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Welcome to this issue of news from Paul Gallagher Legal. We’ve had a busy few months with a number of property settlements and trust dealings as well as commercial work. We thought that we would bring you some articles that are obviously legal in nature, as well as explore one topic that is not law-related that you would find of general interest. It would be great if you could let us know what you think.
Income for retirement
One of the most valuable assets a person often has is their home – an attractive investment considering the property market has demonstrated significant gains in recent years – some of the major regions returning an average of 7% a year for the past 14 years (Source: Real Estate Institute of new Zealand). The introduction of financial solutions such as ‘Reverse Mortgages’ has occurred as our retirees look to ways of maintaining a certain lifestyle or taking care of unexpected financial responsibilities. Thus many homeowners are looking at using their home as a method of securing the funds necessary to do this.
So, let’s take a look at some of the fundamental principles behind the concept of a ‘reverse mortgage’ and explore some of the jargon.
A ‘reverse mortgage’ in basically a method of using your house as security and having access to a ‘cash’ amount – without necessarily having to sell your home. A mortgage is taken over the property by a lender and they will advance funds to you without you having to make regular payments to pay the amount back, with the loan amount increasing over time.
You have the option of taking out a lump sum, instalments, a line of credit or a combination which can be discussed with the lender. Be careful to make yourself aware of the fees and potential interest associated with each of the options. Investigate the best interest option from the ‘usual suspects’ including; fixed, variable and capped – familiar terms from a standard mortgage set up. However, be aware that unlike a traditional mortgage, the amount of borrowings for a ‘reverse mortgage’ will attract interest and in effect the loan amount will increase over time.
When assessing whether this concept is for you it may be a good idea to talk with the following people and agencies to see how you may be affected:
- Work and Income to ensure that any benefits you receive from them will not be adversely effected
- A financial adviser or accountant who will assess your financial situation
- Family members or beneficiaries – as a ‘reverse mortgage’ will impact on the potential value of your estate.
There will also be a requirement for a Solicitor to play a part in the process and we would recommend that before you commit yourself, you always take legal advice, ensuring your interests are protected and that you are comfortable with the obligations of the contract. Consider involving your Solicitor as early as possible and ask your Solicitor to confirm that the contract contains a ‘No Negative Equity Guarantee’. This means that upon repayment of the loan, should the fees and interest exceed the value of the property, there will not be a requirement to make up the shortfall.
Many lenders may be a member of ‘SHERPA’ which is a non-profit organisation supported by the lending providers of ‘Equity Release’ products. Its aim is to provide information to those interested in such products and ensure that the products themselves are designed and promoted responsibly.
www.sherpa.co.nz
We are more than happy to discuss whether the possibility of an ‘Equity Release’ product is a viable option for you and we can provide good independent advice. Please call either Paul or Cherie if you would like to chat about your requirements.
Ph 09 415 9321 or www.lawfirm.co.nz
Trusting in your Trust
Trusts are an ever popular way of managing the problem of protecting your assets for the future. There are many forms of trusts and each is set up in a particular way to satisfy the needs of those who are to benefit from the security of the trust.
Let’s look at the family trust as this is a fairly mainstream form of asset protection and many of the criteria of the family trust apply to other forms of trusts as well. The main motivation of those looking to set up a trust may be one of the following:
- Protection of assets for family members
- Ensure assets are transferred to the next generation in its entirety
- Protect assets for family members if there is a need for you to go into rest home care or hospital
- Protect family assets from potential business losses or failure
- To change tax liability.
There are ‘off-the-shelf’ products which can provide a solution to wealth protection, however, they often do not take into account an individual’s circumstances. It may suit you better to talk with a trust professional, review your situation and agree upon the best way in which to proceed. Because there are legal timeframes and regulations that outline the gifting of assets into the trust, the sooner one is set up the better. Lawyers and accountants can provide really valuable advice that is specific to your needs and circumstances.
If you decide to set up a trust, it is important to realise that if you transfer your assets into a trust – you no longer own them. The trust does and so the ‘trust relationship’ needs to be solid so the protection and benefits are not lost.
Listed below are those who may be skilled in the set up and management of a trust:
- Lawyer. This body of professionals have the ‘lions share’ of experience in setting up the trust. It is important to ensure that trust management is a core component of their business and they keep abreast of the latest developments within the industry.
- Accountant. Those who are proficient in providing the best response for their clients are possibly those who have dedicated trust experts within their team. You need to establish if they are providing just an accounting function, or full trust management.
- Professional Trustees. There is an emergence of the ‘Professional Trustee’ - those for whom trust management is a sole function rather than a component of their business. They typically have the qualifications and experience of managing a trust.
The advantage of these people over a larger corporate specialising in trust management is that you can ‘hand pick’ specialists to fulfil their roles as best suits their expertise. This may provide you with a better solution for your needs in the long run.
The best place to start is to be open to what solutions are in the market place and do a little homework so that you get what works for you. We would recommend a book that has just been published by Mark Maxwell as a good source of information and at $29.95 it is a good read for those who either already have a trust or a looking to establish one. ‘Trusts a Kiwi Sham’, is written by Mark, a well renowned expert with an extensive 17 year career in his field. This independent review of private trusts is an ‘easy’ read, using an educational approach in an easy-to-understand manner. Visit www.integritytrust.co.nz for more information.
We also have the opportunity to jointly run a discussion group with Mark. It is a one hour discussion about wealth management and trust management. Kept to a maximum of 8 people, these groups are both informative and entertaining.
We would be looking at holding a group during the evening at times suitable for those who may also have a requirement for wealth and asset protection. Mark is in great demand for his advice and these evenings are worthwhile for business owners also.
To attend one of the sessions there is a one off fee of $30.00 per person or $50 per couple. You will receive one complimentary copy (per person or per couple) of Mark’s book ‘Trusts a Kiwi Sham’ at the session.
If you would like to discuss this, please contact us for further details.
Ph 09 415 9321 or www.lawfirm.co.nz
Purchasing a hosue of a cross lease section? You must read on.
If you have fallen in love with a house on a cross lease title (also known as Leasehold Title) then you must read on. Unlike the traditional Freehold Title in New Zealand where an owner has exclusive rights of use and enjoyment of the land (subject to Council restrictions etc), the cross lease Title is inherently restrictive. You should always see your lawyer to check out the Title and Lease to a cross lease property.
Alterations to External Dimensions – outline of the property
- One of the most important issues to identify on the cross lease Title is the outline of the property. The outline of the property as you viewed it must match the outline of the property on the title. If there are any “alterations to the external dimensions of any leased structure” or building not intended for common use which are situated on any part of the land that is not subject to a ‘restricted user covenant’ the purchaser may requisition the title. A purchaser has ten working days from the date of the agreement to requisition the title. By requisitioning the title we mean that your Lawyer will advise the vendor’s Solicitor that the title as it stands is not ‘perfect’. By requisitioning the title you are asking the vendor to deposit a new plan (i.e a new outline of the property) identifying the buildings or structures and register a new cross lease or cross leases and any other additional dealings in order to convey good title. The words “alterations to the external dimensions of any leased structure” shall only mean alterations which are attached to the leased structure AND which are enclosed. An example of the above is where the outline of the property on the title reveals a house but the house as you have viewed it has an enclosed garage attached to it. That enclosed garage is an alteration to the external dimensions of the house (which is the leased structure) and must show on the outline of the property.
- The vendor may advise he/she is unable or unwilling to have a new outline drawn up. If so, the purchaser may waive the requisition or cancel the contract.
- If the vendor advises he/she is unable or unwilling to have the new outline drawn up and you really do love the house it may be possible to negotiate a reduction in the purchase price. Often the vendor’s response may depend on issues such as how desperately the vendor needs the sale or how serious the vendor is about selling the property. Having a new plan deposited (outline drawn up) can be costly. It involves having the property resurveyed and a new cross lease drawn up which needs to be signed by both the vendor and the other lessor (i.e the neighbours). This can also be a lengthy process.
- BUT what if the structure is attached to the house but not enclosed i.e a deck? Where any unauthorised structures on the land are attached to the leased structure but not enclosed you cannot requisition the title. However, the purchaser may demand that the vendor obtain the written consent of the current lessors (i.e the current neighbours who share the cross lease land) and provide the purchaser with a copy of such consent on or before settlement. This should be done within the period expiring on the earlier of either the 10th working day after the date of the agreement, or the possession/settlement date If the vendor is unwilling or unable to obtain a current consent this may lead to either party cancelling the contract upon notice.
The Lease
- It is also very important for a lawyer to look at the lease to the property. The lease is the document which sets out the rules and obligations relating to the use of the cross lease land. The most common cross lease scenario is where there are two houses on what is called a ‘one fee simple’ Title (often called ‘home units’) and the owner of each house (being both lessor and lessee) leases their share of the land to the other. The lease must provide for the exclusive and common areas. The common area is the area that you share with your neighbour, somewhere you and your neighbour can both have access to, for example a driveway. The exclusive area is the area that only you may access to, for example your car park area and your front garden. Just because the property is a cross lease does not mean that you or your neighbour are at liberty to access all areas of the property at any time of the day.
- If the lease, for example records the common or exclusive areas incorrectly, this is requisitionable. As set out above the same principles apply when requisitioning the title.
By not requisitioning the title nor requesting the lessor’s consent, the purchaser is purchasing an ‘imperfect’ title. When the time comes for the purchaser to on-sell the property any prospective purchaser has every right to request you to do the above. Just remember, when you come to sell the property you are the vendor and in the same position as the vendor above. If you do decide to purchase the property with an imperfect title (say perhaps because you did get it at a good price) then we would suggest that you have the title perfected before you sell the property as that way you can be sure of a higher price. In order to do this you will need to see your Lawyer.
For more information about this please call one of our team Ph: 415 9321
Green marketing - marketing for the environment
Green Marketing is a more commonly-known term for the concept of ‘marketing for the environment’. These are products or services that are deemed to be environmentally safe. This is particularly topical for some businesses in New Zealand as they tend to rely on New Zealand’s ‘clean and green’ image as a way to differentiate both locally and internationally on the business playing field.
Typically as with any marketing effort – the consumer needs to be kept firmly in mind when coming up with the ideal way in which to develop a good communications plan or strategy. The consumer in this case has a raised environmental consciousness and they tend not to be the ‘mainstream consumer’.
Therefore, environmental marketing tends to be more complex than traditional marketing. It has to satisfy those traditional needs such as performance, price, quality, convenience and then also satisfy environmental criteria. The manufacturer or marketer itself also needs to be reflective of this environmental requirement, often not only being supportive of just the environment, but also portraying itself as a good corporate citizen, having philanthropic interests and total corporate commitment. The marketing effort therefore reflects messages that are educational in intent, concentrating on portraying certain values about the product and its parent organisation.
Another of the challenges facing those who choose to pursue environmental marketing is the way in which the industry regulates and decides what is ‘green’ and what is not. Thus the consumer can be forgiven for being cynical about things like plastic recycling only to see mountains of it waiting to be processed. It can be a little bit like the chocolate bar that is ‘92% fat free’! There have been developments in this area of regulation with the emergence of regulatory bodies such as the ‘Green Tick’ – its standards conforming to the latest international evaluation, monitoring and auditing standards for sustainability and environmental management. See www.greentick.com. There is also ‘Environmental Choice New Zealand’ – an ecolabel which is awarded by an impartial third-party in relation to certain products or services that are independently determined to meet environmental leadership specifications. It was initiated by the New Zealand Government, independent of the government, but is government-endorsed. www.enviro-choice.org.nz
There are some organisations that truly have their roots embedded in environmental concern. They have aligned their processes, communications, products and suppliers – even involving fringe interest groups to ensure that everything they do is proactively supporting an environmental concern. They grow their business by addressing specific environmental issues most relevant to their consumers. Such and organisation is ‘ecostore’. The founders Malcolm & Melanie Rands started in 1993 from their home in an established eco-village in New Zealand. ecostore was originally set up as a direct mail order business with the intention of supplying New Zealanders with the everyday goods they needed to live in harmony with the environment. At the same time ecostore was designed to be a cause-related business that could generate enough income to channel resources into a not-for-profit organisation called the fairground foundation. ecostore is currently distributing to organic and healthy lifestyle stores with a recent foray into supermarkets throughout New Zealand, while developing opportunities internationally.
Another interesting website is ‘ecobob’ - developed to make eco-friendly living easy. The web site provides users with an easy way of accessing information about environmentally friendly living such as profiles of eco-houses. There is also a listing of businesses providing eco-living products and services, a range of information articles on eco-living and an online community for people to share ideas and connect on eco-living topics. Well worth a visit, the online address is www.ecobob.co.nz
So, how do you think New Zealand as a whole would perform in an independent environmental assessment – food for thought…
A property deal goes sour to the tune of $300,000.00
Our story begins with the Flemmings who put in an offer to buy a property in Whangarei – the Flemmings are yet to sell their own property. So, the condition of the sale and purchase of the property in Whangarei, owned by the Tania Mana Family Trust, was signed by both parties on the condition that the Flemmings do everything ‘reasonably necessary’ to sell their own property within a 90-day period. Seems fairly standard so far, but this is where the ‘wheels fell off’ the deal.
The Flemmings instructed two real Estate agents to find buyers for their property and requested that the agents NOT use traditional methods such as open home showings, press advertising, placement on the estate agent’s website, placement in the real estate window, or even signs outside the property. This so-called ‘silent’ or ‘covert’ approach was chosen by the Flemmings as they did not want local people knowing of their intention to sell as it may have harmed their locally-operated business.
Unfortunately the property did not sell within the 90-day period and so the vendors cancelled the contract, selling it to another party for substantially less than the amount in their contract with the Flemmings. Subsequently the Tania Mana Family Trust sued the Flemmings for both the difference in the purchase prices and the interest ensuing. To cut a long story short, the High Court examined whether the Flemmings did in fact do all they could to sell their property. The finding was that the Flemmings had breached their contractual obligations by not doing everything ‘reasonably necessary’ to sell their existing property and thus has ordered that they pay the Tania Mana Family Trust upwards of $300,000.00!
To avoid such pitfalls in the future, it is advisable that a Solicitor review any contract regarding any property you wish to either purchase or sell before you sign it. This is to ensure you fully understand the intentions of the contract you’re entering into and your subsequent obligations. As is stated in the ‘Agreement for Sale and Purchase of Real Estate’ which is put out by the Auckland District Law Society, seek professional advice before either party signs, especially if there are any questions or concerns. Do not sign any contract lightly. Although legal action is rare, if a tighter house market develops then more litigation may be seen. If at any stage you are considering purchasing or selling a property do give us a call as we are only too pleased to take a call and answer any queries you may have.
Please contact the PGL team Ph: 415 9321
Spring has sprung
There is a definite hint of spring in the air. The spring bulbs are flowering, bringing the sweet scents of such blooms as freesias as well as the bright delight of the daffodil. Now that the warmer weather is approaching and the days are getting longer we hope you find the time to take a walk in the sunshine and take delight in the coming of summer.
Tip for growing veggies this year – sow basil about now so it will be ready to plant with your tomatoes as basil will help keep those tomato-loving pests and diseases away.
Cheers from the team at Paul Gallagher Legal.
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