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Seek advice before buying a bare section

By Richard Lang, Partner & Suzy Garnett, Solicitor

First published in The Press, 7 May 2011

You’re looking to build your dream home, and have found the perfect section with panoramic views of Canterbury’s mountains.  You have plans in mind which will take full advantage of the location.  But can you turn your dream into reality? 

There are always a variety of factors you need to bear in mind when buying bare land – but the earthquakes in Canterbury have introduced new considerations.

In some ways, buying a section post-earthquake is simpler than buying an existing home, because you don’t have to worry about damage to buildings and taking over the seller’s EQC claim and insurance policy.  That said, buying bare land raises other earthquake-related issues that home buyers don’t have to worry about.

Firstly, you will almost certainly have to get a geotechnical report on the section, which will go into detail on the soil condition and structure of the land.  So, along with the conditions mentioned below, you should ask your lawyer or real estate agent to add a condition relating to your approval of a geotechnical report.  Geotech reports are relatively expensive (compared with a structural engineer’s report), however, it is very important to have a geotech report carried out to ensure that the land is still suitable to build on.  If you need finance to buy a section, your bank and insurance company will almost certainly require a satisfactory geotech report before giving approval for lending.

Secondly, although you don’t need insurance when you buy the section (other than the builder’s contractor’s risk insurance mentioned above) you still need to check with your insurer that down the track - once your dream house has been completed - you will be able to get full replacement insurance.  The insurer may have certain requirements before granting the insurance - and the sooner you know these, the better.

It is worth keeping in mind that bare land is not covered by either the Earthquake Commission or private insurers.  Land is only covered by the Earthquake Commission and/or private insurers if there is a dwelling on the property.  Incidentally, if you own a house that requires demolition after the earthquake, this restriction will also apply to you during the time that there is no dwelling on the property.

Once you have a geotech report, finance and insurance sorted for the property, the fun of designing and building your dream home can start.  The positive side to building in the current climate is that it may not be too late to ensure that your design is strengthened against the possibility of future earthquakes by way of including strengthening measures recommended by the professionals working with you to build your home.

Obviously, you will also need to consider the usual things associated with buying a section pre-earthquake.  The agreement to buy the section needs to include the customary conditions about arranging finance, and approving Land Information Memorandum (LIM) and title.  You may think that because the section is bare land, a LIM is not necessary because you don’t need information about building permits and the like.  However, a LIM will provide much more information than that including details that cannot be seen with the bare eye such as soil conditions, the connection of services, and whether there are any zoning or development constraints affecting the land. 

In addition (and especially if you are negotiating a house and land package) you should still consider including a condition making your purchase of the land subject to signing up a building contract on terms and conditions with which you are happy. And in any case, you should seek legal advice before signing a building contract.  As part of your approval of the building contract, you will also need to ensure that your builder has contractor’s all risk insurance which covers earthquakes and other acts of God.  The level of your builder’s cover will also need to be sufficient to cover the value of the building works on the property.

Finally, if you are buying a lot in a new subdivision and a new certificate of title has not yet been issued for the individual section you are buying, there should be numerous additional clauses in the agreement spelling out exactly what the vendor must do to complete the subdivision. This includes timeframes for a new certificate of title issuing, and possibly even land covenants that will restrict what you can and can’t do with the property.  If you are in this situation talk to your lawyer before signing the agreement.

Don’t let the recent earthquakes stop you from pursuing your dream home.  But do seek professional advice before buying bare land or signing a building agreement. 

Richard Lang is a partner of national and trans-Tasman lawyers Duncan Cotterill. R.lang@DuncanCotterill.com

Disclaimer: the content of this article is general in nature and not intended as a substitute for specific professional advice on any matter and should not be relied upon for that purpose.