Property Law Pot Pourri 2015

1. ADLSI SEMINAR Property Law Pot Pourri 2015 September 2015

2. Presented by Thomas GibbonsDenise Marsden Partner David Chapman Senior Advisor Joanna Pidgeon Principal Director

3. ADLSI SEMINAR Property Law Pot Pourri 2015 Sale and Purchase of Managed Units Denise Marsden Partner

4. 5 Outline 1. Introduction 2. Structures 3. Usual terms of hotel/serviced apartment leases 4. Usual terms of building management agreements 5. Usual terms of property management agreements 6. Due diligence for purchasers 7. Acting for vendors 8. Questions

5. 6 1. Introduction  Managed units have another layer of complexity when brought and sold  These issues we discuss today are all in addition to usual advice to vendor/purchaser

6. 7 2. Management Structures  (a) Serviced Apartment Leases Body Corporate Unit Owner Manager Body Corporate Manager Guests (Short term visitors) Contract Lease

7. 8 2. Management Structures(cont’d)  (b) Hotel Management Body Corporate Unit Owner Manager Hotel Operator Guests Contract (Body corporate administration) Lease Management Agreement

8. 9 2. Management Structures (cont’d)  (c) Management Rights - Residential Body Corporate Manager Unit Owner Building Manager An Owner Body Corporate Lease of Manager s Unit Building Management Agreement Contract Guarantee of lease Tenant Residential Tenancy Agreement Property Management Agreement

9. 10 2. Management Structures (cont’d)  (d) Management Rights – Residential Leases Body Corporate Unit Owner Manager Body Corporate Manager Tenant Contract Lease Residential tenancy agreement

10. 11 3.Usual Terms of Hotel/Serviced Apartment Leases  Rent paid is less outgoings and management fees.  Rent might be pooled or for the unit.  Manager’s pay the outgoings.  FFE ownership can vary and there are usually sinking funds spent by the manager.  Assignment might not need consent.  Termination might be at will or limited.

11. 12 3. Usual terms of hotel/serviced apartment leases  Proxies/powers of attorneys to managers  Proxies/powers of attorneys to managers  Obligations on sale – notice – delivery of covenants  GST  Rights to occupy

12. 13 4. Usual Terms of Building Management Agreements  Request via additional disclosure  Caretaking/building management services  Fixed fee  On-site manager’s accommodation  Exclusive letting rights  Assignment with consent  Termination rights

13. 14 5. Usual Terms of Property Management Agreements  % fee and commissions  Outgoings paid by owners  Termination at will

14. 15 6. Due Diligence for Purchasers  Not just a property purchaser, it’s also a business  Agreements should include provisions as if subject to a commercial lease  Disclosure (Unit Titles) will not be enough to advise purchasers

15. 16 6. Due diligence for Purchasers (cont’d)  Management structure  Contracts with the unit owner  Other associated contracts with other parties  Deed of assignment  Income from unit (and deductions from it)  Payment of outgoings  Manager competency, profitability  GST

16. 17 6. Due Diligence for Purchasers (cont’d)  FFE/Chattels  FFE fund  Termination rights  Voting rights  Numbers in the pool  Impact on the body corporate  Resource consent – change of use considerations

17. 18 7. Advising Vendors  Selling the property subject to correct contracts  Obligations to advise managers of sales  Deeds of covenant  Chattels  Clause 6.1 warranties  Obtaining and reviewing financial information  Apportionments  Clause 8.2(8) warranties - common property rights

18. 19 Questions & Answers

19. Afternoon Tea

20. ADLSI SEMINAR Property Law Pot Pourri 2015 Easement and Covenants – Taken for Granted? Thomas Gibbons Director

21. 22 A Cautionary Tale  https://www.lawsociety.org.nz/lawtalk/lawtalk-archives/issue- 853/lawyers-compaints-service-fined-for-failure-to-advise- adequately  Two covenants had an impact on the land, together with a Resource Consent.  The standards committee observed that the covenant documents were “relatively standard documents for legal practitioners to review”.  E provided copies of the documents to the purchaser, advising him that the purchaser needed to carefully read the detail.

22. 23 A Cautionary Tale (cont’d)  The committee said that E did not provide the required legal analysis and, in the circumstances, he should have because the client was clearly relying upon him to do so.  It was not sufficient for E to have advised the purchaser to read the documentation carefully, without explaining it fully, and advising on the implications.

23. 24 Outline  Easements – What and characteristics – Types and uses – Creation and modification  Covenants – Nature and operation – Creation – Drafting and interpretation  Current issues and cases

24. 25 Four Themes  Broad flexibility of NZ law  Law vs practice  Read and understand  Draft carefully, with an eye to the future

25. 26 Easements  A right, over someone else’s land, that is not a lease or licence  Traditionally, four characteristics: – Dominant and servient tenement – Easement must accommodate the dominant tenement – Dominant and servient owners must be different persons – Subject of grant suitable, and right sufficiently defined  See eg Re Ellenborough Park

26. 27 Easements (cont’d)  Today: – Dominant and servient tenement  Not for easement in gross – Easement must accommodate the dominant tenement  Not for easement in gross – Dominant and servient owners must be different persons  Not required – see s 90E LTA – Subject of grant suitable, and right sufficiently defined  Broad scope for creation

27. 28 Easements (cont’d) Philpott v Noble Investments Ltd [2015] NZCA 342 at [31] “An easement has the characteristic that it affects the servient land for the benefit of the dominant land, in a way that benefits the dominant land, not just the owner of that land for the time being. The servient and dominant land need not be contiguous but they need to be sufficiently close that the dominant land receives a benefit from the grant of the easement. The grantor (servient owner) and the grantee (dominant owner) must be different persons. The right must also be capable of being the subject matter of a grant, so that most easements are either the same as or close to existing grants. Another aspect of this requirement is that there must be clarity as to the nature of the right granted by the easement, so that it is possible to determine both whether the right exists, and whether it has been breached. The claimed easement cannot be vague, ill-defined or over-broad.”

28. 29 Easements (cont’d)  Ways to categorise: - Appurtenant or in gross - Positive or negative - Registered or unregistered - By usage rights:  LT Regs 2002 • ROW, convey water, drain water, drain sewage, etc  Other, eg party wall, waterway, batter right, canal …

29. 30 Easements (cont’d)  Creation – in practice: – Parties agree by contract – Resource consent or survey plan turns up

30. 31 Easements (cont’d)  Creation – in law: – Transfer – Easement instrument – On deposit of plan (not yet enabled)  Variation, modification, surrender – By easement instrument – By Court order – Removal from register by RGL, in event of redundancy

31. 32 Easements (cont’d)  Particular statutory provisions – Sec 348 Local Government Act 1974  Creation of ROW – Sec 73 Unit Titles Act 2010  Incidental rights – Sec 23 Electricity Act 1993  Rights of access to electrical works – Sec 181 Local Government Act 2002  Construct and maintain works on private land

32. 33 Easements (cont’d)  Particular statutory provisions – Sec 328 Property Law Act 2007  Court-ordered access to landlocked land – Sec 325 Property Law Act 2007  Court-ordered easement for wrongly-placed structure – Sec 298 Property Law Act 2007  Rights over jointly owned access lot – Sec 243 Resource Management Act 1991  Compulsory easements …

33. 34 Easements (cont’d)  Utility easements – Easements in gross – Implied LT Regs vs standard terms (vs standard negotiations) – Fairness and the role of lawyers – Role of peer review

34. 35 Easements (cont’d)  Interpretation – Treat like a contract vs treat like a public document – Balance of authority and commentary favours treating like a contract  Investors Compensation approach

35. 36 Covenants  Equitable origins of restrictive covenants over land – Tulk v Moxhay (1852)  Intersection of contract, equity, and statute – Notified on register, not registered – Notification gives “no greater effect” – Effect as a deed inter partes

36. 37 Covenants (cont’d)  Equitable origins of restrictive covenants over land – Tulk v Moxhay (1852)  Intersection of contract, equity, and statute – Notified on register, not registered – Notification gives “no greater effect” – Effect as a deed inter partes

37. 38 Covenants (cont’d)  Types – PLA covenants, notified on register – Sec 108, RMA – Sec 221, RMA (consent notices) – Sec 240, RMA – Heritage covenants – Conservation covenants – Open space covenants

38. 39 Covenants (cont’d)  Gridlock – Do we need the covenants we have? – Covenants c. 1995 vs covenant c. 2015  Paternalism?  Inhibiting affordability?  Inhibiting further development? • (s 224 RMA) – Who pushes for covenants?  Developers? Agents? Lawyers?

39. 40 Covenants (cont’d)  Interpretation and drafting  When drafting – think ahead – Better recitals – Sunset provision – Expiry over future roads to vest – Are restrictions needed? – Are provisions clear (when things change)? – Liquidated damages – Approval rights to developer

40. 41 Encumbrances  Used for positive covenants and covenants in gross – Suggested since 1950s, confirmed as properly valid and enforceable only in last 10 years – Powerful – and dangerous  Proposals for reform – Covenants in gross to be notifiable on titles – Broad PLA modification powers for encumbrances?

41. 42 Case Law  Gregory v EK Trust (NZHC) – ROW dispute – Gates removed over half of shared driveway – Gates may have been desirable for the property, but in terms of ROW, not necessary for the easement – Interim injunction declined – Comments on neighbourliness

42. 43 Case Law (cont’d)  Gregory v EK Trust (NZHC)  Practical point: a gate isn’t a necessary part of a ROW easement – Fact it arose 20 years after grant may also be relevant

43. 44 Case Law (cont’d)  Philpott v Noble (NZCA) – A caveat case: agreement to provide roading and services if subdivision proceeded – “no express provision in the contract that an easement would be granted, but no particular form of words is necessary for an implied grant of an easement” (at [40])  More than personal rights intended  Intention to confer right that was capable of being subject of grant of easement

44. 45 Case Law (cont’d)  Philpott v Noble (NZCA)  Practical point: if you intend to create an easement (rather than some other right), or do not, say so – The courts may imply an easement into wording

45. 46 Case Law (cont’d)  Joie de Vivre v Christchurch Intl Airport (NZHC) – agreement to grant easements recorded in a “registered land covenant” – Court uncertain whether conditional agreement to grant easement allows caveat – Right to registerable interest (easement) arose from registered instrument (land covenant)  No greater rights could accrue, so no caveat

46. 47 Case Law (cont’d)  Joie de Vivre v Christchurch Intl Airport (NZHC)  Practical point: no caveatable interest from easement agreement contained in land covenant – Was the Court correct that no greater rights could accrue?

47. 48 Case Law (cont’d)  Singh v Potters Park (NZCA) – ROW agreement conditional on each of Singh and Potters obtaining consents from Council by April 2012. – Potters obtained its consent, but the Trust delayed its application and did not obtain all consents. – Potters cancelled agreement for non satisfaction of conditions. And refused to grant ROW. – Singh sued, HC found for Potters. – CA dismissed appeal after analysis of contract.

48. 49 Case Law (cont’d)  Singh v Potters Park (NZCA)  Practical point: An agreement to grant an easement is still a contract, and conditions (etc) still form part of the contract

49. 50 Case Law (cont’d)  Re Horncastle Homes (NZHC) – Application under PLA to extinguish old easements – granted – Practical point: Reminder that application supposed to be served on territorial authority  Excused here

50. 51 Case Law (cont’d)  Schmuck v Director-General of DOC (NZHC) – Scope of s 48(1)(f) of Reserves Act 1977 – Powers of Minister – Power of Minister to grant easement could include permanent facilities  Practical point: Though easements do not allow for exclusive possession, they can allow for permanent facilities

51. 52 Case Law (cont’d)  Menzies v Goodley (NZHC) – Interpretation of height restriction covenant – Extrinsic evidence all lost/unavailable  No evidence covenant did not reflect common intention  No rectification – Reliance on wording of memorandum of transfer over deposited plan

52. 53 Case Law (cont’d)  Menzies v Goodley (NZHC)  Practical point: Be clear in drafting, so you can follow the register, and don’t need to rely on extrinsic evidence later

53. 54 Case Law (cont’d)  Body Corporate 341188 v District Court at Auckland (NZCA) – 10 unit owners in apartment block  Claimed right to use car park on adjacent block  Car park owners denied apartment owners use rights – HC found covenant did not permit unit owners’ use – Appealed to CA

54. 55 Case Law (cont’d)  Body Corporate 341188 v District Court at Auckland (NZCA) – CA considered interpretation issues:  “… there are divergent views on the extent to which extrinsic evidence should be taken into account in interpreting instruments registered against a title. The issue is one that a permanent court may wish to consider when a suitable opportunity arises …” [21] – Interpret covenant based on factual context at time of creation – Positive covenant, despite negative wording

55. 56 Case Law (cont’d)  Body Corporate 341188 v District Court at Auckland (NZCA) – Is the Court right? – Was this really a positive covenant? – Are NZ courts being too flexible?

56. 57 Summing Up  Themes from cases  Many relate to agreements, not registered instruments. – Be clear and precise in contractual drafting – Turn easement agreements into registered easements as promptly as possible  Almost all issues relate to interpretation problems. – Be clear and precise in contractual drafting – Look ahead

57. 58 Four Themes  Broad flexibility of NZ law  Law vs practice  Read and understand  Draft carefully, with an eye to the future

59. E-dealing Best Practice, Landonline Tips and Practical Registration Matters David Chapman Senior Advisor

60. 61 Session Overview  Knowledge base , some useful tips – A & I Forms – checklist for subdivisions – answer questions that have been submitted  Consent notice, superfluous material  Taxation (Land Information and Offshore persons) Bill

61. 62 LINZ Knowledge Base www.linz.govt.nz  Information for lawyers – Common dealings  Subdivisions – file attachments – subdivision checklist  Land registration – Rules standards and guidelines – e-dealing checklists, guidelines , compliance and evidence retention  Checklists, evidentiary requirements, consent requirements self assessment form, common compliance review issues

62. Knowledge Base Homepage

63. Pre-set Instrument Lists in Landonline

64. Example Dealings in Landonline

65. Example Dealings in Landonline (cont’d)

66. 67 Superfluous Documents Information, accurate and easy to understand  Councils able to give notice of conditions on LT register – Covenants, bonds, consent notices  Need to be clear concise easy to understand  Lodgements with additional information outside the scope or vision of LT Act – Superfluous – Often poor image quality, diagrams – Multiple pages – Handwritten notes unreadable when scanned

67. 68 Concerns  Slows or freezes Landonline processing, for everyone  Information is not authorised by either the RMA or LTA  Information is not part of the LT register  Practitioners may be caught up with their obligation to search the register  Information once lodged is not updated  LINZ is not the authoritative source for Council information

68. 69 How You Can Help  LINZ talking to Councils  Some practitioners have been asked to lodge these types of documents  Lodge only information that is authorised by the RMA and relevant to the transaction being registered

69. 70 Taxation and Offshore Persons Focus on gathering information for tax compliance from people dealing in land  Purchasers and vendors need to provide tax numbers – NZ IRD number – Overseas: an overseas Tax Identification Number (TIN)  Acting another capacity (trust) the number relating to that capacity

70. 71 Tax Reforms Exemptions  New Zealand individual who is not an offshore person – buying or selling their main home  Maori Land  Land that is part of treaty settlement process  Any contract entered into before 1 October if registered on or before 1 April 2016

71. 72 Collection of Information  Collected by conveyancers from vendors and purchasers  Provided to LINZ upon lodgement of dealings  LINZ collects the information and sends it on to IRD  Principally a tax measure but LTA provides the mechanism for collecting information  Tax information is personal information – not part of LT register – not publically available

72. 73 Registration of Transfers  Property lawyers have a key role in submitting tax information via Landonline  Applies to any specified estate in land – all freehold and leasehold estates – stratum estates under Unit Titles Act – licences to occupy  Transfers registered only if accompanied by tax information provided by transferor and transferee  Lawyers who certify the transfer must provide the information but do not have to certify to its accuracy

73. 74 Responsibilities  Conveyancers are required to supply information to LINZ with dealing  Conveyancers are not required to certify the accuracy of the information supplied  Onus on purchasers and vendors to provide correct information  It is an offence for the transferor or transferee to provide false information

74. 75 Policing Errors and Omissions  An omission or error in any tax information provided does not: – affect the validity of any registration or – give rise to any liability of or claim for compensation from the RGL, LINZ or the Crown  If information is incorrect the transferor or transferee must complete a corrected tax statement  Information will be held by LINZ for 10 years and a copy forwarded to IRD

75. 76 Information Not Available for Searching  The information being gathered is private information  Does not form part of the LT register and must not be made available to the public  Will not be available for searching  Example of Land Transfer Tax Statement on LINZ website

76. Landonlin e:Accessi ng New Tax Screen A new button will display for transfers that require tax information

77. Landonlin e: Transfers Tax information may then be entered according to the details provided in your client’s tax statement When you click on the field in columns Q1.1, Q2.1 & Q2.2, the question will display above When all details have been entered, the system will check this box

78. Landonline – Image Only Transfers For image only transfers the “Insert names” button will display for entry of the names before details can be entered in the tax screen

79. 80 Landonline – Image Only Transfers Enter the names of each transferor or transferee For mortgagee sales, the transferor will be the bank For transfers also granting an easement, indicate the names involved in the transfer of land by ticking the box

80. 81 Landonline – Certify and Sign At signing, a check will be completed to ensure tax details have been completed. After completing certifications and clicking sign, the tax details for your firms clients will display for confirmation

81. 82 Getting Prepared  Begins 1st October 2015  Affects contracts entered into on or after 1 October  Especially look out for – trusts that may not already have an IRD number – non-resident clients who do not already have an IRD number

82. 83 Transition  Changes to Landonline over 26 – 27 Sept  Landonline functionality will begin on 28 Sept  If settlement date is before 1st October ensure settlement date is entered in “create dealing “ screen  Settlement not before 1st October avoid rework by not signing the transfer prior to 28th Sept

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