Purchasing a property post Earthquake

Purchasing a property post Earthquake – Bank requirements

Purchasing a property since the Earthquakes necessitates a lot more time and extra conditions that need to be inserted in contracts relating to the purchase of a property. Those clauses relate to:

Insurance - acceptable to a purchaser and the purchasers lender;
Structural Engineers and/or Geotech Reports - acceptable to a purchaser and the purchasers lender

Most lenders will need to see the Reports and confirmation of Insurance cover before they will confirm finance.

Insuring a property post Earthquake

It is now extremely difficult to get insurance for a property you are purchasing. I have had clients say "I have been a client of theirs for 30 years and they still will not give me insurance." Please try not to take this personally, it is not you that the company will not insure, it is the property. It seems that the only way to get insurance is for the vendors insurance Company to agree to assign the policy the vendor has in place for a property to a purchaser.

People in the Redzone signing up to purchase a property in anticipation of the Government payout

If you own a property in the Redzone and are signing up to purchase a property intending to use the money from the Government to finance the purchase you need to be aware that:

there are a lot of people looking for properties in Christchurch and quite often multiple offers are being presented to a vendor;
contracts are once again containing "Rollover/Escape" clauses; and
because of this you may not be able to get an extension of time so make all other conditions 15 working days. Remember: you can always confirm earlier.

If the vendor/agent has included a "Rollover/Escape" clause in the contract you do not want that clause to be invoked until the time for approval of the LIM etc (hopefully 15 working days) has elapsed. You should therefore add to the end of the clause the words "This clause will not be invoked for 15 working days from the date of acceptance."

You should also note that as we do not know how long it will be until you get the money from the Government, you need to have discussions with your Bank as to whether you can borrow sufficient money to purchase the property if you do not have the Government money by settlement - e.g. Bridging finance. This means that:

if you approve all other conditions and the only condition outstanding is the requirement for the funds from the Government, and
if the vendor invokes a rollover clause which gives you 3 working days to confirm the contract or lose the property Will the Bank lend you sufficient finance to purchase the property and could you afford the payments for that finance until you receive the Government payout. If so, you may be able to confirm the contract.

We have had some initial information from the Government and, subject to their agreement and capacity; settlement could be 4 weeks from when a contract is signed. You should therefore make the settlement date for any purchase one month from confirmation to ensure you will have the money for settlement. However we can give you an indication of timeframes once we have registered your property in the red zone on the CERA database.

It is expensive, but very important, to get the relevant Building, Structural Engineers and/or Geotech Reports and if you enter into a contract, obtain those reports and then a rollover/escape clause is invoked and you can't confirm you could be out of pocket by approximately $2,000.00. If you enter into three contracts before you are successful, you can see that it could be very expensive.

I know this is an extremely stressful time and unfortunately the property market is only adding to the stress and pressure. We have had clients who complain that Agents are ringing them and telling them they have to confirm or they will lose the property. Please do not give in to this pressure. Make sure this is the right property for you, that you will be able to purchase the property and sustain all the payments you will need to make until you receive the Government payout.

EQC

If your property or a property you are purchasing has sustained damage in one of the earthquakes you need to be aware that:

if there is damage to driveways, paths or fences a claim needs to be lodged with the owners private insurance company; and
if there is damage that is likely to exceed the EQC limit of $100,000.00 the owner of the property needs to lodge a claim with their insurance company.

Please remember that there seems to be very large discrepancies between the assessments of EQC and private insurance companies as to the cost of repairs so even if the damage only looks like it may be $50,000.00 it may be worth having the owner of the property lodge a claim with their private insurer.

NOTE: A person cannot lodge a claim for damage that occurred while they did not own the property.