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As part of our service at Harris Tate, we produce a range of legal articles that are published in various media, designed to alert our clients to legal developments that may affect them.

Our legal articles are written by lawyers and legal executives and discuss legal aspects relating to industries, businesses and individuals as well as focusing on everyday legal topics of interest.  These articles provide information to help educate our clients on different topics and current events in the law.  They may raise additional questions.  Please do not hesitate to contact us with your questions or to discuss your individual situation in more detail.

The hidden costs of buying investment property

1 January 2016

Purchasing a home, or a rental property for that matter, can often be one of the biggest decisions and investments you'll ever make.

Sadly, this comes with some extra costs that can often surprise investors. Cross leases, valuations, LIM reports, builders reports, drug test reports and rates are all hidden costs needing to be addressed by a prudent purchaser before a ‘sold’ sign can go on the property.

So, it’s a good idea to budget for these ahead of time.

Body Corporates: A Body Corporate relates to a unit title scheme and consists of all the owners of the units acting as a collective to organise and maintain all buildings and other improvements including keeping the common property in a good state of repair.

The Body Corporate has rules and duties which are based on the Unit Titles Act 2010 but can vary with each body corporate.

Often a Body Corporate will have a paid for Body Corporate Secretary. The extra cost of which needs to be factored in as an ongoing cost.

Building Report: A building report is highly recommended as it pays to know about the condition of the house. But you need to ensure you use a reputable company who use a licenced building practitioner as a poor-quality inspection report can be just as costly as not obtaining one at all.

You should also check with your bank first as the banks sometimes require specific inspectors to carry out building reports especially if they could have “weathertight” issues.

Cross leases: Cross-leasing was one of the most common ways that a property could be subdivided when the property did not meet the minimum area required for a fee simple subdivision.

New cross-leases are now rare.

Cross lease title is ownership of a share in the land, and the specific use of an area of the land which is called an “exclusive use area”. This is recorded in the lease registered over the title. Some older forms of cross lease had no exclusive use area defined.

When purchasing a cross lease title, in addition to checking the lease itself you need to check the flats plan attached to the certificate of title to ensure there have been no alterations or additions that are not shown on the flats plan. If there have been additions or alterations the title is “defective” and could be costly to rectify.

Covenants: The most common covenant in modern subdivisions is a Land Covenant which is registered by a person who undertook the subdivision to ensure that any buildings on the property meet a certain standard. It can dictate the type of house that can be built, the size of house and even the materials to be used. It can also restrict the use of the dwelling, for example you may not be able to run your business from home.

Legal Fees: A lawyer is an integral member of your team to help get your home purchase across the line. They can go through your Sale and Purchase Agreement, the single most important document in the whole transaction, before you finalise it, ensuring you have watertight clauses to protect your needs. It pays to do this, rather than giving it to your lawyer after signing - when it is often too late to rectify any issues.

LIM Report: A Land Information Memorandum, LIM for short, is a record of information held by your local council on a property. When buying a property, a LIM may answer some important questions about the property, as well as including standard information such as rates details and building consents that have issued. It will also bring to your attention any building consents that have not received a final inspection. It also contains details about soil types, flood risk and any resource consents that have issued for surrounding properties that may affect the property you are purchasing. The LIM only shows what council has a record of, not what it doesn’t.

Lenders Mortgage Insurance (LMI): Is a one-off insurance premium paid by a lender to an insurance company on low equity loans. If you are borrowing more than 80% you will often have to pay LMI premiums, which are usually added to the loan. This is insurance that covers the risk the lender takes when they lend to someone whose deposit is less than 20%.

Methamphetamine Test: Sadly, it is a reality that there are properties affected by methamphetamine, or P, in New Zealand. Unlike a leaky home, or where there is asbestos, sometimes a coat of paint can hide any traces of methamphetamine. With the possibility of creating health issues for those living in an affected house, it is well worth the cost of a test to be certain your new house is free from the effect of this harmful drug.

Rates: Rates are an ongoing charge of home ownership, and are set by  local and regional councils.

Valuations: You may need or wish to consider obtaining  an independent valuation of the property. Based on the market value of a property at a particular point in time, a valuation will give you certainty about the price you are paying for a property. If you are obtaining a mortgage, your bank may require you to get a valuation before  approving finance.

42-day notices: Once purchased, as owner of the rental property you must give 90 days written notice in a periodic tenancy to terminate the tenancy. However, 42 days notice can be given when: you have sold the house and the buyer wants the house empty; the house is
needed for a member of your family; or used as employee accommodation and is needed again for that purpose. Your notice must state which of the above circumstances the reason for giving the notice is. This reason must be genuine. If not, a tenant can challenge the notice through the Tenancy Tribunal.

When it comes to buying rental or other property, fully understanding and having a team that understands your goals and is supportive in seeing you achieve them is an important part of the process.

- Brierley Conquer
Senior Registered Legal Executive at Harris Tate Limited
P +64 07 578 0059

Disclaimer: This article is general in nature and should not be treated as professional advice.  It is recommended that you consult your advisor.  No liability is assumed by Harris Tate Limited for any losses suffered by any person relying directly or indirectly upon the article above.

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