The Ex-Files: Jeremy Sutton on remedies for a mutual mistake on a property purchase

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Opinion

OPINION:

Q: My partner and I purchased a house 10 years ago. We decided that we wouldn't do too many checks on the property to save money. Our lawyer also thought it was a good area to buy in without spending too much money on inspecting it.

Two years ago, my partner and I split, and I ended up taking over the property. I went to sell the property last month and asked for a full building inspection. It was a huge shock when I discovered that the house is a leaky home.

We did not look at a Land Information Memorandum before we purchased the property either. The planning rules say who is allowed to build multiple dwellings on our street, and now, the next-door property can build seven townhouses on it.

I think that the value of the house is much less than what I paid to purchase it from my partner. What can I do about this?

A: You are in a difficult situation. You have a number of variables in relation to property, including a leaky home, the planning rules and the declining property market. I would advise you to get the full property file from the time you and your partner purchased the property.

I also advise you to note or find records of what the discussions were between you and your partner when you made the purchase, and any terms of a relationship property agreement. It is important to gather information to have a factual basis for your claim.

Leaky home

Did you and your partner know it was a leaky home when you purchased it? How much did the home leak when you were together, and how much has it been leaking since that time? You need to know the cost of repair, which can be prohibitive.

Planning rules

How much has your property been affected by any planning rules? Your lawyer can advise you on this.

Value of property

It is important to get a proper valuation of the house at the time you purchased it from your partner, compared to the current valuation.

Resolution

Consider some prospect of settlement between you both, as lawyers can be expensive. From my experience, the pattern is that the longer the matter goes on, the higher the legal fees, and the harder it is to settle.

Mediation

If a verbal or written approach to your ex-partner does not achieve a result, then informal mediation may help. While mediation is a voluntary process, it is a way for both parties to express their interests and attempt resolution within a day. The FDR Centre is a body that can help you to organise a mediator.

Is your original lawyer responsible?

The lawyer who advised you and your partner on the original purchase may also have some liability. Try to find any advice that they wrote, and check whether they are still practising as a lawyer.

The court's views

Your partner may suggest what we call caveat emptor (let the buyer beware). Under this principle, you should have made reasonable inquiries that would enable you to make an informed purchase from him. Reasonable inquiries may include looking at the LIM beforehand.

On the other hand, you could say that there was a mutual mistake. In most cases where one partner buys the property of the other, there is no agreement for sale and purchase. There is only a transfer agreement to cover such matters. The inquiries undertaken by the party purchasing the property are usually far less than for a couple purchasing a new property. Reasonable inquiries do not include obtaining a LIM.

Conclusion

These cases are messy and need early resolution. To succeed, they require excellent project management and a range of multiple professionals around you to get resolved.

Currently, the court system in New Zealand is overloaded. A full court hearing in the relevant court may take 2-3 years from filing proceedings. That is too long for many, and consequently, the professional costs to resolve the case are too high. It becomes very attractive to settle these cases early through alternative dispute resolution. Mediation is one example. Best of luck to you.