Most lenders who are funding a property development or investment loan will require a review of the record of title is conducted and ‘fully acceptable’ to the lender against any property held as security prior to any drawdown. This is normally completed by their solicitors and is in place to make sure there are no ‘fishhooks’ on the titles.
Below we investigate what this is, how to read a title and why it is important.
What is a Record of Title?
A record of title for a property is a document that records pertinent information on a specific property. This includes who owns the property, the legal description of that property and all the interests (rights and restrictions) registered against the property title.
How do I read a Record of Title?
A record of title document contains a bit of information but is fairly simple to follow. Below we comment on the key items on a Record of Title.
Identifier
This is the title number that identifies the property. This is how a property is referenced opposed to an address for a legal purpose (i.e. registering a mortgage). The reason being that it is unique where addresses may not be (same street names in different suburbs etc).
Land Registration District
This determines which district the property is registered to and located.
Estate
Each property will either be an estate in freehold (or fee simple), leasehold, cross lease or stratum (freehold or leasehold). This section will confirm which it is.
We have a separate written a separate blog that details what each estate type means.
Area
This is the land area per the survey plan for this particular property. It will often read ‘more or less’ which isn’t anything to be concerned about but rather a not to the fact that a survey of the property may not be exact to the millimetre.
Legal Description
This describes which lot on a particular deposited plan this parcel of land relates to. It will have the lot number and deposited plan number.
Registered Owners
Fairly straight forward, these are the registered owners of this property.
Interests
This is where things can get interesting, this section records the interests in the property. Interests will include things like covenants, easements, consent notices and what mortgages are on the property. This is what a lender will focus most on and can affect your lending application.
It is important to note that the interest and reference number for that interest will be included on the title document, however, the detail of the interest will form it’s own document which will be held on the council property file and hence found and reviewed in a title search.
What do these different interests mean?
Mortgage
This is how a lender registers their security interest in a property. On a title it will not record the level of their debt or any other pertinent details, just the fact that they hold a mortgage (security) on the title.
Easements and Rights-of-Way
An Easement is the right for the owners of one property to carry out an activity on another property. An example of this might be an electricity or water easement that allows for electricity to be provided or water disposed of over another property. As the cabling or pipe for the electricity or water may sit underground on the neighbouring property an easement would be in place.
A Right-of-Way is a particular type of easement that allows for access, either by pedestrians or vehicles, over another property. This is commonplace with shared driveways.
Encumbrances / Covenants
The intent of an Encumbrance or Covenant on a Record of Title is to limit or restrict the owner (and any future owners) as to how they will use the property. These can be private agreements or imposed by council and are reasonably common on subdivisions where the developer is seeking a level of control over how future owners develop and maintain the land.
The reason for this is normally where a subdivision is being marketed with certain characteristics and may be completed over several stages. To ensure the future value and aesthetic of the development is controlled and maintained the land developer will impose covenants on the sections it develops.
Council imposed covenants normally are raised during the Land-Use (Resource) consent process and are designed for longer term protection of the land. The reason these covenants are in place should be held in the relevant council property file.
Some types of restrictions that you may see within a covenant are;
- Restriction around use of materials for construction.
- Minimum dwelling sizes
- Protection of native bush or wetlands.
- Bulk and location restrictions (particularly around heights).
- Plan approvals required (by the land developer for building).
- Duration of construction period
- Protection of historic buildings and features.
- Use of the properties (i.e. not air BnB)
Consent Notices
A consent notice is a form of covenant between the council and the landowner. These are imposed through a subdivision consent and relate to conditions that must be complied with on an ongoing basis by the owner (and any subsequent owner) of the property.
These may include engineering works, density, site coverage or location of building platforms. These are important to understand as they can restrict what can be done on a parcel of land. They are normally put on titles where the land may be subdivided by one party and sold to another to construct dwellings on the site.
Because the Resource Consent for the land subdivision would have contemplated what was going to be built on the site the consent notice is put in place to ensure this is adhered to.
Why is this important?
If you haven’t guessed, a review of the title is important as certain interests on a property may have an impact on the proposed development or value of the asset. Understanding these is crucial and something any perspective developer should be reviewing on the purchase of a property to protect themselves.
If there is a covenant in place that restricts building materials, site coverage or dwelling sizes this could have a big impact on your proposed development. Properties with covenants as well tend to put certain buyers off, particularly on high value properties and so could impair your market value or saleability of the property.
Understanding these yourself is a great first step to pre-empt any issues you may face with a funder or council in your development and ensure you don’t make a costly mistake acquiring the wrong property.
Any questions? Don't hesitate to reach out!
Please read our Disclaimer Statement for more information.