Be prepared for plenty of ‘leg-work’

Press, 30 August 1978, Page 23

Be prepared for plenty of ‘leg-work’

At first sight the “conveyancing” of a property is a piece of cake. But there is more to it than meets the eye.

The documentary work is a matter of only a few minutes. What takes the time is the leg work in “searching” the title and finding out all about the property — work which a solicitor usually leaves to the legs of his clerk. The first step is to discover the legal description of the property. These legal particulars, giving the area, the block number of the survey district, the lot number on the deposited plan, and the title number, can be obtained by asking at the Land Registry Office. They will give you a photo-copy of the title, and this is where your “search” starts. You need to know whether the property is in fact owned by the vendor and whether there are any “encumbrances” which would affect your use of the property if you bought it.

If the land is in a new subdivision, you would expect to find a fencing covenant preventing the purchaser from recovering the cost of any boundary fencing from the subdivider. In such cases the purchaser would wait until adjoining sections in the subdivision are also sold

so that he can split the fencing cost with his neighbours. Easements will also be noted on the title. These will show where someone else has the right to run drains, sewers, even power pylons, across the property. They will affect the available building area, and if there are too many — as on some hill sections for example — the remaining available area might be very small indeed. Rights-of-way, giving others access across the property, will also be noted on the title. Some Drainage Board easements may not be shown, particularly if the drains have been there for a very long time. That is why it is important to visit the Drainage Board and ask them to look at their map of piping in the area. All previous dealings affecting the property will be indicated by transfer numbers. You can look up the details, which will include the previous purchase prices. If the property is already mortgaged, that too will be indicated on the title by a number and the details can be obtained at the Land Registry Office. Such facts as the price the present owner paid for the property, and the size of his mortgage, help the

prospective purchaser to decide how much he should offer. If there is a mortgage on the property, it is the vendor’s responsibility to clear it off. The purchaser must get a mortgage document from him showing that the mortgage has been cleared. Restrictive covenants will also be shown. A hill section, for example, might be subject to a building height restriction imposed by the subdivider to prevent a new owner from putting up a house which would obstruct the view from the subdivider’s own house. Other restrictive covenants might require a buyer to have his house designed by an architect — perhaps by a particular architect. Less likely, but still possible, is a lien registered against the property. A contractor who is owed money by the present owner can register a charge which is enfor* ceable against the land. One trap for do-itsyour-selfers (it’s been known to catch solicitors too) is the delay between transfers of titles and the noting of such dealings on the certificate of title. This delay could be a couple of weeks. In the meantime, the dealings are noted in the Land Transfer Office’s daily journal. The prudent purchaser

would ask to see the daily journal twice — the day he makes his offer and the day of settlement. It will show any new mortgage or caveat registered against the title. Once the title has been searched and as much as possible learned about the property, the prospective buyer should go to the Drainage Board to inquire about any easements. He should then go to the Valuation Department to check on the Government Valuation — a prudent course even if the vendor has produced a valuation certificate. Town planning restrictions might also affect the use of the property. For example, if it is a section on which you propose to build flats, it would be necessary to call at the engineers’ department of your local council and check the zoning requirements of the district town planning scheme. Also check with the council to see that there are no arrears of rates. The council can put a charge on the land which has a similar effect to a mortgage. The new owner would have to pay it off, or the land could be sold by the council to recover the money. Some parts of Christchurch are troubled with peat, or are prone to flooding, and the local authority imposes special

building requirements. Ask about these possibilities with the local authority. Check, too, to see that there are no plans to lop off part of the section for a future motorway. If there is a house on the land, get in touch with the present owner’s insurance company and arrange for the cover to be transferred to you. As soon as you sign an agreement to purchase, the land and house become at your risk. If the house burns down after you have agreed to buy, but before the title has been transferred to you, you still have to complete the purchase at the agreed price. If you have not arranged for insurance cover, you will suffer the loss. The vendor will not get the insurance money, because it will be you and not he who has suffered loss. On no account put in an offer before you have checked everything out. Lawyers say that the worst thing you can do is to go to them and say: “I have just signed an offer for this property, would you please go and check it over?” Once you have learned everything possible about the property and anything that might "affect your use of it, make an offer in writing to the owner. Specify on the offer the date for settlement of the

transaction and the date of possession — probably the same day. It is usual to state as a condition that all outgoings will be apportionable on that date. The vendor usually pays the rates and insurance, and the buyer pays the other expenses of the transaction. If you need to borrow some of the purchase price, it is usual to make the offer conditional on being able to raise the necessary mortgage money within a certain period — say a month. The vendor will reply, either accepting your offer and its terms, or making a counter-offer. Once an offer is accepted and there is to be a longish interval before settlement of the transaction, the purchaser can lodge a caveat against the title, preventing any further dealings in the property in the meantime. Without such a caveat, the vendor could sell at a better price to someone else who could register his title, and all the first purchaser could do then would be to sue for damages. He would have lost the property. The caveat form is lodged with the Land Transfer Office. Caveats are not considered necessary where there is a normal interval between signing the contract and settle-

ment of the transaction. All the documents — the memorandum of transfer, mortgage, lease, and caveat forms — can be bought from the Land Registry Office for 50c each. The main document in the transaction is the memorandum of transfer. This is a single-page document set out in the approved legal language with gaps in which you enter the details of your transaction. You then send it to the vendor to sign. He will give you a statement of how much money to pay — the purchase price, less your deposit, plus your share of the year’s rates and insurance. Check his arithmetic, pay him the money, and get a receipt, and the signed memorandum of transfer, and the certificate of title. Vendors will usually insist on payment being made by bank cheque — an unbounceab’e cheque drawn on the bank’s own funds. Stamp duty must be paid to the inland Revenue Department at the rate of 1 per cent of the sale price — except that if it is the buyer’s first home, the stamp duty is just $l, and if it is the first conveyance of a new house, the stamp duty is charged on the value of the land only.

When the duty is paid, the memorandum of transfer is stamped by the department. It can then be taken to the Land Transfer Office and registered. Take the certificate of title along, too. The transfer will be noted on it and it will be returned to you. A cardinal rule in buying — or selling — property is that money and possession go together. Do not pay before you get possession, and if you are the vendor, do not let the buyer in until he pays up. It may be hard to get him out. If you are selling a property, do not overlook the Property Speculation Tax. This is imposed on the profit you make. It starts at 90 per cent of the profit on a sale made within six months of purchase, reducing by 5 per cent for each subsequent three months up to two years. In the last three months of the two-year period, the tax is 60 per cent of the profit. If the property was bought more than two years ago, tax is not payable. Nor is it payable if it is your own residence and you have a good reason for selling within two years of purchase. A Property Speculation Tax Certificate has to be obtained from the Inland Revenue Department within two months of every transfer of land.