By Eesha Karamchandani - 31 Jul 2021
If you are a property trader in the business of buying and
selling properties (or aspiring to be a property trader), or if
you've bought a property and your circumstances have changed, then
there are a number of things you can do to lower your
risks.
Be aware of your tax liabilites
Whether you are a property trader or a one-off on-seller, your
on-sale of residential land will be caught by the Bright Line rule
and you will be liable to pay tax on any capital gains.
Even if the property you are selling is not residential land,
you are likely to have a tax liability for a sale of property if
you have purchased the property with the intention of on-selling.
Sales by property traders will most certainly be caught. First time
on-sellers will not necessarily be able to hide from this rule
either.
Agreement for sale and purchase
An on-sale agreement may appear simple but looks can be
deceiving. For starters it should take into account all the terms
in your purchase agreement as you cannot promise anything that is
not yet under your control.
Vacant possession
Problems can arise if the property is tenanted and your vendor
does not give adequate notice to the tenant to vacate by the
settlement date (if the property is being on-sold vacant). You will
be in default if you are unable to give vacant possession on the
settlement day so you should require your vendor to provide you
will a copy of the notice of termination served on the tenant.
Contemporaneous settlement
In most cases, you will want the settlement of your purchase and
sale of the property to occur contemporaneously. You may wish to
have further terms included in your on-sale agreement whereby you
are only required to transfer title to your purchaser upon title
being transferred to you by your vendor. You can also be at the
mercy of your purchaser as you require their funds to pass on to
your vendor.
Pre-settlement inspection
The widely used Auckland District Law Society (ADLS) agreement
for sale and purchase form gives a purchaser the right to inspect
the property prior to settlement (provided it is not tenanted). If
you have already inspected the property, your vendor may not be
willing to arrange another inspection, in which case your purchaser
may not be able to inspect the property. To avoid last minute
disputes and settlement fund retentions, you may want the agreement
to be tailored to suit your circumstances.
Warranties
If the agreement is prepared on the ADLS form then some of the
standard warranties should be varied or excluded, particularly
since you have not had possession of the property and may not be
fully aware of matters that need to be disclosed to a purchaser
under those warranties. You should ask:
- are there any outstanding requirements or notices relating to
the property?
- are all the chattels working?
- do you have any knowledge or notice of any fact which may
result in proceedings against the purchaser in respect of the
property?
- are there any unauthorised works for which consents have not
been obtained?
You must do your due diligence on the property, including making
enquiries with the vendor in relation to the warranties and
reviewing the LIM and the property file.
If the property is a unit title then there are additional
warranties in the ADLS form that you should review, and it might
mean making further enquiries with the body corporate before you
agree to give those warranties.
Importance of seeking advice
As with most legal matters, it is best to get legal advice
earlier in the process, and most certainly before you sign the
agreement to on-sell the property.
If you are looking to on-sell your property and wish to discuss
such matters, our property team experts with extensive experience
are here to help.