Disclosure of insulation loans and ownership of chattels by third parties
||Many households are now making use of council loans to assist with insulating their properties built before 2000 in addition to government grants through EnergyWise, so that their properties are warmer and more energy efficient. This may become more prevalent with the government’s policy of introducing “warrants of fitness” for rental purposes for its properties which may then move into the private sector.
Many households are now making use of council loans to assist with insulating their properties built before 2000 in addition to government grants through EnergyWise, so that their properties are warmer and more energy efficient. This may become more prevalent with the government’s policy of introducing “warrants of fitness” for rental purposes for its properties which may then move into the private sector.
Council programmes include Auckland Council’s “Retrofit your Home” programme, the “Hawkes Bay Heat Smart Programme”, the “Warm Greater Wellington Programme”, the “Warm Tasman” and the “Warm Dunedin” programmes. Different councils lend different amounts, repayable over up to 10 years with a targeted rate to provide for repayment of the loans.
Whilst these loans help ease the initial cost, they mean that the householder pays increased rates for the specified period to repay the cost of the subsidy. When a property is sold during that period of increased rates the issue becomes one of disclosure and making an adjustment on the settlement statement to ensure that the vendor repays that loan from the sale proceeds, unless the purchaser agrees to take over liability for those increased rates in a specific separate clause.
Under clause 6.1(1) of the ADLS/REINZ Ninth Edition 2012 (2) agreement (Agreement), a vendor warrants that it has no knowledge of any outstanding requirement from any local or government authority. Clause 6.2(3) of the Ninth Edition 2012 (2) agreement contains a warranty that there are no rates, water rates or charges outstanding.
How do you find out whether a property is affected? The targeted rate may be discovered on a LIM report in Auckland with a note that the property is on the “PIR Register” (Property Interests Register), with an additional note on the “Retrofit Your Home Programme”. There is a telephone number and email address to contact the council about such matters – but it took a week for my call and message to be returned when I once tried to enquire about the amount owing and length of time to run – not much help when your client is wanting to put an offer in on a property under time pressure.
ADLS is contacting all councils which operate these programmes with a view to them including specific information about targeted rates with all rating requests. In the meantime, when making rates requests, best practice would be to ensure that the request is made in writing and to ask also whether there are any targeted rates on the property including insulation targeted rates. Vendors’ solicitors need to be careful with their undertakings to pay rates on settlement that they are not exposed in terms of undertaking to pay charges that they do not deduct from sale proceeds before disbursing sale proceeds to clients.
Solar panels may also be an issue as often the house owner is not purchasing the panels upfront but taking advantage of offers such as those provided by Vector with their “SunGenie system”, where the equipment is owned and maintained by Vector with a 12.5 year service agreement for the provision of solar services. This is a direct contract with Vector and the house owner and on the sale of a property the vendor has three options:
1. Switch the SunGenie agreement to the purchaser (providing the purchaser agrees and meets Vector’s criteria);
2. The vendor pays a decommissioning fee for Vector to remove the SunGenie;
3. The vendor pays out the remainder of the vendor’s service contract.
Vendors need to be on top of the issue with solar panels before beginning the sales process, and ensuring their real estate agent understands the options so that there is no misrepresentation in this instance that the solar panels are being sold with the property, and so that the contract can deal with the issues as to whether the purchaser wishes to take over the service agreement or whether the vendor will either decommission or continue paying the contract.
The purchaser in that instance may seek a credit for the balance of the term on the settlement statement or for the contract to be paid out in advance to ensure there are no issues between the vendor and purchaser if say a vendor misses a payment 10 years later.
Clause 6.2(2) of the Agreement states that all electrical and other installations on the property are free of any charge whatsoever and clause 6.2(9) states that any chattels included in the sale are the unencumbered property of the vendor.
When acting for a purchaser and solar panels are listed as a chattel, specifically ask the vendor’s solicitor in writing the question whether the solar panels belong to the vendors and are not part of a system such as Vector’s SunGenie system. A PPSR search should also be carried out.
Consumer finance loans or service contracts affecting properties with no title security or PPSR charge to alert secured off title will be a continuing trend and we will need to be aware of these developments and ensure that our clients deal with them adequately.
Joanna Pidgeon is the Principal at Pidgeon Law. She is an ADLS Council Member, member of the Property Law Committee and Chair of the Property Disputes Committee.