Part One: Red zone residents should assess all the options available to them.

24 August 2011

All owners in the red zone need good advice. Each person’s situation is different and the aim is to maximise your payout. Richard Lang and Janine Ballinger, of Duncan Cotterill Lawyers, look at working your way towards getting the possible best result.

Red zone residents should assess all the options available to them, and not accept any offer from CERA at face value.

While many homeowners will be satisfied with their offer and will be keen to accept, other dissatisfied owners will be looking at how to increase their offer.

Irrespective of your situation, if you’re in the residential red zone you need to take time to fully assess your position.

The first thing you should do when you receive your CERA offer is to get legal advice. Your lawyer will be able to take you through the sale process (which is different to a standard residential sale in some respects) in detail, advise you on your particular situation, and prepare your sale agreement and submit it to CERA. Your lawyer will also have access to the newly established CERA electronic database, which contains all the information about your property, its rating valuation, and your insurance.

You have two options with the CERA offer: Option 1 (sale of both land and buildings to the Crown) and Option 2 (sale of land only to the Crown). The purchase price under both options is based on the rating valuation of your land and buildings. You need to assess which option will provide the best possible outcome. This can only be determined once your particular set of circumstances is assessed. You cannot really make this decision until you know:

Whether there is any potential to challenge the purchase price by objecting to the rating valuation for your property.
What your entitlements are under your private insurance policy.

Just because your neighbours are accepting a particular option doesn’t necessarily mean that it is what you should be doing. Every situation is different and you need to take time to get the right advice. On the other hand, it is important to keep the process moving, as the market for replacement properties is becoming more competitive.

For some owners, the rating valuation is higher than the market value of their property so they will be happy with their CERA offer. However, if you are dissatisfied with your offer, the only way you may be able to increase it is by objecting to your rating valuation.

CERA’s position on this is quite specific and it will only consider objections where:

The floor area of your property has been incorrectly stated for rating purposes; or
You have completed building work on your property since the last rating valuation with a building consent, and that work has increased your floor area.

The main thing to note is that this process is not about making sure that the rating valuation, and therefore the CERA offer, reflects the market value of your property. Rather, the objection process simply allows you to get an adjustment on the basis of a change to the floor area or land area of your property, which is what rating valuations for individual properties are largely based on. There will be a number of red zone property owners who have spent money improving the value of their properties, or whose properties are worth significantly more than the rating valuation suggests, who will not be adequately compensated by the CERA offer.

The objection process will be similar to the process that is already in place for owners objecting to their rating valuations when they are issued every three years by the Council. Your lawyer will need to notify CERA of the issue and submit appropriate evidence of the floor area. Your objection will be passed to the Valuer-General who will then assess the information and l consider amending the current rating valuation. You need to remember that the rating valuation, and therefore the purchase price under the CERA offer, can be revised downwards as well as upwards in the course of the objection process, so you need to obtain quality valuation advice before objecting.

It is also important to fully understand your insurance position. There are many types of insurance policies on the market so each owner needs to decide the best action given your particular set of facts. This assessment needs to cover the particular damage sustained to your property as well as your entitlements under your insurance cover.

Many houses in the red zone will be a “total loss” and CERA is expecting these owners to decide to sell their property to CERA for the land value only and for the owner to negotiate a settlement with their private insurer for payment of their house based on what the owner’s insurance policy states. However, depending on the particular insurance cover the owner holds this may not necessarily be the best course of action.

It is also important to be aware of what insurance payments you may already have received. If you have received claim payments from EQC or your insurance company and have not applied these payments towards fixing your property yet, the amount of these payments will be deducted from the purchase price under your CERA offer.

Finally, it is possible that people who accept the CERA offer for their land may receive an additional “top up” payment in the future once EQC has assessed any claim for land damage (while insurance companies generally do not cover land damage, EQC does). This is hard to quantify at present but needs to be borne in mind when considering the offer.

Richard Lang and Janine Ballinger are working with many clients who are assessing their CERA offer. J.ballinger@DuncanCotterill.com

Location http://www.duncancotterill.com/index.cfm/1,159,704,0,html