Many kiwis will, during their lifetimes buy and sell property. The process of buying and selling is not as simple as one might think, and given the importance and value of the asset involved, property transactions necessitate a degree of complexity and care.
Exactly how property transactions are completed is not well understood by the general public, and it may, therefore, be useful for existing and potential property owners to consider what lawyers do in the background to complete a sale, purchase or refinance.
The lawyer in a standard sale and purchase transaction is the key point of contact for several parties to the transaction. The lawyers (for both sides of a sale) are the “keepers” and enforcers of the sale and purchase agreement, the negotiator and an advisor. Consequently, the lawyer manages the transaction by communicating with the other key parties in the transaction which, depending on the nature of the transaction, can include banks/lenders, Kiwi Saver scheme and fund managers, real estate agents, Government agencies, Councils, mortgage and insurance brokers, tenants and property managers, body corporate managers, valuers, surveyors, engineers and builders.
Behind the scenes, the lawyer obtains and collates all of the information received by the various parties to the transaction and, if required, informs the client of the critical points in each report, agreement or other relevant document. The lawyer must keep all parties, but particularly the client, informed of key dates and deadlines in the transaction. Missing a date or deadline can have significant financial and practical implications.
The lawyer will advise the client on any legal and other issues that arise during the transaction. This advice may include raising any issues with the title to the property, identifying any items of concern in the Land Information Memorandum (“LIM”), assisting the client to exit an agreement, or providing options for handling problems on the day of settlement. In certain circumstances, the lawyer may also be asked to give advice on structures for ownership of the property, relationship property considerations and complexities around family trusts, bank guarantees, gifting and insurance.
Where the transaction involves lending, the lawyer must communicate with and meet the requirements of the bank/lender. For instance, the lawyer must give certain assurances to the bank/lender before they will advance funds to complete the transaction. To give these assurances, the lawyer must investigate and comply with the bank/lender’s instructions and various laws. Unless such investigation is completed and the bank/lender confirms they are in a position to make the funds available, the funds will not be paid out and even when funds are paid out, in most cases they will only be paid to the lawyer (rather than the client) to use in completing the property purchase.
The lawyer must ensure that the legal title to the property, the physical ownership of the property, and the funds themselves change hands in such a way that protects both parties’ interests and the interests of any other party involved in the transaction, such as a bank/lender or real estate agent. This process of settlement is carefully staged so that the funds, securities (such as mortgages) and the property change hands concurrently.
In most cases, after the lawyer plays their part, the buyer takes ownership of the property, the seller gets their money or perhaps a new home, the bank gets a mortgage, and all other parties to the transaction get what they need without a hitch.