Good homework saves you from ‘life sentence’

Kevin Lampen-Smith
Wellington, July 26, 2018
City life getting you down? Dreaming of living in the country, where you ‘commute’ from the breakfast table to a barn or your home office?
It might look like an easy life but buying a lifestyle property can be a complex business.
While living in the country has much to recommend it, you need to do more preparation for buying a place there than buying a pair of gumboots and comparing the merits of ride-on mowers.
Comprehensive due diligence
We recommend comprehensive due diligence when buying any kind of property, but rural ones come with a whole extra set of things to think about compared to buying a straightforward stand-alone home in town,
While it is tempting to focus on the dream wish list for your bucolic bolt-hole, but you should also compile a list of issues to be aware of (and people who can help you learn about them).
If the property you like is being sold by a licensed real estate agent, remember that you can ask them anything you like about it.
Rural agents’ specialty
Rural real estate agents have special skills in this area and they will be able to help you figure out what information you need to make a well-informed decision.
It is also a good idea to get your lawyer onboard early to check titles, consents and other information that you gather in the process.
It might feel like you are getting away from it all when moving out of town, but rural developments can be subject to rules that restrict what you can do.
Legal checks
We recommend getting your lawyer to check if there are any covenants on the property that might have an impact on a future business you may run there, or any planned building projects.
You do not want to invest in an alpaca herd for your new dream property only to find that it’s not allowed to carry any livestock.
Similarly, it would be tough to discover that your subdivision plans are not permitted by council rules. Be aware that there may be tax implications if you’re planning to use the property as a business.
In general, if it is currently being used for a business that is tax-registered – whether that is selling organic eggs, grazing stock or running a B&B – then the seller will probably add GST to the price.
This means, you will pay an extra 15%, unless you are also registered for GST.
GST queries
Ask your lawyer or accountant to check if the house or any other buildings on the property are GST-exempt.
They will also be able to advise you on whether you need to be GST-registered.”
A good place to start when trying to figure out what tax obligations might attach to your purchase of the property is Inland Revenue’s property tax decision tree (available at http://www.ird.govt.nz/property/property-terms-and-tools/property-decision-tree/), but keep in mind that it is always best to seek professional advice before you make a decision.
Rural properties (like all properties) can also have easements on the title that relate to access, water or power.
You should ask your lawyer to check the title and work out what the easements are, and how they will have an impact on your rights and responsibilities as an owner.
For example, if the title allows a neighbour access to a piece of their land through your property, do you have any right to limit the type and frequency of that access if you buy it?”
‘Unofficial Easements’
Be aware too that there may be ‘unofficial’ easements operating; the incumbent owners may have an informal arrangement with their neighbours, but this may not remain when the property passes into new ownership.
Things that we take for granted when living in urban environments, like water, sewage and access, can require more involvement in rural areas.
Check the water sources for the property – if it has its own bore, are there limits on the amount of water you can draw from it?
What is the process for ensuring it is safe to drink? What happens to wastewater and sewage? Are you prepared for life with a septic tank? Will the current owner ensure the tank is empty as a condition of sale?
Neighbourhood checks
When it comes to access, will you share a private road or right of way with other properties? What will be your responsibilities and potential costs for maintaining it?
Do not forget that your neighbours may be involved in unglamorous activities at ungodly hours – check the zoning rules for nearby properties if you’re worried about noise, smells or traffic.
You might think it is lovely to have stock grazing out the window, but are you ready for a milk tanker driving past every morning? Be aware that the LIM will not always alert you to any pending or current NZTA decisions regarding local highway linkages that often divert traffic away from urban centres in favour of immediate rural areas on the town boundary.
Check with NZTA if you think your property could be affected by road changes.
Like all property purchases, buying a place in the country requires careful, objective consideration.
There are lots of great things about living on the land, but it’s best to be realistic about it.
You do not want to be like the former townie I met a few weeks ago, who mournfully told me that their lifestyle block had become ‘a life sentence.’
Do your homework and you are far more likely to live happily ever after in rural bliss.”
For independent advice on buying or selling property, check out settled.govt.nz.
Kevin Lampen-Smith is Chief Executive of the Real Estate Authority based in Wellington.