately after the earthquake, but it is still not a given, especially with properties that have been cash-settled and where repairs have not been properly completed. Without insurance it will be impossible to secure bank finance for the purchase.

You should also bear in mind that the sale of properties by tender or auction have the terms of the contract fixed by the seller so that you may not have an opportunity to change the contract. In these cases, satisfy all of your requirements before bidding.

You can still buy that property you love, but remember that good advice and due diligence go a long way in the property process in Canterbury.

SIDEBAR/PANEL

What to think about when buying a property in Canterbury:

  • Have you got all the conditions you need to cover the usual stuff e.g. title, LIM, building report, weathertightness report, valuation, finance, sale of another property?
  • Has the property been damaged by the Canterbury earthquakes?
  • If so, has it been fixed? If it has been fixed, have the repairs been done properly and will you get the benefit of building warranties and guarantees?
  • If not, has the vendor made the appropriate EQC and insurance claims? Does the contract provide for the claims to be transferred to you on settlement?
  • Are the repairs to the property likely to be over the EQC cap? If they are over, will you be able to take over the full benefit under the insurance claim?
  • Check whether there are any out of scope claims (e.g. pathways and drives) that need to be transferred.
  • What about land damage? What Technical Category is the land in? Do you need to get a geotechnical report?
  • Can you get insurance?

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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