It’s important you check and understand the title when listing a property as a licensee. This page outlines your obligations when checking a title and includes relevant guidance from a Real Estate Agents Disciplinary Tribunal decision.
In New Zealand, legal ownership of land is listed on a record of title. Titles are held electronically by Land Information New Zealand(external link) (LINZ).
A record of title states who owns a property and may include any rights and restrictions relating to the title, such as a mortgage over the property, easement or covenant.
An easement grants somebody else the right to use the land for a specific purpose. This is typically granted to adjoining property owners for matters such as access rights and water or drainage access.
Easements can also be granted to local councils and power or other utility companies to install and maintain electricity or telecommunications cables and gas or sewage lines.
Covenants are rules that the landowner must abide by. Examples of covenants include restrictions on the size of buildings and the materials they are made of and restrictions on what activities can be carried out on the land.
A caveat is a notice that someone other than the legal owner is claiming an interest in the land, for example, where a family member has loaned money to buy the property but hasn’t yet registered a mortgage on the title. If a caveat has been registered, the property owner cannot sell, mortgage or transfer the land until the claim has been resolved.
For more information on caveats, visit the Land Information New Zealand website here(external link).
You are not expected to verify where the property boundaries are in every case. However, if you are aware of an issue, you should point it out and if asked you must either verify where the boundaries are or advise the purchaser to get professional surveying advice.
To comply with your obligations when checking a title, you must:
- obtain a copy of the record of title
- review it to verify that the information about tenure, ownership, legal description and property description in your listing agreement matches the information on the title
- establish whether there are interests registered on the title such as covenants, caveats or easements that should be brought to the attention of interested parties
- check zoning or council requirements so you can point out any restrictions that apply to the property
- a lawyer should help your vendor or interested buyers interpret what any restrictions mean.
While you’re not expected to be a legal expert on titles, you should be able to identify potential issues on a title and recommend clients get legal advice to understand the implications of what’s on the title.
Handling title issues
If you find restrictions or other issues during your title search, you should point these out to prospective purchasers and advise them to seek professional advice.
You should read all the material you get from the vendors about the property, so you can identify anything about the property that may be a potential issue. If the vendor has made a claim about the property that you can’t verify, we recommend you do not repeat the claim in your marketing or conversations with buyers.
In some cases, it may be acceptable to tell a prospective purchaser that a claim is based on a statement made by the vendor and that it hasn’t been verified. In this situation, you should recommend that the prospective purchaser verifies the claim and gets professional advice.
Guidance from a decision
The case involved the marketing of a residential property with a separate one-bedroom flat as a ‘home and income’. However, a covenant registered against the property’s title prevented it from being used for any commercial purpose or more than one household unit.
The issue was whether the licensee had a duty to check whether the flat was allowed before advertising the property as a home and income.
The CAC decision on the matter was appealed to the Tribunal, and during the appeal hearing, the parties reached a settlement. However, because the Tribunal considered that the case raised an important issue for the industry, it issued a decision as guidance to the industry.
Read the full decision here(external link).
Key parts of the decision
You should search the title and be familiar with it
The decision stated the following:
‘We consider that a licensee, upon taking instructions for the sale of a property, should search its title, or have some competent person search it for the licensee, and be familiar with the information gained from such a search.’
‘In this case, it would have also been necessary to search the content of a transfer shown as containing a restrictive covenant. Such a search is not a difficult task to carry out or arrange. Similarly, the licensee should ascertain such matters as zoning and compliance with town planning regulations or Council requirements. We do not accept that a licensee can simply regard such matters as within the realm of a vendor or purchaser’s legal adviser.’
‘Licensees should be familiar with and able to explain clearly and simply the effect of any covenants or restrictions which might affect the rights of a purchaser. This is so whether that purchaser is bidding at auctions or negotiating a private treaty.’
Do not solely rely on information provided by the vendor
‘We observe that acting merely as a conduit from seller to purchaser may not exonerate a licensee from blame. We do not think that a licensee should place sole reliance and credence on advice or assurances from a vendor, even though given in good faith.
‘It seems to us to be fundamental to effect such a search [meaning a title search] in order to ensure that the apparent vendor actually has title to the property.’
‘We consider that our above views relate to Rule 5.1 of the Real Estate Act (Professional Conduct and Client Care) Rules 2009 which reads’:
“5.1 A licensee must exercise skill, care, competence, and diligence at all times when carrying out real estate agency work.”
‘We emphasise that our above views about understanding the state of the title of the subject property is an essential role for a licensee, and failure to undertake such a title check could well amount to unsatisfactory conduct under s.72 or even the more serious offence of misconduct under s.73.’