Lessons from the Canterbury Quake: Buying and Sell
Turn to the world section of your newspaper and almost every day it seems there is a report of a natural disaster; floods in Pakistan, volcanoes erupting in Indonesia, a tsunami in Samoa or landslides in the Philippines. That is, until 4.35am on Saturday 4 September 2010 when we had our very own natural disaster in our backyard – literally so for Cantabrians.
Twelve weeks on, after the turmoil that has followed, there are some lessons learnt about buying and selling property; lessons which are relevant to all natural disasters and to all New Zealanders.
Consult us before signing up to buy or sell a property
In the days following the Canterbury quake, buyers wanted to get out of contracts and sellers wanted to hold them to the transaction. Banks, which had agreed to lend, suddenly started adding conditions. Now the dust is settling (after 3000+ aftershocks and no doubt more to come) we are now including clauses in the Agreement to protect buyers or sellers. We can only do this, however, if we are consulted before you sign the contract. If you have finance as a condition in your purchase contract, the banks will not provide finance unless you can supply them with a certificate of insurance for full replacement value of the property. Banks are also requesting an engineer’s report and assignment of the EQC claim from the seller to the buyer.
Get a building report
How a building will stand up to a natural disaster will depend on its construction. We recommend that buyers obtain a building report so they have the peace of mind of knowing the structural foibles of the property. As well, many insurance companies now require sighting a building report before they will agree to insure.
Get a geotech report
One of the features of the Canterbury quake was liquefaction where, particularly on sandy soils, sandy mud literally oozed to the surface. Coastal properties and expensive riverside properties were particularly hard hit in Christchurch. There are also plenty of examples in the city where the land has settled causing damage to buildings. Fortunately there was little slumping on the Canterbury hills; but in parts of New Zealand there will obviously be questions of land instability after storms and floods. A report from a geotechnical engineer will identify those risks to help buyers to make an informed decision. In any event, as a result of the Canterbury experience, banks are often now requiring a geotechnical report before they will agree to lend.
Get a LIM from your local authority
A Land Information Memorandum (LIM) is an extract from your local authority’s records of all matters relating to an individual property. Although obtaining a LIM has been common practice when purchasing a property, in the past few years some buyers have cut corners (and costs as they are not inexpensive) by not getting a LIM. We believe that this is unwise and recent events in Christchurch have confirmed that a LIM should be scrutinised with great care to identify potential hazards such as flooding or known or potential instability.
Finally, work with your lawyer
Working as a team with us when you are buying or selling property is now more important than ever so you, and your investment, are protected.
For sellers that might mean obtaining your own LIM and other reports to address any shortcomings the property may have, unstable chimneys for example.
For buyers, once you decide on the property you want to buy there are steps to be taken – obtaining reports, passing those to your insurer to obtain cover, satisfying the bank that the insurance cover is in place and so on.
A particularly important step for a buyer is to make sure that any claim the seller has with the EQC or their insurance company can be assigned to the buyer upon settlement. A deed of assignment of an EQC claim and an assignment of the insurance claim must be signed by both parties. We can draw up these documents for you, but we must be given details of the claim at the beginning of the contract.
A few extra precautions at the outset will turn what could potentially be an unpleasant experience into a safe and secure transaction. So, let’s work together because together it works.
The Canterbury quake will not necessarily be the most damaging natural disaster this country suffers but it has provided a wakeup call for all New Zealanders to be more vigilant in their property purchases. Following a few simple steps will go a long way to avoid problems if you and your property happen to be in the wrong place at the time.