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Changes to the Credit Contract and Consumer Finance Act 2003

On 1 December 2021, major changes to the Credit Contract and Consumer Finance Act 2003 (CCCFA) came into force.

The changes introduced a raft of new requirements for lenders, which has resulted in a significantly longer and more complex application process for potential borrowers.

These changes apply to all applications for consumer credit, including home loans, personal loans, credit cards and vehicle finance.

One of the most significant changes are the new suitability regulations. In essence, the suitability regulations require lenders to take a ‘deep dive’ into the potential borrowers’ finances. Bank accounts will be meticulously scrutinised for income and expenditure over the last 90 days to assess the applicant’s ability to meet the loan repayments. Expenditure is assessed to the minutest detail, such as takeaways and grocery shops.

With these added burdens on lenders, borrowers can expect significant delays in obtaining finance and refusals where acceptance would have once been likely if their bank accounts for the last 90 days are not ‘squeaky clean’.

In the current lending climate, it is important for potential borrowers to be proactive about cleaning up their bank accounts before applying, expect applications to take much longer than usual, and engage a mortgage broker to help navigate the information and explanations lenders now require.

2021 Resident Visa – One-Off Residence Pathway

The New Zealand Government has announced a new one-off residence category, the 2021 Resident Visa.

This will enable a large number of work visa holders to remain in New Zealand permanently. The Visa has been created to recognise the contribution migrants have made to New Zealand during COVID-19 and the uncertainly they have faced with closed borders and the required changes to immigration settings.

The new Visa will allow employers to retain settled, skilled and scarce migrant workers. The Visa is also available to those who have already submitted a resident visa application under the Skilled Migrant Category (SMC) and Residence from Work (RfW).  It is also available to those who have submitted a SMC Expression of Interest as well as many other work visa holders who may not have been eligible through the current skilled residence pathway.

The 2021 Resident Visa will be open for applications in two stages, with the first group being able to apply from 1 December 2021.

The processing of 2021 Resident Visa applications is a priority for Immigration New Zealand over the next 12 months.

To check if you are eligible, please click on this Immigration New Zealand link below

2021 Resident Visa eligibility

We have an experienced immigration team at Kannangara Thomson and for further information please feel free to contact either Sathiya Muralidaran (email sathiya@ktlaw.co.nz) or John Yoon (email john@ktlaw.co.nz)  or phone our office on (03) 377 4421

Meet our Founding Partner Stephen Kannangara (now retired)

Stephen Kannangara was one of the founding partners of Cherry Kannangara, now known as Kannangara Thomson.

Originally led by Stephen, the team at Kannangara Thomson has drawn on life experiences gained from all corners of the globe with the unique personal histories forming a rich tapestry of wisdom, intelligence and practical thinking.

Stephen is of Sri Lankan descent, however, he was born and bred in Singapore. He came to New Zealand to study law and was admitted to the Bar as a barrister and solicitor in 1987. After graduating, and working as a lawyer in Christchurch and Hamilton. He then briefly practised in Papua New Guinea before being admitted as a solicitor of England and Wales in 1992. Stephen later added the Singapore Bar to his list of achievements, where he practised until 1996 when he returned with his family to New Zealand.

Stephen’s favourite thing about Kannangara Thomson is the relaxed nature and the fact they treat their clients as their friends.

Across an accomplished career, Stephen practised in legal areas as diverse as litigation, criminal law, employment, finance, franchising, immigration, mortgaging sales, family trust probate and administration of estates and probably many more areas as well.

Outside of the office, Stephen enjoys cooking, fishing, travelling and of course his family.

Stephen retired at the beginning of February 2021 and we wish him a very long and happy retirement.

When Do I Get The Keys?!

The most common question a purchaser’s solicitor gets asked is “what time will settlement happen and when can we get the keys to our new home?”

What you need to be aware of is that there are certain things which need to happen before settlement can occur and more often than not, any delay is beyond our control. For that reason, when advising a purchaser on when to book the removal truck we will usually err on the side of caution and recommend late morning or even early afternoon.

Some of the factors which can influence the time of settlement will be looked at in this article.

If your purchase is one of a number where the party further down the chain from you have the sale of an existing property to settle this can contribute to delay. In most cases a buyer cannot settle their purchase in such circumstances until the sale of their existing property has settled. So if you are a cash buyer with no property to sell, you are at the start of the chain and it makes our job easier.

At the time of settlement all money which is required to complete a purchase comes into your lawyers trust account and then we complete the purchase on your behalf.

Another factor which can hold up your purchase therefore includes a delay in you lodging the balance of any money you are putting towards the purchase into our trust account or for that matter, a delay in your bank lodging any new loan monies into our trust account. The latter will often depend on when you signed the loan documents and when we were able to send all signed paperwork back to your bank. Obviously the more notice we are able to give a bank the better the chance that your purchase will settle in a timely fashion.

If you have not arranged the insurance on the home noting your lender as an interested party this might also delay settlement.

If when you did your final pre-purchase inspection the vendors agreed to complete some remedial work, settlement can sometimes be delayed pending confirmation of such work being completed or your lawyer negotiating an amount to be retained or deducted at settlement.

Finally, as lawyers for a purchaser we will not settle your purchase until such time as we have received an undertaking from the vendors lawyer that they have signed the electronic dealing to transfer ownership and are in possession of a discharge of mortgage and on receipt of funds that they will release the mortgage and the transfer to enable us to complete registration into your name.

And undertaking is a lawyers promise to another lawyer and we can be severely censured and even struck off by the law society for breaching an undertaking.

Hopefully this will give you the idea that there are a number of factors which can and regularly do hold up settlement of your purchase. Being organised and having sufficient time between confirming the contract and completing settlement is the recommended solution to these issues.

At Kannangara Thomson we have a large team of experienced conveyancing lawyers to assist you with your purchase.

Final Inspections… Do You Know Your Rights?

If you are buying a home one of the things you should know is that you are entitled as of right to reinspect the home on one occasion prior to possession.

The purpose of this inspection is to ensure that you are still getting exactly what you contracted to buy and that there have been no material changes to the property.

In particular, you should check that all the chattels being sold to you with the property are still there. Over the years the writer has seen examples of items such as curtains and light fittings being changed for cheaper ones. If you contracted to buy it, you can reasonably expect it to be there at settlement!

You should also check the appliances at the time of your final inspection. However in this regard you need to be aware of the general terms of sale (the fine print) which states that the chattels are “… Delivered to the purchaser in reasonable working order, but in all other respects in their state of repair as at the date of this agreement (fair wear and tear excepted)…”

So what can we read into that? If for example at the date of the agreement the dishwasher (being a chattel going with the property) was not in working order then you would have no right to insist on this being repaired. The thing to be taken from this is that you should check the chattels at the time you enter into the contract to ensure whether they are in good working order or not.

So the purpose of the final inspection is to check that there are no material changes to the chattels or the condition of the property. If new damage is discovered this is your one and only chance to have your lawyer either (A) ask for the damage to be made good or (B) ask for the retention of money pending such repair or (C) ask for a reduction in price to allow you to attend to the repairs yourself.

You should note that the pre-purchase inspection cannot be completed on the day of settlement and also, that if the agreement is reached for the vendor to carry out any works you are entitled to re-enter the property prior to possession on one further occasion to ensure compliance by the vendors with any such agreement.

Whatever you do ensure that you seek legal advice from an experienced conveyancer at the time of your purchase. At Kannangara Thomson we have many experienced conveyancing practitioners available to assist you with your purchase.

Why Do I Need a Building Report?

When you buy a home it is likely to be the single biggest investment which you make in your life time for most people.

For that reason many buyers choose to have a condition inserted in the agreement for their own protection which allows them to obtain a building inspection report on the property they are buying.

The cost of such a report can vary between $600-$900 in our experience but when you weigh that up against the purchase price it is in our opinion still a small outlay to ensure that you are not buying a home with serious matters relating to its structural integrity.

The purpose of such reports is not in our opinion to nit-pick over every loose screw or jamming door but, to highlight major items of concern which might see you want to choose not to buy the home or, allow you to ask the vendors to attend to remedial work before you do buy the home.

The temptation for many buyers is to have a mate or an uncle who is a builder do the inspection for them to save money. There are good reasons why you should not go down this particular path and we will highlight those reasons in this article.

The general terms of sale (the standard terms in the pre-printed, Tenth Edition (2019) 2 ADLS, form commonly used) state at clause 9.4(2) that “the report must be prepared in good faith by a suitably qualified building inspector in accordance with accepted principles and methods”.

That same clause then goes on to say “if the purchaser avoids this agreement for non-fulfilment of this condition pursuant to sub clause 9.8 (5) the purchaser must provide the vendors immediately upon request with a copy of the building inspectors report.

So if you have had a friend or an uncle who happens to be a builder inspect the property for you to save money and you subsequently wish to cancel the agreement relying on the building inspection clause you may have problems because you will not have had the report completed following “accepted principles and methods” and more often than not there will be no written report to provide to the vendors on request. Even if there happens to be a report it will almost certainly not be prepared to the required exacting standard.

The easier choice in our opinion is to recognise the quite small cost of a building report in the context of a home purchase and to engage the services of one of the many qualified building inspection companies providing such services in Christchurch. In the long run it may save you money!

Should you require any further information, please phone one of our team on (03) 3774421 or email us at email@ktlaw.co.nz

Property Tax Laws

Buying or selling property?

There are property tax rules which apply to the sale and purchase of property which was effective from 1 October 2015.  These rules have an effect on all those who buy and sell property including those who have existing family trusts which own property.

While all existing tax rules still apply, the “bright-line property rule” imposes an income tax on any gain from residential land purchased or sold (or otherwise disposed of) unless an exemption applies.

What is the bright-line property rule?

The bright-line property rule means that people who sell a residential property might need to pay income tax on any profit.

Whether it applies to your property and what bright-line period applies, if it does, depends on when you acquired the property. In most cases, the date your property is acquired is when the sale and purchase agreement you signed to acquire your property became binding.  The bright-line period starts on the date you bought the property (the date the title was registered in your name with Land Information New Zealand) and ends when you sign a binding sale and purchase agreement to sell the property.

  • Acquired before 1 October 2015 – the bright-line property rule does not apply
  • Acquired between 1 October 2015 and 28 March 2018 (inclusive) – the bright-line property rule may apply if you sell within the 2-year bright-line period.
  • Acquired between 29 March 2018 and 26 March 2021 (inclusive) – the bright-line property rule may apply if you sell within the 5-year bright-line period.
  • Acquired on or after 27 March 2021 – the bright-line property rule may apply if you sell it within the 10-year bright-line period.  

When the bright-line property rule does not apply.

The bright-line property rule does not apply when:

  • The property is your family/main home, and the main home exclusion applies
  • You inherited the property
  • You are the executor or administrator of a deceased estate.

For those of you with family trusts there is a further twist.  A trust may claim the main home exemption but only if the trust owned property is the main home for a beneficiary of the trust and the settlors of the trust do not also personally own a home which the main home exemption has been claimed.  The reason for this is pure and simple.  It is to stop people using their trusts to claim the main home exemption on more than one property, one in a trust and the other in your own name.  Family Trusts also have to comply with all other information required on the tax statements which means that a trust must provide an IRD number on a tax statement signed by the trustees.  

We recommend that all of those with family trusts take immediate action to obtain an IRD number for the trust but do so on the basis that you register the trust as ‘non-active’ with the IRD if the trust will not earn a taxable income and does not therefore need to file tax returns.

The bright-line rule does not replace existing property tax rules.  You might still need to pay tax on property profits even if the bright-line rules do not apply.

Your main home is the property where you live for most of the time or if you have more than one property, the one you have the greatest connection to.  In any case, more than 50% of the property’s area must be used as your main home.  If part of your main home is used for other purposes and that uses more than 50% of the property’s area, then the main home exemption will not apply and you will pay tax on any profit when you sell it.  E.G., if you use 40% of a property as your main home and 60% is rented out as a granny flat, then you cannot use the main home exemption when you sell.

For further exclusions please refer to the IRD Website https://www.ird.govt.nz/pages/campaigns/brightline

Your obligations

If you sell a property that falls under the bright-line rule, then you will need to complete an income tax return and a Property sale information form IR833 at the end of the tax year.  

For advice on hos this may affect you or for assistance with obtaining an IRD number for your trust, please give us a call on (03) 377 4421 or contact us email@ktlaw.co.nz

What are Form and Content Clauses?

If you are buying a home you can usually expect a number of further terms or conditions to be inserted into the contract for your protection. This will typically include conditions relating to finance, a land information memorandum and a building inspection report and if buying in post-earthquake Canterbury, an insurance condition and a clause dealing with the assignment of any residual rights in EQC and/or private insurance claims.

From time to time purchasers and vendors also have a condition inserted making the agreement subject to their solicitor’s approval of the form and content of the agreement. Usually this is requested when a seller or buyer would prefer to have consulted their lawyer prior to signing the agreement but for whatever reason were not able to do so. The idea of such a clause is obviously to enable your lawyer to make sure that all conditions which you need in the agreement for your protection are included in the agreement and, if one were missing to approve only on the basis that it is added.
However you need to be aware (and particularly vendors) that such clauses have been used by a purchaser’s solicitor on occasion to vary a condition with a view to cancelling an agreement. When you have conditions or further terms inserted in an agreement for your benefit you have an obligation to use reasonable endeavours to satisfy those conditions. So you cannot therefore simply change your mind and cancel the agreement without good cause.

At least that is the theory. If you have read the blog post on building reports you will be aware that there is an obligation to have a report prepared in accordance with “accepted principles and methods”. You will also be aware that on request you are required to provide a copy of the written report if you seek to avoid the contract on the basis of your building inspection. On at least one recent occasion we have seen a purchaser’s solicitor approve form and content only on the basis that this standard wording in the fine print be varied. In the particular instance this was because the buyer had already had a friend or relative do the building inspection and wanted out of the contract but had obviously been advised by their lawyer that they had not followed accepted principles and methods. They would also have been advised that their inability to provide the vendors with a copy of the report would be problematic.
Presented with those circumstances the vendor in that situation was left with little choice but to accept the approval of form and content on the basis of the altered building inspection clause. Predictably the contract was then duly cancelled by the purchaser.

One can argue that when acting for the purchaser it is our duty as lawyers representing the interests of our client to use a form and content clause in such a manner if that is to the benefit of our client. However you also need to be aware that as a vendor the use of such a clause in this manner could lead to a cancelled contract as was the case in the instance referred to.

Why Should I Pay for a LIM?

Buying a home is the largest investment most of us will make in our lifetimes. There is no substitute for sound legal advice from an experienced conveyancing lawyer at the time of your purchase.

In post-earthquake Christchurch in particular there is no longer anything such as a “simple conveyance”, if indeed there ever was such a thing! Add to that the complicated new tax laws for the taxation of property purchases and you need expert legal advice more than ever.

In this article we are going to look at why you need to obtain a Land Information Memorandum (LIM) and in particular, why are you should order and pay for it yourself.

 With the great proliferation of sales by auction and deadline sale these days it is increasingly common to be provided a LIM which has been ordered by the agent on behalf of the vendor’s or by the vendor’s themselves.

 The problem with this was highlighted in the recent case of Selwyn District Council v Monticello Holdings Ltd. In that case it was held that a council only owes a duty of care to the party ordering and paying for the LIM and not anyone else seeking to rely on the content of the LIM.

 Furthermore, as the time lag between listing, ordering the LIM and subsequent sale can sometimes be quite long, the LIM can often be some months old by the time your lawyer looks at it. This highlights the other factor with LIM’s namely, that the content is only warranted to be correct as at the date of issue.

What’s more, the standard contract for sales other than by auction provides at clause 9.3 (1) (a) (Tenth Edition (2019)2 ADLS form) that the LIM has to be obtained by the purchaser at the purchasers cost.

You might well think (and it may not be unreasonable to assume in some cases) that if the time between the issue of the LIM and the sale is small that there is a little chance of anything of material importance changing in relation to the property. However there is always a chance, however small that there might have been a requisition notified or a change to the content of the LIM however slim that chance might seem.

 A large number of buyers to choose to simply rely on the LIM provided but the message to be taken from this article is that if you want to be able to rely on the content of the LIM you should order and pay for it yourself.

Buying a Business – 7 Things You Need To Know

Are You Looking at Buying a Business?

In this video Brent Selwyn from Kannangara Thomson shares 7 key points to consider when buying a business.

1. Stock Adjustments Clauses
2. Staff
3. Restraint of Trade
4. Tangible Assets vs Non Tangible Assets
5. The Lease
6. Vendor Assistance
7. Franchise Systems

Please contact Brent on 03 377 4421 if you have any questions or if you would like more information on buying a business.

The Role of Your Lawyer in a Property Transaction

THE ROLE OF YOUR LAWYER IN A PROPERTY TRANSACTION

New Zealander’s have a love affair with property and during our lifetimes most of us will own property either for our own occupation or as an investment or both. It is a widely held misconception that conveyancing (the legal aspects of transferring ownership) of property is a straightforward task. In Christchurch in particular since the earthquakes of 2010, 2011 and beyond there is now no such thing as a “simple” conveyance if indeed there ever was! Buying your home is likely to be the most significant contract you ever enter into and it stands to reason therefore that having an experienced property lawyer on your side as your advocate and advisor is the logical thing to do.

In this article we take a short look at what your lawyer does in the background to assist you in completing that all-important sale, purchase or refinance. The role of a lawyer in conveyancing matters is largely misunderstood by the public and it is our hope that this article will dispel a few myths.

THE CONDUCTOR

One of the principal roles of your lawyer in any property transaction is to act as a point of contact for various important parties in the transaction. In particular your lawyer will likely liaise with your mortgage advisor, bank or lender extensively during the due diligence phase. If you are a first home buyer your lawyer will also manage with you the process of dealing with your Kiwi Saver provider and if you are eligible, Housing New Zealand in relation to a home start grant.

And it doesn’t end there. Your lawyer will also be the principal point of contact for the real estate agent, your insurer or insurance broker, the local authority, quotable value and on occasions any number of other professionals including your property manager, valuer, surveyor, engineers and of course your building inspector. In the event that any issues arise during your due diligence investigation of any property, you can also expect your lawyer to be the enforcer of your rights under the contract, a negotiator on your behalf and a key advisor in the whole process.

THE COLLATOR

Behind the scenes, your lawyer will receive and collate all of the relevant information relating to the property you are buying. This might include the land information memorandum from the local council, the building inspection report from your building inspector, the details regarding the earthquake claims and the scope of works, details of any earthquake repairs completed, details relating to insurance on the property and all matters relating to title and interests affecting the title. A fundamental part of your lawyer’s role is to keep you informed of the key dates and deadlines which are to be met during the course of your contract. In the event that a deadline cannot be met your lawyer will be the negotiator on your behalf to secure additional time to fulfil any conditions.

THE ADVISER

Having collated all the information relating to your purchase, your lawyer will advise you on all matters relating to or arising out of an investigation of the land information memorandum, the title to the land any insurance claims and of course the building inspection report. If necessary your lawyer will play a key role in assisting you to exit the agreement. Furthermore, should issues arise following your final inspection then your lawyer will be a key negotiator in managing any remedial work required of the vendor or on occasion negotiating the retention of funds pending any repairs being affected or on occasions, a reduction in the price if appropriate.

Another key role of your lawyer will be to advise you on the structure of your property ownership which will almost always depend on the nature of the relationship between the purchasers (if more than one) and might on occasion involve advice around ownership structures such as companies, partnerships or family trusts and in some circumstances, advice around relationship property considerations. Your lawyer will also guide you through the lending process and explain your obligations to the bank.

COMPLETION AND SETTLEMENT

One of the vital roles of your lawyer in completing your purchase is to see to it that all funds required are gathered into the lawyer’s trust account in a timely fashion so that settlement is completed on time. This will include communicating with your lender and ensuring that all of its requirements are met so that loan monies are available on settlement day. Your lawyer will ensure that any Kiwi Saver withdrawal, home start grant (if applicable) or personal contributions of yours are also received in time for settlement.

Your lawyer will prepare and execute the electronic documents authorised by you which see the legal title to the property transferred into your name and any new mortgage registered in favour of your lender. Following the completion of settlement your lawyer will attend to registration of the property into your names and thereafter, report to you and the lender with an up-to-date copy of the certificate of title and the registered mortgage. Finally, following settlement your lawyer will have the pleasant task of calling you to congratulate you on the purchase of your new home and advise you where the keys may be collected.

IN THE ENGINE ROOM

Lawyers rely on experienced solicitors, registered legal executives and legal secretaries to assist them with some aspects of your purchase so don’t be surprised if during your purchase you have contact not only with your lawyer but also his or her supporting solicitor, legal executive or secretary. We hope that after having read this you will appreciate that the role of your lawyer in any property transaction is one which is hugely important to the overall success of your sale or purchase. At Kannangara Thomson we have an experienced team of property lawyers and support staff available to help you with your property requirements.

7 Things You Need To Know About Making A Will

Brent Selwyn shares a brand a new video on “7 Things You Need To Know About Making A Will”. If you are thinking about getting a Will then watch this video first.

If you’d like help with setting up a Will then please contact Brent Selwyn on 03 377 4421.

Thanks for watching – Brent.

Does your home include a toxicity clause?

Are you buying a home? It appears the number of houses contaminated by the preparation or use of drugs is such that at Kannangara Thomson, we feel the need to further protect our clients by including a toxicity clause in the purchase agreement. This clause gives our clients another level of protection and security when buying a home, as if they are unhappy with the results of the toxicity report in any aspect, they can cancel the agreement. If you are buying a home, please contact us on (03) 377441 and we can help to ensure you as a purchaser are well protected.

Do you know the two types of enduring powers of attorney?

There are two types of enduring power of attorney:

  • Enduring power of attorney for personal care and welfare: This type of Enduring Power of Attorney covers your health, accommodation and associated care decisions, and comes into effect only if a medical professional or the Family Court decides you have become ‘mentally incapable’. You may have only one attorney for this Enduring Power of Attorney; it is usually a close friend or family member.
  • Enduring power of attorney for property: You can pick one or more individuals or a trustee corporation to make decisions about how your property and finances should be managed. You can decide whether you want this to come into effect immediately or only when you lose your capacity.

It’s possible to have one person who has enduring power of attorney for your personal care and welfare, and a different person who has enduring power of attorney for your property and finances.