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Do your DD and respect the Red Tape



People would rather not go and see a lawyer. The lawyer’s office is like the house of pain. When you go there it is going to hurt.

 

But then there’s the red tape.

 

What drives people into the lawyer’s office is that if they try doing it themselves and screw up its going to really hurt. So its either “hurt” or “really hurt”.  

 

Either way “sort of” getting it right won’t do.

 

Take Fred for example. Fred is a budding self-proclaimed property magnate. He rates himself as someone who knows how to “work the system”.

 

I mean, says Fred, what harm can it possibly cause having a small kitchenette in the spare bedroom? This is exactly the sort of thing the gurus tell you to look for in all those property seminars, right. Look for the angle. And then buy, buy, buy! Right!

 

And so Fred buys.

 

Now that he owns the place he decides to do some “maintenance” downstairs putting in a few items that look remarkably like a kitchen. Then he flies under the radar for a bit without any of his “cook at home” guests (non-paying of course, yeah right!) in the “spare bedroom” managing to burn the place to the ground.  

 

Too smart, says Fred. The place must be worth zillions more than it cost, and all because I’ve done up the spare room. Why didn’t the last people think of that?

 

Its all good. Right Fred?

 

So good that he decides to test the market just in case there’s someone out there prepared to pay the megabucks that the place is now surely worth. And, bingo, along comes Moneybags. He’s been looking for a place just like this where he can let out the front part and the back part separately. Perfect he says, I’ll take it. All he wants is a LIM report and a quick builder’s report. The price is not quite what Fred wants but still okay for a quick turnaround. Deal done!

 

But old Moneybags didn’t get rich by being stupid, so he’s got himself a good property lawyer. And his builder knows his stuff too. The first thing the builder notices is the self-contained flat with a full kitchen downstairs with its own entrance. That’s strange because there’s nothing about that on the plans he got from Council. He tells Moneybags. Moneybags tells lawyer. Lawyer checks the LIM report and confirms that there’s nothing on there about a self-contained flat.

 

By this point Fred is positively salivating at the thought of pocketing some serious coin for a couple of weeks work. So when he learns that Moneybags isn’t happy because the red tape is lacking, he thinks he’s just another tyre kicker going nowhere in life. Next!

 

Meanwhile Moneybags is doing some hard research. What would the Council require to get it properly consented, assuming its even possible? What would it cost? Would development contributions be payable? How much? How long will it all take? What if something has not been done right and, for example, the walls need to be fire rated? How much would that cost? Could it even be done? Would rates go up? What about insurance – will he even get cover for it the way it is, and if so how much extra will that cost?

 

Moneybags finds the answers. He knows exactly what he needs to do and for how much. He goes back to Fred, who knows none of this, and tells him he’ll still buy the place but the price has just gone down. A lot.

 

Nope says Fred. Next!

 

Unfortunately for Fred that was Moneybags’ final offer. He found something else.  

 

Even worse for Fred though, the real estate agent now knows about all the issues with the property. He goes to Fred and says “Fred. Mate. You’re going to have to do all these things to make the property legal. Or else we can’t touch it.”

 

But Fred didn’t get where he is today by worrying about red tape. A quick lick of paint was the most he had in mind.

 

Things hit a new low for Fred when he got a letter from Council to say its time for some routine monitoring to check if the property complies with the building consent. Anyway, as you can imagine, that didn’t go well. He’s now got a few short weeks to sort things. Including firewalls and development contributions. And no renting it out in the meantime. Its all very expensive.

 

He decides to try Moneybags one more time. Yes, he’s still keen. Phew. But the price has gone down another hundred grand. He tries the real estate agent again. He’s not interested in getting dragged into Fred’s issues.

 

By now the bank have started getting a bit stroppy with Fred because, since he hasn’t been getting any rent for his spare bedroom, and because all the folding stuff that was clogging up his piggy bank has been spent shouting his new “friends” wine then paying for taxis home late at night, payments are behind. If this carries on we’ll have to sell the place for you Fred, says the letter from the bank’s expensive big city law firm. My hands are tied Fred, says the local bank manager.

 

The day before Fred decided to get out of property altogether, he got a call from the taxman wanting a few details about his income, and asking who all the people were that kept coming and going from the downstairs part. And by the way, did you realise, Fred, that if/when you sell the property, if you do in fact, after all this, actually make some money on top of what you paid, we’ll have some of that thanks.

 

What’s the take-home message?


It's this: Get Queenstown Law to help you do your due diligence. And respect the red tape.

 

Call us on 03-4500000 or email us at russell@queenstownlaw.co.nz or claire@queenstownlaw.co.nz

 

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