Conditions when purchasing in high earthquake risk areas

In earthquake prone areas of New Zealand like Christchurch and now Wellington there are many additional considerations to take into account when buying a property. It is essential to get legal advice prior to enter into an agreement for Sale and Purchase as the standard clauses included in the sale and purchase agreement may be adequate for purchases in these regions.

The builders report clause contained in the standard s REINZ/ADLS Agreement for Sale of Purchase of Real Estate 9th Edition only provides for an inspection to be undertaken on the “buildings and improvements” on the property by a “suitably-qualified building inspector.” It does not make any mention of the ground conditions of the land and the fine print in the agreement does not properly cover earthquake related issues. It is, therefore, essential that purchasers include properly drafted clauses allowing them to get a geotechnical report, do any other investigations they deem necessary and arrange adequate insurance over the property.

In earthquake prone areas it is necessary to investigate not only the condition of the house, but also the land itself. Even if there is no visible evidence of any problems on the property, a report from a geotechnical engineer will assess ground conditions on the property and may reveal issues below ground level which are yet to become apparent. In high risk areas your bank and insurance company are likely to require a geotechnical report.

There are currently houses being offered for sale where the earthquake damage has been fixed and the EQC and insurance claims cash-settled and it is likely that many more of these will come on the market in the future. There is no public register showing EQC or insurance claims settlements, so buyers are often not aware of what settlement may have been reached. In some cases where cash settlements have been taken, the house may only have had cosmetic repairs or no repairs at all. It is important for buyers to be advised to have any repairs thoroughly checked and to ensure that any guaranties / warranties from the builder are passed on to them on settlement.

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