What is a LIM Report?

The Land Information Memorandum report (LIM Report) supplied by Council is a document that can be misunderstood by purchasers but can be vital when looking for an investment property in Dunedin or elsewhere. We frequently see buyers confused about what to check within a LIM and hear reports of people saying they passed the report to the lawyer and thought it was enough. Whether a potential purchaser secures a LIM for themselves or is given one as part of the information pack by the sales consultant, it’s vital to have a good comprehension of the content before making a purchase decision.  

What is a LIM Report?

The LIM report is a collection of some of the information and documents held on file by Council about a subject property. It is not a representation of the property itself as building work may have been undertaken on the property or issues could be affecting the property that Council are not aware of. The LIM report is not a document to be viewed in isolation but is a document to be compared to the property to ensure the property is legal.

Matching a LIM to the property

It is important to line up the work noted in the LIM report to the actual property. A lawyer cannot do this for you as they do not visit the property.

We recommend potential purchasers take some time to match up any drawings and diagrams in the LIM report showing building work or alterations and ensuring they match the layout of the building. Common alterations we see are walls constructed to add bedrooms or walls taken out to open up a space. Occasionally there may also be bedrooms added into existing basement areas that are not part of the original plans. One of the purposes of the consenting process is to ensure that a bedroom conforms to the legal requirement for a bedroom under the Housing Improvements Regulations Act 1947.

A good approach to matching the LIM report to the property is to have an independent building inspector do this for you. As a qualified professional in this area, they will be able to identify any unconsented work accurately and explain what the issues could mean.

Sleepouts

Sleepouts can be illegal if unconsented. There are on occasion, particularly in older Dunedin properties, old disused laundries in separate buildings outside which have been later unwittingly converted to sleepouts. Without a consent, these can be illegal. Even new sleepouts built to code and under the permissible building consent size might still not be permitted. We have come across examples where they are placed too close to the boundary of the property and require fire rating, or they have added too many rooms to the property zoning limits.

More than one tenancy agreement

Another potential issue is multiple tenancies on one property. A tenancy agreement can only be for a legal dwelling. If there are two or more tenancies, potential purchasers need to question if each of the dwellings are legally separate. A quick way to do this is via the Council online rates database which will state the number of ‘separately used or habitable parts’ or within the LIM on the second page as ‘Units in Use’.

Failure to have the correct number of legal dwellings to the tenancies can render a tenancy agreement illegal. The dwelling itself might comply with the Building Act, but the setup of the tenancy agreements will not comply with the Residential Tenancies Act. The result could be prosecution for the owner and a refund of the rent. This can have significant consequences for the value of a property.

What are consents vs permits?

The Building Act 1991 altered the documentation required for building work. Prior to July 1992 buildings and any alterations required a ‘permit’. Sometimes there are plans to show what was done, and sometimes there are no plans and only one line to indicate what was permitted. 

After July 1992, any building work required a ‘consent’ instead. This is a more prescriptive process with more checks and balances. There will almost always be some associated drawings appended to the LIM report and the important thing to look for is that the Code Compliance Certificate (CCC) was issued. This confirms that the work was done to the agreed drawings and was approved and signed off by Council.

What else to look for

In no particular order and not limited to this list, here are some things to look for within a LIM:

• Are there any Building Consents not issued?
• Are there any consent notices on the property?
• Are there any Resource Consent notices and have they been issued?
• Are there any neighbouring Resource Consents in place that might affect the property?
• Are the stormwater and sewer separated and compliant? (Older properties might still be discharging stormwater into the sewer system which is illegal)
• Do the appended plans match the actual building layout?

Issues arising from a mismatched LIM

Failure to have a compliant property may result in the Council issuing a ‘Notice to Fix’ against a property owner. This may be several years into the future if they are alerted to a problem, so it pays to understand this when you purchase a property.

If the issue is that illegal rooms are onsite or extra tenancies are not legal, the rent may be challenged by tenants. There have been several examples of this occurring, with the Tenancy Tribunal prosecuting the owner and forcing rent to be paid back. There is then also the cost of trying to fix the issue and this may also result in a loss of income while new consents are acquired. Or it could reduce the income on the property altogether if a new consent is not permissible.

What are the Sales Consultant’s responsibilities?

Under the Real Estate Agents Act 2008, real estate salespeople have a duty to inform and alert all parties to any issues on a property that they are aware of. The degree of severity of these issues will depend on the individual property, but salespeople are expected to alert you to issues that may influence your decision to either purchase the property or might influence how much you are prepared to pay for the property. To be clear, salespeople do not have to go looking for hidden or underlying issues, but if they are aware there could be an issue, they have a duty to disclose them. 

When it comes to LIM reports, and any report for that matter, salespeople are not allowed to just give purchasers the report. The law expects them to have read the report and to highlight any areas which might be significant and then ensure all potential purchasers are aware of them, whilst recommending legal and/or technical advice is taken.

Real estate sales consultants are expected to have a broad understanding of LIM reports and buildings but are not experts on the finer detail. This is where a lawyer and building inspector should be involved to clarify any issues and explain the ramifications.

Vendors can be liable

Vendors also need to be careful of these issues when selling a property. Under the Vendor Warranties in the Sale and Purchase Agreement, the Vendor has responsibilities that the property is legal and the Purchaser can use the property for its purpose. Illegal rooms or dwellings will affect the rental income which is generally the purpose of an investment property. Purchasers may have liability back against a Vendor for many years after the sale if things are not right. As a Vendor about to sell a property, it’s important to ask your sales consultant if there is anything that might need rectifying before going to market.

Liability back to the Council

Sometimes LIM reports can be wrong. Information might be missing that is pertinent to a Purchaser but no one involved in the sale was aware. Any liability back to Council, or any writer of any report, is generally only in the benefit of the person or entity named as the client on the report. Therefore, it is always recommended Purchasers obtain their own report in their own purchasing name to cover themselves.

LIM reports can be confusing documents as buyers don’t deal with them every day. Real estate salespeople do, and we are expected to know what to look for and ensure we disclose any significant issues.

The statements made within this article are in the opinion of the individual writer only and do not constitute legal or specialist advice. Please seek independent legal advice when dealing with all property transactions.

Matt Morton is a specialist residential investment broker for Colliers since 2011