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What goes on in a property transaction?
During their lifetime, many Kiwis will buy and sell some property. Property transactions are not simple and nor should they be. The importance and value of a property transaction alone necessitates a degree of complexity and care.
However, the transaction and how it is completed is not well understood by the general public. Therefore, it may be useful for property owners and potential property owners to consider what the lawyers do in the background to refinance or complete a sale or purchase.
A lawyer in a standard property transaction is the key point of contact for several parties to the transaction. The lawyers (for both sides of a sale) are the “keepers” and the enforcer of the contract, the negotiator and the adviser.
Consequently, a lawyer manages the transaction by communicating with the key participants in the transaction. This includes banks/lenders, Kiwi Saver scheme and fund managers, real estate agents, Government agencies, local authorities, mortgage and insurance brokers, tenants, property managers, body corporate managers, valuers, surveyors, engineers and builders.
Behind the scenes, the lawyer obtains and collates all of the information received by the various participants to the transaction and, if required, informs the client of the critical points in each report, agreement or offer.
The key to the role of the informer is to keep all participants, but crucially the client informed of key dates and deadlines in the transaction. Missing a date or deadline can have significant financial and practical implications.
A lawyer will advise the client on legal and other issues that arise in the transaction. Advice may include raising issues with the legal elements of the title to the land, problems with a Land Information Memorandum (LIM), assisting the client to exit an agreement or providing options for handling problems on the day of settlement.
In certain circumstances, the lawyer may also be asked to give advice on structures for ownership of the property, relationship property considerations and complexities around family trusts, guarantees, gifting and insurance.
Custodian and transactor
A lawyer must communicate with and meet the requirements of banks and other lenders. For instance, the lawyer must give certain assurances to lenders before they will advance money to complete the transaction. To give these assurances, the lawyer must investigate that there is compliance with the lender’s instructions and various laws.
If this investigation is incomplete and the bank or lender is uncomfortable, the funds will not be advanced. Even when funds are advanced, in most cases they will only be advanced to the lawyer, as custodian, to use in buying the property.
The lawyer must ensure that the legal title to the property, the physical ownership of the property and the funds themselves change hands in such a way that the parties are protected. This process of settlement is carefully staged so that the funds, securities (such as mortgages) and the property change hands concurrently.
Once the lawyer has the necessary funds to complete the transaction or has received those funds following a sale, the lawyer is required to pay those funds to the correct person. This might be the other lawyer, the bank or lender, secured parties, real estate agents or the client themselves.
Hopefully, after the lawyer plays its part, a buyer gets the land, the seller gets some money, the bank gets a mortgage and all other participants in the transaction get what they need without a hitch.
If you want to know more about property transactions call us today on 04 5666 777 to talk to one of our property solicitors. We can help you with all aspects of buying and selling residential and commercial property.
The legal results of a market decline
When a market is in relatively good health, there is a good chance that economists will be predicting a future decline. In light of the current press on New Zealand’s economy, this article explores some things that can happen, in a legal sense, during a market decline.
A person (including corporate persons and trusts) that is insolvent, put simply, is a person that cannot pay debts as they fall due. The implications of insolvency depend on whether that person is an individual, a company, a trust or another type of entity. However, in all cases, the risks to that person’s property/assets are much the same.
Creditors (parties to whom the insolvent person owes money) have certain rights that crystallise upon the person’s insolvency, including:
- A right to place the person, if an individual, into bankruptcy
- A right to place the person, if a company into receivership or liquidation
- A right to seek the return of sums paid by the person to other creditors or third parties back to that person to pay the debt (or a portion of it).
The person that is insolvent is able to take steps to delay or stop the above (and other steps) by creditors and it falls to the Courts to make orders so the above steps are carried out. However, in a market decline where capital to defend claims by creditors may be scarce it is often difficult for a person that is being pursued by creditors to stave off the inevitable.
If a natural person is adjudicated bankrupt, their assets are placed under the control of the Official Assignee. The Official Assignee is then able to use those assets to pay that person’s debts. The insolvent person is restricted from certain activities and roles and the effects of the bankruptcy survive until the insolvent person applies for a discharge from bankruptcy.
In certain circumstances, sums that may have been paid or gifted by the insolvent person to creditors, related parties or third parties may be clawed back by the Official Assignee to be added to the pool of assets available to satisfy the debt.
Where the insolvent person has no realisable assets and the debts are less than $47,000, the Official Assignee may take a step short of placing the person into bankruptcy. The process involves using the “no asset procedure” in the Insolvency Act 2006 which allows the person to resolve their short-term credit problems.
Receivership is a process in which the assets of the insolvent company are placed under the control of a receiver. The receiver then uses the assets of that company and the income that continues to be derived from the company’s business, to pay the debts and attempts to negotiate terms with the creditors so the company may trade out of insolvency. If the receivership is successful, an application may be made to the Court to remove the company from receivership. If the receivership is unsuccessful, the company may be placed into liquidation.
In liquidation, the assets of the company are sold to pay debts and the company is eventually removed from the company register.
A company may, before receivership or liquidation is triggered, place itself into voluntary administration to hopefully improve the outcome of the insolvency to the company and its creditors. However, the process is complicated and still requires an administrator to be appointed and relies on the creditors’ cooperation. Advice should be taken before taking steps to enter voluntary administration.
If the insolvent person owes money to a landlord they are obligated to pay rent to, the landlord may (in addition to pursuing the debt):
- In a commercial tenancy (for instance office or warehouse space) seek an order from the Court to lock the tenant out of the premises and require the tenant to remove its property.
- In a residential tenancy, apply to the Tenancy Tribunal to terminate the tenancy.
Both parties should take specialist advice on eviction and termination.
Mortgagee sales are a common occurrence in a market decline. When entering into a mortgage with a lender, the borrower agrees that the holder of the mortgage security may sell the property to pay off the loan if the borrower is unable to pay the interest and or principal.
Similar rights accrue to holders of other securities such as those that might apply to cars and other personal assets.
Anyone experiencing credit problems or finding it difficult to pay debts as they fall due should seek immediate advice. Early intervention is possible so call us today and speak to our Personal Planning and Business Solutions team. They will help you.
Challenging the terms of a Will
In some circumstances, the provisions of a Will can be challenged, although there are strict timeframes that can only be extended in limited circumstances. Consequently, it is important that you speak with your lawyer as soon as possible if you have any concerns with the provisions of a Will.
While some people may feel uncomfortable with challenging a Will, it is important to remember many people do not keep their Wills up-to-date. It is not uncommon to find an older Will which has led to unintended consequences. For example, an out-of-date Will might not properly provide for someone who had recently become important in the Will-maker’s life or a gift in a Will might fail because the property was sold not long after the Will was signed.
Some of the ways a Will can be challenged are summarised below.
Capacity and undue influence
The Will-maker must have had sufficient mental capacity to make a Will and it must reflect his or her wishes. If the Will-maker did not understand what they were doing, did not have sufficient mental capacity to deal with their estate or were pressured to enter into or change their Will, the court may be able to set aside the Will.
Family Protection Act
The Family Protection Act allows certain family members to make a claim against the deceased’s estate if they believe that there should have been further provision made for them by virtue of their relationship with the Will-maker.
The Property (Relationships) Act allows the spouse or partner of the deceased to make a choice – they can either take under the Will, or they can choose to divide the estate in accordance with the Act.
Dividing the estate means the spouse or partner will renounce all benefits they would otherwise have received under the Will, and instead, that part of the estate that was relationship property will be divided in a similar way as if the relationship had ended prior to death.
Claims under the Law Reform (Testamentary Promises) are less common. If work or services were provided to the deceased and the deceased in return promised they would reward that work or service with a gift in their Will and did not do so, this Act allows that promise to be enforced.
Challenging a Will is not necessarily about usurping what was intended. In some circumstances, it can be about giving effect to what the Will-maker would have wanted but did not provide.
Please call us. This issue emphasises the importance of regularly reviewing your Will. Discuss it with one of our lawyers today to ensure that your Will always accurately reflects your wishes.
‘Click Agree’ Agreements
Do you have Facebook or a smart phone or have you bought goods or services online? If so, then you have likely entered into an enforceable contract—all with the simple click of your mouse or swipe of your finger.
The past decade has posed enormous changes to consumerism including the way we trade and carry out our business online—even more so with the advent of smartphones, online shopping and social media. Consumers must ensure their understanding of the content and enforceability of ‘Click Agreements.’
Click Agreements include warranties, exclusions and disclaimers of liability, intellectual property ownership, and the relevant governing law.
The enforceability of Click Agreements is yet to be tested in New Zealand courts. However, it has been established and widely accepted overseas that the traditional principles of contract law apply and if ever tested here, the outcome will likely be the same.
Critically, there must be an express record of acceptance by the consumer as part of the transaction process, hence the requirement to ‘click agree’.