The Devil Can Be In The Detail

They had identified a suitable property and had signed a purchase contract through the real estate agent. 

We received the agreement and began discussing the purchase proposal with them.

Our clients intended to continue with the buildings’ current use (as a multi-tenanted property) and to own it in conjunction with other co-investors as a syndicate.

Fortunately, our clients had been wise enough to include several conditions into the contract – including a “due diligence” clause.

The due diligence clause allowed a further period for researching all matters relevant to the purchase in more detail to determine if the investment was a good one to make.

We met with our clients and discussed their plans. 

Firstly, we identified potential Securities Act compliance issues caused by the proposal to have a syndicate of owners rather than just one owner and the proposed way that others could subsequently enter or leave the syndicate. 

Secondly, we identified issues with the existing building consent obtained for the building’s original construction.  The building was never designed to be a multi-tenanted properly and we were not convinced that the council was aware that it was being used as such.

Finally, we identified other issues in the LIM report that needed to be addressed – some at considerable expense.

Overall, it may well have been possible for our clients to remedy these issues however it was going to very difficult and very expensive. 

If it was not possible to get a council change of use consent to allow the use of the building as a multi tenanted building then the value of the property would plummet by hundreds of thousands of dollars.

Shane Hollebon, spokesperson for the group of potential investors, said:

“Although we had talked to other professionals and the real estate agent at length about our proposals, we were extremely fortunate that Cavell Leitch was involved in the due diligence process. 

They raised significant issues that we simply did not even know existed.  Without their involvement we would now be in a very difficult position”

We are delighted that in this instance Shane and his team were able to withdraw from the purchase and move on to consider other properties.

Unfortunately, many of our clients are not so lucky and often bring all sorts of binding agreements to us (and not just property agreements either) without arranging the insertion of sufficient conditions to protect themselves from unscrupulous vendors or plain lack of quality information available to them at the time of the contract.

The best option is to always discuss your proposed transaction with us before you enter into it. 

That way we can understand what you want to achieve and help you to fully investigate the transaction beforehand or to ensure that the contract is worded suitably to allow a full investigation to be completed after it is negotiated and signed.



This article has been prepared by Cavell Leitch Law for general information purposes only and important exceptions and other relevant factors may not have been included.  If understanding the legal area covered by this article as it affects your specific circumstances is important to you then please contact us for a proper legal opinion.