Tina Hwang
Many in the legal profession have a condescending attitude towards conveyancing, labelling it as “cookie-cutter” work for juniors, easily managed with pro forma templates and a few clicks of a button.
This perception isn’t helped by conveyancers who market their services as fast and cheap. But when you look closely, property lawyers handle transactions that involve what is likely to be the most significant asset a person will own – a home. For sellers, it may represent years of memories and sentimental value, while for buyers it’s an investment in their future.
Property lawyers are tasked with ensuring these transactions proceed smoothly, safeguarding both the financial and emotional interests.
Their role is much more complex than many people realise. Beyond their standard duties, property lawyers carry significant other responsibilities: for example, they act as tax collectors for the IRD when handling capital gains tax for overseas clients. Failure to manage resident withholding tax (RWT) can expose lawyers to liability. Additionally, they must navigate the intricacies of bright-line tax provisions, which involve a labyrinth of technical dates and constantly shifting legislative changes.
The maze of due diligence
Property transactions come with many variables. Lawyers need a deep understanding of several legal areas, along with extensive knowledge of bank documents and, again, ever-changing legislation.
Missteps can lead to costly court battles about title issues, building disputes or third-party claims. New Zealand’s leaky building crisis is a stark reminder of the importance of conducting thorough due diligence, including obtaining building and LIM reports.
Many buyers, after viewing multiple properties, may start to cut corners by skipping building reports or LIM checks, mistakenly believing they’ve become experts through previous experience. This can lead to significant issues down the road.
Bodies corporate and document overload
Adding another layer of complexity, bodies corporate can overwhelm even experienced lawyers. Pre-contract disclosure statements (PCDS) are now typically delivered through online portals, often including 50 or more documents to review. Though the pre-settlement disclosure statement (PSDS) is simplified, these documents may contain key information about building defects or financial issues.
Buyers and lawyers must also be aware that body corporate minutes often omit crucial discussions, particularly when committee members are motivated to keep defects off-the-record to avoid devaluing their units. The Unit Titles Act 2010 (UTA) now require bodies corporate to provide detailed meeting minutes but in reality, these are often incomplete or hidden.
One overlooked line in a disclosure statement can spell disaster. I’ve witnessed a successful negligence claim against another lawyer who failed to notice a line in what was then a s 36 certificate (now s 147 PSDS), which referred to a recent building report. This omission placed the purchaser on notice about potential weathertightness issues, leaving the lawyer liable. While some lawyers have insurance, not all do.
Overseas investment and residency traps
Before a lawyer can act for a purchaser, he or she must check the client’s eligibility under the Overseas Investment Act 2005, without requiring consent from the Overseas Investment Office (OIO).
A common pitfall occurs when New Zealand residents mistakenly assume their residency status grants automatic purchasing rights.
They must meet additional criteria, including physical presence in New Zealand for at least 183 days within the previous 12 months. Failure to satisfy these requirements at both the time of signing and settlement can lead to legal action, with serious consequences for clients and their lawyers.
AML obligations
The anti-money-laundering (AML) regime imposes strict requirements on property lawyers.
They must complete customer due diligence (CDD) and, in some cases, enhanced CDD (ECDD) for clients, including verification of the client’s source of wealth (SOW). Trusts complicate the process further, requiring verification of all settlors, trustees and beneficiaries. Minor beneficiaries often present challenges, as parents may struggle to provide acceptable identification and proof of address for their children.
Lawyers can no longer confirm they are “in funds” without caveats. Completing AML checks is now a prerequisite for settlement and failure to comply can lead to severe consequences, including the requirement to file a suspicious activity report (SAR), without informing the client, creating ethical conflicts.
Free work, high risk
Property lawyers often act for banks in financing transactions, typically at no extra cost to the client. However, this introduces potential conflicts of interest.
Lawyers must balance their duties to both the bank and their client, which can be challenging when conflicting instructions arise. Banks may require additional documentation, such as a PSDS for body corporate units or building warrants of fitness (BWOFs), even when clients want to save costs by skipping these steps.
Relationship property and estate planning
Lawyers must also advise clients on the Property (Relationships) Act 1976 (PRA).
Many couples have complex financial arrangements, which require careful planning to avoid the default 50/50 division of property under the PRA. In particular, migrant clients may be unaware of how the PRA can override their intentions, necessitating a contracting-out agreement.
Lawyers must also explain the differences between joint tenancy (JT) and tenants in common (TIC) ownership structures, which impact how property is dealt with in the event of death or separation.
When family contributions are involved, disputes can arise over whether the money was a gift or a loan. A poorly documented gift can be classified as relationship property, entitling a separating partner to half, while a well-documented loan may preserve the parents’ rights.
Communication challenges
For clients whose first language is not English, clear communication is crucial.
The Real Estate Authority (REA) has teamed up with the government to provide multilingual guidelines for buyers and sellers online, which can be useful resources for clients.
Lawyers must carefully document all communications, including those conducted via email, text, or international messaging apps like WeChat, WhatsApp or Kakaotalk.
Understanding the acronyms
AML CDD, AML ECDD, AML SOW, SAR, PRA, IBD, FATCA, DD, BWOF, LIM, RWT, RTA, JT, TIC, UTA, BC, AGM, EGM, PCDS, PSDS, s146, s147, OIO, LTTS, A&I, DOL, DOAL, DOR, DOV. If you can decipher this list of acronyms, congratulations, you are likely a property lawyer!
Beyond conveyancing
As demonstrated, property lawyers have a more complex role than simple conveyancing. They must navigate an array of legal obligations, acronyms and client demands, ensuring compliance with the IRD, AML, OIO, PRA and various property laws.
Failure to do so can expose lawyers to significant risk, including negligence claims and regulatory penalties.
Property lawyers are not merely processing transactions; they are guardians of their clients’ financial and personal interests, ensuring that one of the biggest investments in their lives is handled with the care it deserves.
To all the property lawyers out there, ka pai for your dedication and expertise!
Tina Hwang is a director at Queen City Law, the convenor of The Law Association’s Property Law committee, and a member of the Property Disputes committee and the Civil Litigation committee
0 Comments