brown wooden framed glass window

Help, I want to live the tiny house dream and build on my friend or family’s land but do not know where to start.

by Kiri Williams

20 March 2024

With the increasing unaffordability of property and squeeze on the property market in New Zealand at present, many New Zealander’s are turning to owing a tiny home. While this can be a great option to fulfil the ‘kiwi dream’, it is crucial that tiny homeowners secure their interest in the property or right of occupation of the land on which the tiny home is built to avoid running into problems further down the track.

Often to cut costs tiny homes are built on land owned by a friend or one of the family without formal documentation recording the occupation of land.

Before weighing up which option will suit, consideration by all parties will need to be given to the following matters (this is by no means an exhaustive list and every scenario will need to be considered on a case-by-case basis, and what is favourable for one client may not suit another):

  1. Is the tiny house going to be movable, relocatable or affixed to the land?
  2. Will there be a defined area of occupation, including exclusive use and common use areas?
  3. What are the finances and future plans of each party? Is a party looking at retirement, having a family, or considering moving abroad?
  4. The percentage and split of costs of any shared outgoings or maintenance and repair of shared areas (driveways) and the preferred method of payment of these?
  5. Is the tiny homeowner expected to pay annual rent, a one-off payment or to purchase a share in the land?
  6. Whether the tiny house owner needs additional security by registering a mortgage over their interest in the land?
  7. What happens if one party wants to sell or passes away? and
  8. Discussion about the preferred dispute resolution process.

Another consideration before you start your tiny home journey is to find a reputable building company and builder. We recommend you do your due diligence and have your Lawyer look over the building contract before you sign it.

Some options available to tiny homeowners wanting to secure their interest include:

1. Entering a Lease arrangement with the owner of the land:

A lease would provide the tiny homeowner with exclusive possession and control over a defined area of the land in exchange for payment of rent to the landowner. The terms of the lease would set out the area leased, annual rent charged, the duration of the lease (noting that the lease must be for a period of no more than 35 years, otherwise it is deemed a subdivision of land); and additional terms governing the right of occupation.

If the landowner sold the property, the lease would run with the property and the tiny homeowner would be able to remain on the land until the expiry of the term of the lease. However, if the property is sold subject to the lease, it may be  less desirable for prospective purchasers and for  the tiny homeowner having to live very close to a third-party purchaser with whom they have never met.

Some of the downsides also include the practicalities around the tiny house being relocated upon the expiry of the lease and the make good provisions under the lease, such as the cost of restoration of the land (to the condition it was in at the commencement date of the lease).

2. Licence to occupy:

The landowner could grant a licence for the tiny homeowner to occupy the land. There would be no need to survey the area and the tiny homeowner’s interest would not be registered on the Title. Rather the rights and obligations of each the tiny homeowner and landowner would be recorded in a Licence to Occupy Agreement. The tiny homeowner would usually pay an ‘outgoings fee’ for use of any shared facilities on the land, but be responsible for any services that separately charged and used by the tiny homeowner.

This could be a favourable option if the tiny house is relocatable.

A downside is that a licence can be cancelled by either party giving notice to the other, which will create uncertainty of tenure for tiny homeowner and the Licence is usually non-transferrable, so if the property was sold the Licence would be terminated.  Further the tiny homeowner could not borrow against the value of the tiny home or land.

3. The purchase of a share in the land/property:

Another option is for the tiny homeowner to purchase a part share in the property and both parties enter into a Property Sharing Agreement governing their use and ownership of the property. The property sharing agreement would record each parties’ rights and obligations in respect of their use and enjoyment of the property, including how expenses are shared, how each party may sell or transfer their share and any joint or several obligations in respect of the mortgage registered over the title.

Each parties’ share would be formally registered over the Title which provide security for the tiny homeowner and the property would not be able to be sold without the tiny homeowner’s consent.

Some of the pitfalls of this option are that the bank may require the tiny homeowner to be tied into the original land owner’s mortgage registered over the title; the costs involved getting the property valued, discharging the existing mortgage, the cost of ‘buy in’ by the tiny homeowner as well as re-mortgaging the property and the cost involved in preparing a property sharing agreement.

Another point to consider is the difficulty in agreeing on a value of the tiny home if it is not going to be removed and how any capital gain on the sale of the property will be split.

4. Buying a bare section to build the tiny house is a low-risk option for a tiny homeowner to realise their dream:

Having your own land provides you with security of tenure and ownership. When the land is yours, you of course have complete control over the tiny house build and use of the land. Further, you can decide to sell the property at any time, relocate the tiny house or have it form part of the property, meaning that you can realise any capital gains and improvement value on the sale of the property following the build of the tiny house.

The downside of this option is that it may fall outside of the tiny homeowner’s budget. Land is increasingly more expensive to buy and might not be available or suitable for a tiny house build.

We recommend that all parties seek independent legal advice early on in the process to ensure the best outcome and adequate security of assets. If you would like to discuss this further and the protections and processes available to you, please get in touch with the team at Pitt & Moore on 03 5488349.

Land and build packages offering opportunities for first home buyers

By Oliver Jones-Allen

12 May 2021

The current housing market is becoming increasingly difficult to break into for first home buyers.  A lot of first home buyers are now looking to purchase land and build packages, generally from developer companies, some of which fall under the First Home Grant cap. This cap changes depending on the area of the country where the purchase occurs. For a new build costing under $600,000 in Nelson, for example, a couple who earn less than $150,000 combined (after tax), can apply for a grant up to $10,000 from the government as a contribution towards the purchase price.

These land and build packages have the distinct advantage of not only allowing a buyer into the housing market, but also being able to move into a new home upon completion of the build.  Buyers can also take advantage of the lower deposit required for the purchase of a new build. There are many important aspects to a land and build package which people must be aware of when entering into these contracts. A few key areas are highlighted below:

Firstly, there are two separate agreements while being one ultimate end goal.  There is a purchase agreement for the land where the purchaser is often buying off the plans, prior to title issuing for that property.

Secondly, there is a build contract which is with the builder for the build of house itself.  The building contract outlines the structure of payments to be paid throughout the build, as well as all timeframes, responsibilities and conditions of the construction.  In respect of payments, these are often made at certain stages of the build. For example, the first payment is likely to be made when the foundations and floor are completed; the second stage might be when the framing goes up; etc.

It is important to note that included in the building contract, are the specifications of construction. This outlines all materials, including all fixtures, fittings, taps etc, to be used during the course of construction.  It is crucial that these specifications are assessed with a fine tooth comb by the buyer, as once the contract is signed, these are the products and specifications which the builder will use to complete the build. Any addition or change to the specifications, will likely result in an increase in cost to the buyer.

Ultimately, many first home buyers are under significant financial pressures and stringent budgets. Being thorough in the early stages of the purchase can allay issues further down the track of the build process. Communication between the building company, bank, lawyer and buyer is integral to ensure all requirements have been met.

The biggest issue we see with first home buyers is being under pressure upon the issue of title or upon entering an agreement to purchase an existing home.

5 tips to make the purchasing process less stressful:

1. Have finance pre-approved by the bank up to a maximum amount;

2. Obtain pre approval of Kiwisaver withdrawal eligibility;

3. Obtain pre approval of first home grant withdrawal eligibility (if applicable);

4. Complete necessary on boarding requirements with lawyers so there are no delays; and

5. Use your lawyer, it is a confusing process, ask questions to put your mind at ease!   

Talk to us

The property market has showed no signs of slowing down, if you are looking to purchase a first home, investment property or a piece of land, please don’t hesitate to get in touch with Oliver Jones-Allen to discuss how Pitt & Moore Lawyers can assist you.

Government Housing Policy Package – Extension of the Bright-line Test, Closing of Interest Deductibility and Supply Stimulus

By Clare North

23 March 2021

The Government has this week released its housing policy package aimed at increasing residential housing supply and easing demand by property investors.

The key features of the package are:

  1. A $3.8 billion Housing Acceleration Fund
  2. Increased accessibility to First Home Grants and Loans for first home buyers
  3. Extension of the Bright-line Test
  4. Removal of the interest deductibility for investors
  5. Government support for Kāinga Ora borrowing
  6. Extension of the apprenticeship initiative

For property investors:           

  • The Bright-line test is being extended so that if you buy and sell a residential property within 10 years you may have to pay income tax on any profit made on the sale. The existing shorter timeframe of five years will remain in place for new builds and the existing exemptions for the sale of a main/family home, inherited property and the sale of deceased estate property will continue to apply however if you rent out your family home for a period of twelve months or more, then your family home may also be subject to the Bright-line Test. The new rules will apply to property acquired on or after 27 March 2021.
  • The removal of the interest deductibility means that you may no longer be able to offset interest expenses against your rental income when calculating tax payments. While the Government is still to consult on the detail of the legislation (in particular, a possible exemption for new builds), the new rules are set to apply from 1 October 2021 to property acquired on or after 27 March.
  • Interest on loans for properties acquired before 27 March may still be claimed as an expense. However, the amount which may be claimed will be gradually phased out over the coming years.

For first home buyers:

  • A First Home Grant can provide up to $5,000 for individuals and up to $10,000 for two or more buyers to assist with the purchase of an existing home. Purchasers of new builds can claim up to $10,000 for individuals and up to $20,000 for two or more buyers.
  • Under a First Home Loan, a deposit of only 5% of the purchase price is required. First Home Loans are available from selected banks, building societies and credit unions, and are underwritten by Kāinga Ora.
  • The maximum income you can earn but still receive Government assistance will be increased from 1 April 2021 from $85,000 to $95,000 for individuals and from $130,000 to $150,000 for two or more buyers.
  • From 1 April, price caps on homes that can be purchased using Government assistance will also be lifted across the country to reflect rising house prices. The cap for properties located in Nelson and Tasman is being lifted to $525,00 for existing properties and $600,000 for new builds.

Further announcements are expected from the Government over the coming months as consultation occurs and the policy is rolled out.

Talk to us

For more information or professional advice on this topic please contact Clare North.

Buying to Build – Tips to Get it Right

If you’re thinking of building from scratch, either with a house and land package or you’re buying a section, it pays to research and conduct due diligence which could end up saving you time, money, stress and heartache. Whether it’s a dream home you’re planning or a family bach, the details are important to get right before you sign a sale and purchase agreement or builder’s contract. Here are a few areas to consider.

Plans and specifications

You need to give yourself time to properly review the plans and specifications. That means checking the measurements, the materials and products that will be used, as well as the plan itself right down to the number of electrical plugs in each room. If you don’t feel confident about doing this, talk to your lawyer for a recommendation of an external expert to help. Remember the plans you sign up for in the agreement will determine what your future house will look like so it’s important to take the time to check them off against your expectations and make sure it includes everything you discussed with the builder or developing company.

Land that doesn’t have a certificate of title

When a title hasn’t yet been issued, an agreement for sale and purchase will need to include a ‘sunset’ clause that title will be provided within an agreed time frame. This gives the buyer the right to cancel the sale if there are significant delays. Your solicitor will need to review the head title and resource consent for the subdivision as well as the title plan, if available, to determine what easements, land covenants and consent notices will be registered against the new title. As there is no separate title with registered interests for the section that you are purchasing, your solicitor may have to review a large amount of documentation to identify what will and will not be relevant to you.

The land – are there any covenants?

With land that is being built on for the first time, it’s important to check carefully to see if there are any covenants that may impact on what you want to build. This could be around access, size and style of house and outbuildings, building materials and where the house can be built on the lot, so it’s critical for the design and planning of your property. Similarly, Council consent notices may impose specific geotechnical and foundation requirements that could add significant building costs.

Unforeseen building problems

It’s a regular occurrence that an unforeseen problem like bad weather or an increase in cost of materials impacts on the design, cost and/or time frame of a build. That’s why it needs to be clearly outlined in a written contract with the builder as to what happens in these situations. Often it can be external issues, so the sensible option is that both parties agree, at the outset, how these issues will be handled, what variation in time frames are acceptable, and if things do blow out time or cost-wise how that burden will be distributed.

Timing of payments

The timing of payments under your sale and purchase agreement and building contract are critical and you will need to make sure that you can meet your payment obligations as they come due, especially if you are relying on bank financing. Most standard form building contracts provide for progress payments to be made at each major stage of the build. However, if your build begins before title has been transferred you will not have any mortgage security to offer your bank. It is important that you talk to your bank before confirming your purchase even if you have pre-approval.

Finally, all these issues revolve around the documents – the sale and purchase agreement and any contracts with builders. These are the legal documents that state your rights and obligations and those of the developer and builder. It’s vital that you consult a lawyer to make sure that each agreement meets your specific situation and that in the worst-case scenarios you will be sure of the outcomes.

Talk to us

For more information on this topic please contact:

Adrien Turnage, Solicitor, Pitt & Moore Lawyers
DDI: 03 545 6706

Property tips for New Zealand home buyers

For many of us buying a residential property, particularly our first home, can be an impulsive and very much an emotion based decision. With that in mind, we have listed some tips that could help residential property buyers to avoid common pitfalls.

Sort out your financing early on

If applicable, contact your mortgage lender to ensure that you are able to obtain finance for any contemplated purchase. The sooner you do this the better. Many lenders are happy to give buyers pre-approvals.

If you are looking to purchase an investment property, explore and carefully consider any potential tax issues or implications.

Visit the property more than once

Request to arrange a second viewing with a real estate agent outside of the regular open home hours. This will give you a chance to have a good look around the property without other prospective buyers in the way. It is also a good idea to view the property during different times of the day. This can also give you an idea if any traffic outside the property will be of concern in terms of noise and/or privacy.

Always check for maintenance issues

Don’t be afraid to be upfront and ask the real estate agent about any known issues with the property. It is in your interests to ask as many questions as you can. Likewise, consider arranging a separate visit from a trusted and qualified builder to give you their opinion on the condition of the property. We recommend that your offer for purchase has a condition added to reflect obtaining a builder’s report.

From our experience, maintenance issues can result in significant costs. It is always best to check these out so that you don’t get any nasty surprises later on and know exactly what you are signing up for.

Do your research

If making an offer, make sure that your offer is conditional on getting a satisfactory valuation.

Contact an insurer or two to find out whether the property is insurable and to get an idea how much your premiums would be for the property you are interested in.

Call the local council to find out whether any significant works have been approved in the area as that may effect the value and/or live-ability of the property.

Check the property has had no issues recorded on the council’s records (e.g. flooding etc). Obtaining a Land Information Memorandum (LIM) from the council would cover these matters and we recommend this as it provides a more comprehensive review on the property and would provide for any known work that has been completed on it. Again, ensuring you have a condition inserted in your agreement is recommended when making an offer for purchase.

Tax matters

Discuss any sale or purchase you may be contemplating with your accountant or tax advisor. You should be aware of any tax implications before you sign a contract to sell or purchase as this could save you money and complications in the future.

Work out if the Overseas Investment Act applies

From 22 October 2018, anyone buying residential property in New Zealand will have to state whether they are eligible to buy under the Overseas Investment Act 2005. That is New Zealanders, Australians, Singaporeans, and overseas people – everybody.

An eligibility statement will need to be completed by the purchaser and provided to conveyancers, who must retain a copy for at least seven years. There are significant penalties for both for conveyancers who do not comply, and for purchasers who make false statements.

It will be important for purchasers to work out whether Overseas Investment Office consent is required at the early stages of a transaction. Obtaining expert advice in this field is highly recommended.

Get legal advice before you sign any agreement

Most importantly, get legal advice before you sign any agreement. It can be very difficult and costly to get out of even conditional agreements.

Talk to us

Contact our Property Team today to discuss how we can assist you.