Thinking of buying a section? Look before you leap!

Many New Zealanders will be heading off to different parts of our amazing country over the Christmas and New Year’s holiday period. Some may even be tempted to buy a patch of land with the dream of building their forever home or quintessential kiwi bach there. There are some amazing sections available right now and it is easy to be tempted. However, it is essential that you do your research and get advice before you commit yourself to what could be your second most significant purchase or in today’s hot property market, your most significant investment.

Here are some points for you to think about or investigate further when you are considering buying that section:

1. Who is the developer or more appropriately who are the directors and shareholders of the developer?  A quick company and google search will provide you with these details.  Do they have a credible history with developing these sort of properties?

2. Does the purchase price for the section stack up?  What are the likely build costs?  

3. What does the bank think?  Will you be able to get the finance you require to pay the deposit and complete the settlement when you need to?

4. Typically the sale agreement for the purchase of a section in a development come with additional terms and conditions.  These should be reviewed carefully by a lawyer.  When reviewing the agreement, the lawyer will be looking at issues such as:

• What amount of deposit is required and when is it due?
• Who holds the deposit – will it be held in a solicitor’s trust account?
• What is the agreement conditional on?  Typically the conditions will be in the vendor’s favour meaning that you will not be able to cancel the agreement.  We recommend that the purchaser at least has a due diligence condition to give them time to seek advice and be absolutely sure that they want to go ahead.
• Is there a sunset date which will allow you to cancel the agreement if the development is not completed and titles issued by a certain date?  Can the developer extend this date?  How many times?  Do you have to agree to the extension?
• What rights does the developer have to cancel the contract?  Often we will see clauses which give the developer wide rights to cancel the agreement but no similar rights for the purchaser.
• What covenants will there be? Covenants are like rules which are registered against the title to the section and contain various restrictions and obligations on the owner.  They could cover issues such as:
  • What type of house can be built on the property;
  • What construction materials must be used;
  • Requirements for landscaping;
  • Restrictions on whether a caravan or other mobile home can be on the property and for how long;
  • Restrictions on subdividing;
  • Requirements to complete construction within a certain amount of time;
  • Restrictions on transferring the agreement without the developers approval.
• It is vital that you understand these covenants and also have a builder and architect check them to make sure you will be able to comply with them.  Often the agreement will have serious consequences for non- compliance – including payment of significant sums of money.
• What is likely to be happening around the development – are there any commercial developments planned which may affect your enjoyment of the section?
• Will there be any issues in insuring the property – particularly if the property is situated near the coast or on earthquake sensitive land.

The purchase of and section in a large development does not come with the same freedoms you might otherwise enjoy.  The restrictions can however be for the benefit of all section owners to ensure a quality development.  You need to aware of the all the restrictions and be comfortable with them.

Solicitors Approval conditions

Some agreements will include a condition which is called a solicitor approval condition.  This condition will only allow for cancellation of the agreement for very limited reasons.  The condition will not allow you to cancel the agreement if you change your mind, nor will it allow you to renegotiate the terms of the agreement.

Our property team at Turner Hopkins can assist you to understand what is involved in purchasing a section in a development.  Contact us before you sign any agreement so we can give you the advice you require and ensure that there are conditions in the agreement which give you the time to conduct further investigations and make an informed decision on whether you want to proceed with the purchase or not.