Do you need to pay for your own LIM report?

You’re probably familiar with the document called a Land Information Memorandum (LIM). It’s an official record from the local council that details all the permitted work on a property, which can be checked against what you see with your own eyes.

That lovely deck out the back? If it’s not on the LIM, then it’s been built without a permit. Caveat emptor!

But recently there have been some sad stories of buyers and LIMs.

So we decided to share what we know.

Your bank doesn’t need to see the LIM – and neither do we.

First things first. Your bank doesn’t need to see the LIM, so don’t send it to them.

We don’t need to see your LIM, either. As mortgage brokers, we are not the people to advise you on issues with building permits, or the lack thereof.

So please do not send us a LIM when we’re helping to arrange your finance – we will simply suggest you pass it on to your lawyer.

Never underestimate the value of expert advice.

As a general rule, talking to your lawyer is the right thing to do at an early stage. Lawyers are trained to spot issues of compliance and regulation, so they can potentially save you a lot of time and money if the property has issues.

Some people don’t want to engage a lawyer because they’re wary of the expense. But we say, consider the cost of not getting advice.

As a heads-up, we asked a lawyer to point out some common issues and misunderstandings with LIMs. Matthew Tetley-Jones is an experienced property lawyer at McVeagh Fleming in Auckland. Here are his tips.

1. If the agent or vendor supplies a faulty LIM, you probably have no comeback.

It’s tempting to save time and money by relying on a LIM supplied by the real estate agent or homeowner. This may be perfectly fine – but remember, free stuff comes with strings attached.

Matthew’s comments:

"Many real estate agents provide a LIM to interested buyers before they make an offer on a property or bid at an auction. This appeals to buyers because a LIM costs around $400 but there are problems with relying on a LIM provided by the agent.

"Most agents stamp a disclaimer on the front page to say: ‘We do not accept any responsibility for any errors or omissions in this document.’ This might not save an agent who knowingly distributes a LIM that has been deliberately altered but if pages have been left out through carelessness, the agent will point to the disclaimer."

In addition, the council may include its own disclaimer. Matthew suggests you note the bolded words.

“Auckland Council says: ‘This Land Information Memorandum (LIM) has been prepared for the applicant for the purpose of section 44A of the Local Government Official Information and Meetings Act 1987. This Land Information Memorandum is valid as at the date of issue only.’”.

As Matthew puts it, “The council is disclaiming any liability to anyone except the person who applied for and paid for the LIM.”

And then there’s the small but real risk of outright fraud.

In the case mentioned here, the buyers relied on an agent-supplied LIM that turned out to have been doctored. If they had paid for their own LIM, they would have received accurate information and avoided a significant financial loss.

2. How current is the LIM?

If you don’t arrange your own LIM report, and instead rely on one supplied by someone else, be sure to check the date.

Matthew's comments:

“Many LIMs provided by agents are already a month old by the time the buyer gets a copy. Sometimes a lot can change in a month.”

So if you don’t want to take the risk, what are your options? Matthew has some tips for buyers.

“If you are buying under the standard Agreement for Sale and Purchase of Real Estate, then you can tick the LIM Condition clause and give yourself two weeks to get your own LIM. Most councils can provide an up-to-date LIM within 10 working days at a cost of around $400.

“If you are buying at auction, you have to make an unconditional bid. So you should get your own LIM before the auction. This can be expensive if you do not win the auction, which is why many buyers rely on the agent’s LIM.”

3. Read the LIM carefully.

Once you have the document in your hands, make sure you understand what it means. You don’t want to be the homeowner who learns about a flood risk when there’s water flowing under the door!

Matthew's tips:

“When you get your LIM, read it thoroughly. They run to 30 or 40 pages. You should check the Building Consents and Resource consents and the Hazards and Services Maps. Also check the drainage map for overland flow paths.”

“If you employ a lawyer to check these details, the lawyer will charge for the time and that may cost as much as the LIM. If you have already identified points of concern, you can then ask for expert help from a lawyer but possibly also a planner or civil engineer and make an informed decision on how much you want to pay for advice.”

The two most important words are 'buyer beware.'

With properties selling for millions, and hefty mortgages commonplace, buyers need to be aware of the risks.

A LIM is a tool to help you understand potential downsides before they cost you money. Just like building reports, they can help you decide what a property is worth to you – and whether to go ahead with the purchase.

If something goes wrong after you’ve bought, it’s tempting to blame the agent. But if you didn’t pay for your own LIM, then the purchase is at your own risk.