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As a result, we as lawyers are seeing many "panicked buyers" entering contracts without doing their homework - in lawyer’s talk, their "due diligence". It is a timely reminder to always check the detail of a property by doing your due diligence for all purchases, including residential property and commercial or land you are looking to develop.
I set out just some of the due diligence matters you should think about prior to purchase.
Due diligence for residential properties can include formal reports you can request from professionals such as builders, plumbers, electricians and engineers, as well as rental appraisals from property management companies if you are looking at renting the property out.
Look at ordering a Land Information Memorandum (LIM), which is a copy of the information the council holds on the property. While some vendors will provide a LIM report with the property information, best practice is to purchase a LIM in your name to ensure you have a claim against a council in the future for errors on the LIM.
Have your lawyer review the title for the property, the LIM, as well as any body corporate or resident association rules if applicable. You or your lawyer can also review the property file at your local council. Some councils, such as QLDC, also have information relating to properties online.
It can be helpful to compare photos of the property with the plans on the council file to see if any changes have been made without appropriate consents. Get your pre-approval for finance in place and speak to the bank or your broker as well as your insurer regarding other conditions needed prior to entering a contract.
Some situations will require more information for older property, such as electrical compliance certificates. You might also need a registered valuation or contamination testing where relevant.
Don’t forget to do your own basic research on a property, such as talking to neighbours or driving by the property at various stages of the day.
Most of a due diligence checklist for residential property also applies to commercial properties. Essential matters to also consider when purchasing a commercial building are checking the building warrant of fitness status and compliance schedule of the building and further research on the building condition, status and history where relevant.
If there are leases in place, make sure to have a lawyer complete a detailed review of the leases in place especially in relation to rent reviews, renewals and your ongoing obligations to the lessees.
Some properties in Dunedin are not freehold and are on ground leases which require specialist knowledge. Check the LIM and whether any further reports or investigation are needed; for example, zoning (depending on the development you are looking to undertake), seismic activity, flooding, water and other hazards.
You may need resource consent for a new activity. Check for any future developments nearby that may impact on your purchase.
Likewise, if you are buying a property to develop, ensure you have all the parties you need to engage with informed early of your intentions to make sure you can actually implement your plans and to keep costs in hand.
For example, ensure you get as much detail correct for any consent request to a council at an early stage, as requests for variations down the track significantly add to your costs. Engage surveyors, planners, lawyers, iwi, local authorities, accountants, valuers and insurers early in the process. Ideally do as much of this planning prior to making an offer, where possible.
In an ideal world, complete your due diligence (or as much as you or your advisers can!) before you make an offer and particularly if the property is sold at auction.
If possible, make sure you have your lawyer or agent insert a due diligence clause in the contract to give you some time to check these details. Engage a lawyer early to discuss the process as well as learn the process yourself so if you miss this property you have the checklist in place to tick the boxes the next time. Remember, purchase of a property may be the biggest investment you ever make, so it is wise to take it seriously.
Nadia McKenzie is a senior solicitor with Marks & Worth Lawyers, Dunedin and specialises in commercial and property law.