Pre-auction legal checks

by | Nov 11, 2011 | General property Law, Sale and Purchase

In an auction you generally accept the vendor’s title, warts and all.  In a recent contract I reviewed that meant there were obligations imposed on the purchaser to pay to have stormwater and sewerage systems inspected annually and covenants limiting what colour the house could be painted.  There are all sorts of things that might be on the title that an informed purchaser should know about.  The purchaser would have found out about later if they had not checked the title first.  The inspection costs they were up for were about $2,500 per annum, the painting less of an issue as they were happy with the limits imposed.

LIM reports are now commonly provided as part of the auction pack by the agent.  These tell you all sorts of things about the property.  They don’t tell you what is happening next door though.  If you want to know about that Auckland City (the old city limits only unfortunately) have a report you can order.  Sometimes going behind the LIM to what is on the property file is more useful too – for example you then see the plans that those building consents relate to and can work out if the bathroom is still actually in the same place.

There is much greater use of the standard form auction contract produced by ADLS/REINZ since they updated it earlier this year.  However some agents are still using their own form.  They look similar so it can be hard to tell.  All that small print is critical as to what happens if something goes wrong.  And sometimes things will.  Over the last month some examples have been:

  • a vendor not having a code compliance certificate by the settlement date
  • a vendor trying to recover from a purchaser a special body corporate levy they had paid in advance of settlement
  • a purchaser refusing to settle because of a misrepresentation

The contract is the first thing we look at to answer these issues and to decide where the cost falls – because that is usually what it comes down to.

Our pre-auction legal check is proving popular.  One purchaser I know is on to his fourth report.  He likes that we do it within 24 hours as he does not always know until the last minute whether he will bid at the auction.  He likes that the information is presented clearly and he has one simple report that tells him what he needs to know.  He also likes the fact that the cost of the report is deducted off his normal conveyancing fee for the purchase when he is successful, so he does not pay twice.  See Buying by Auction or Tender for more information.

By <a href="" target="_self">Denise Marsden</a>

By Denise Marsden