REALWorld Law

Do buyers usually carry out due diligence?

The four most common types of registered land holding are:

• Freehold – This gives the owner freehold ownership of the land and (generally) anything built on the land.
• Leasehold – This is where the underlying land is owned by another party, and the owner of the leasehold has exclusive rights to possess the land and the building on it for a set period, subject to the payment of rent.
• Stratum or Unit Title – This is common for buildings with multiple owners such as apartments. The unit owner owns their apartment/unit and any accessory units (eg car parks or storage units) and an undivided share of the ownership of the common property (eg lifts, gardens, driveways). The unit owner will also be a member of the Body Corporate, which makes decisions about maintenance and management of the building.
• Composite or Cross Lease – This is a combination of freehold and leasehold estates in one title. The owner has an undivided share of the underlying freehold title together with a leasehold interest in its own "area" or "flat."

Other types of arrangements for use of land for a limited period include:

• Unregistered Lease – This is the most common and entitles a tenant to "exclusive possession" of all or part of the land for a specified period. It creates both an interest in the land and a contract between the parties.
• License – This is a contract under which the owner grants the licensee a non-exclusive right to use all or part of a property for a specified period. This is not an "interest" in the land but only a personal right.
• Easements, covenants and profits a prendre – These are interests which can be registered or noted on the title for land, and bind current and future owners.
  • Easement – This is a right to use another party’s land for a specified purpose. These rights can be granted over the burdened land in favour of benefited land or to a specific party without being for the benefit of other land ("in gross"). Common types include rights of way, rights to convey water, or electricity and communications.
  • Covenants – This is a promise by one party to do or not to do something on land (usually noted on the title). As with easements, this can be for the benefit of another property or "in gross."
  • Profit a prendre – This gives a third party rights to take items from the land, eg soil, minerals, or natural produce. A common form of profit a prendre is a forestry right, allowing a third party to grow and harvest trees.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Yes, the main restriction is on foreign investors acquiring "sensitive land." Under the Overseas Investment Act 2005, if the purchaser is an "overseas person" acquiring an interest in "sensitive land" (which includes residential or lifestyle land) then they need consent from the Overseas Investment Office.

"Overseas person" means all individuals who are not New Zealand citizens nor ordinarily residents of New Zealand. This can also cover companies, trusts, partnerships, and other corporate entities. There are some exceptions for Australians and Singaporeans.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

There are properties held by Crown agencies that are subject to a Right of First Refusal (RFR) in favour of certain iwi groups under Treaty of Waitangi settlements made with the Crown. For these, if the Crown wishes to sell or enter a long-term lease (typically longer than 50 years) then it may need to first make offer to sell or lease the land to the

See also under Public Works Act.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

The key legislation governing property transactions are:

• Land Transfer Act 2017 and Land Transfer Regulations 2018 – The Land Transfer Act 2017 governs the system of registration of land ownership and interests in New Zealand. It maintains the certainty of property rights and enables the register to be managed electronically. This is supported by the Land Transfer Regulations 2018.
• Overseas Investment Act 2005 – This Act governs overseas investment in New Zealand’s sensitive land and assets.
• Property Law Act 2007 – This legislation governs land and personal property. It sets out rules including for deeds, sale and purchase of property, covenants relating to land, mortgages, and leases.
• Unit Titles Act 2010 – This sets out the law governing building developments where multiple owners hold land in unit titles (see above). This provides the legal framework for the ownership and management of this land. In the context of a property transaction, it imposes disclosure requirements between the buyer and sellers of unit titles.

As part of the wider transaction process, there are also various Acts that may apply and can affect the title to land. These include:

• Anti-Money Laundering (AML) and Counter Financing of Terrorism Act 2009 – This Act concerns customer due diligence requirements on agents (including lawyers and real estate agents) to complete risk profiles on their clients and have an established AML/CFT compliance programme in place.
• Building Act 2005 and Building Code – This outlines the requirements for construction, alteration, and demolition of new and existing buildings. A key consideration for buyer of land is whether a building on the land has been built or alterations done in accordance with the any building consent and the Building Code.
• Public Works Act 1981 – This Act gives the Crown and certain public authorities powers and obligations in relation to the acquisition and disposal of land needed for public works (eg schools or roads). Once land held under this Act is no longer needed for the public work (or another public work) it must be offered back to the previous owner (or their successor) before the land-owning agency can sell it.
• Real Estate Agents Act 2008 – This Act is to promote and protect the interests of consumers and increase public confidence in the performance of real estate agency work.
• Residential Tenancies Act 1986 – See section on Residential Leases.
• Resource Management Act 1991 – This Act promotes the sustainable management of natural and physical resources. In the context of property transactions, this mainly has implications for subdivisions and amalgamations of land, and consents issued by the territorial authority. It is currently under review, with three new Acts intended to replace it.
• Te Ture Whenua Māori Act 1993 – This Act concerns Māori Land with principles reaffirming the Treaty of Waitangi relationship between Māori and the Crown. It aims to enable the retention of land in Māori owners, and their whanau (family) and hapu (tribe), and to protect wahi tapu (places sacred to Māori People).

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Generally no, with the main exception being the Overseas Investment Act 2005 applying to overseas persons acquiring "sensitive land" in New Zealand (see section on Overseas Restrictions).

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

The Property Law Act 2007 states that the agreement must be written and signed by both parties. However, there are instances where other forms of agreement may be enforced if there is a lack of written agreement but there have been clear actions in reliance (called part performance).

In most cases, the ADLS/REINZ standard form Agreement for Sale and Purchase of Real Estate is used. This agreement sets out the terms of the sale and includes: a description of the property, the price, deposit, significant dates, access rights, any chattels to be included, representations and warranties, conditions and any other matters needed for the effective transfer of the property.

Agreements for commercial properties or other more complex transactions may include more bespoke and negotiated terms to fit the requirements of the transaction.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Generally, there are no warranties required by legislation. Standard warranties and representations are set out in the ADLS/REINZ Agreement for Sale and Purchase of Real Estate, and these can be amended to fit the requirements of each transaction.

There are statutory obligations that the vendor cannot contract out of such as the requirement to provide a pre-contract and pre-settlement disclosure statement when selling a property subject to the Unit Titles Act 2010.

Standard contractual warranties and representations under ADLS/REINZ Agreement for Sale and Purchase of Real Estate include:

The seller undertakes that on both execution and settlement date:

• they have not received any notices or demands and are not aware of any requisition from any party relating to the property or of any facts that may result in action being taken against the seller/buyer in respect of the property;
• the chattels and other installations are in a reasonable working order unless otherwise disclosed;
• the property, its fixtures and fittings will pass to the buyer unencumbered (unless otherwise disclosed); and
• all works done by the seller are compliant with building codes and all required permits and consents have been obtained in relation to the works, and where necessary a code compliance certificate has been issued.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

It depends on the nature of the misrepresentation, and the terms of the agreement between the parties. Most breaches of a warranty or undertakings will enable the purchaser to claim compensation and equitable set-off resulting in a reduction in the purchase price. The seller must comply with warranties and disclosure requirements but otherwise the general principal of "caveat emptor" applies.

A buyer may be able to cancel the agreement and potentially claim damages if the misrepresentation concerns an essential term of the agreement and substantially impacts the benefit or burden of the agreement.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

The key areas of public law are property law, building code/standards, resource management law, overseas investment law and tax law. These are mostly contained in the following acts:

• Building Act 2004
• Goods and Services Tax Act 1985
• Overseas Investment Act 2005
• Property Law Act 2007
• Resource Management Act 1991
• Residential Tenancies Act 1986
• Unit Titles Act 2010 and Unit Title Regulations 2011

A brief description of these acts is contained in the Legislation Affecting Real Estate Sales tab and an explanation of the relevant tax law can be found in the Taxation of Real Estate Sales and Purchase tab.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Yes, buyers can be responsible for the management and/or clean-up of pre-existing soil pollution or environmental contamination on the land they purchased. Depending on the nature of the property being purchased and/or the previous use made of the property, the buyer might seek seller warranties regarding the contamination status of the property.

The Land Information Memorandum records any soil contamination issues known to the relevant council. Existing known contamination can be subject to ongoing monitoring requirements, and resource consents may be needed if the owner wishes to disturb the soil for development or other purposes.

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Do buyers usually carry out due diligence?

Each council website will have information on the planning and zoning rules for each area within its district. The Land Information Memorandum will also include maps and information on the applicable zones and planning laws for each property.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Yes, development agreements can be made with public authorities in relation to specific developments.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Yes. Under the Public Works Act 1981, the government (central and local authorities) has a statutory authority to acquire land it needs for public works such as schools or roads.

The compulsory acquisition will always start with negotiations between the owner and the acquiring authority to purchase the land from the owner. If the acquisition cannot be agreed, then the acquiring authority must follow the process set out under the Act for compulsory acquisition.

Compensation should cover the market value of the land, as well as additional factors like disturbance, loss of business, legal costs, etc. Where parties don’t agree, the Land Valuation Tribunal can determine the compensation to be paid.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Common taxes and transaction costs:

• General transactions costs – This commonly includes legal fees and disbursements and real estate commission. Generally, each party pays their own costs unless otherwise agreed.
• Goods and Services Tax (GST) – GST is a tax on the supply of most goods and services in New Zealand. GST can apply to people who buy and sell property. In many cases GST is not charged on the sale of a residential property, but it can apply depending on whether the seller is GST registered and if the sale is part of their GST-registered seller's business. However, where both the seller and the buyer are GST-registered, the sale will attract compulsory zero rating (meaning that GST is charged at a rate of 0%).
• Rates (local and regional council rates and water rates) – Local and regional councils charge annual rates on land within their respective territories. The annual rates will be apportioned between parties at settlement. There may also be other rates charged for commercial properties or hotel owners.
• Land taxing provisions – New Zealand does not have a comprehensive capital gains tax regime. However, New Zealand has specific land-taxing provisions that can result in income tax becoming payable on any capital gain derived on the disposal of land. For example, any capital gain derived from the sale of "residential land" that is bought and sold within the bright-line period (currently either five or ten years, depending on when the property was acquired) will be subject to New Zealand income tax (eg the Bright-Line Test). There are exceptions to these provisions, for example, if the sale of land relates to a person's "main home." There are also specific provisions which may result in New Zealand income tax becoming payable if the seller acquired the land with an intention of disposal, if the seller is in the business of dealing in land, if the seller is a developer of land or if the seller has undertaken a development on or subdivision of the land. There are also exceptions to these specific provisions.
• RLWT – Residential land withholding tax is required to be withheld by a seller where the land meets the definition of "residential land" and the seller falls into the category of an "offshore person." There are also certain timeframes regarding the acquisition and sale date of the residential land that inform whether the RLWT regime applies.

Last modified 22 Mar 2024

Do buyers usually carry out due diligence?

Shares can be held on revenue account (ie taxable) or on capital account (ie non-taxable). Broadly, shares are held on revenue account where they are acquired with a purpose of disposal, the person is in the business of dealing in shares or acquires and disposes of the shares in the course of carrying on or carrying out a profit-making undertaking or scheme. If shares are held on revenue account, then an amount a person derives from any future sale would be subject to New Zealand income tax. Alternatively, any amount derived from the sale of shares held on capital account should not be subject to New Zealand income tax.

New Zealand also has specific tax anti-avoidance rules that would allow New Zealand's Inland Revenue to challenge transactions that have been structured as a share sale, rather than an asset sale, to defeat the intent and application of New Zealand's land-taxing provisions.

Transaction costs incurred (eg advisor costs) in acquiring shares held on revenue account should be income tax deductible but would not be income tax deductible if the shares acquired are held on capital account. Ordinarily, buyers and sellers will cover their own transaction costs, unless the parties agree otherwise. This will be a commercial decision.

Last modified 22 Mar 2024