Boundary Encroachment

Aaron Crampton

The recent High Court case ARMSTRONG v MITCHELL [2018] NZHC 2353 [7 September 2018] has reinforced the importance of doing your homework on legal boundaries when buying land.

Background Facts

In January 2017, Mr & Mrs Mitchell signed a standard REINZ / ADLS sale purchase agreement to buy a lifestyle block in Managawhai, Northland from Mr Armstrong.

The property included a four bay garage. This was an important feature to the Mitchells because Mr Mitchell was a mechanic.

Shortly after signing the agreement and talking to a future neighbour the Mitchells discovered that two of the four bays of the garage encroached onto the neighbour’s property (plus a water tank, fence and line of trees).

 

The Mitchells texted Mr Armstrong, who responded that he didn’t think there was an encroachment or if there was, it was a non-issue.

The Mitchells weren’t convinced. In the end it was agreed that the Mitchells would complete the purchase but $25,000 of the purchase price would be withheld pending the outcome of the dispute.

After the purchase was completed the Mitchells sued for damages on the basis that Mr Armstrong had misrepresented that the entire garage and various other improvements were all included in the sale. They sought (among other things) $88,000 to fix the encroachment by relocating the garage and water tank.

Mr Armstrong countered by seeking summary judgment in the District Court for the $25,000 of the purchase price that had been withheld. He claimed that the Mitchells were deemed to have accepted the title because they had not objected to, or requisitioned the title in accordance with the agreement.

Mr Armstrong’s case was unsuccessful in the District Court.

High Court Decision

Mr Armstrong then appealed to the High Court.

The Court considered the facts and concluded that the Mitchells had objected to the title under clause 6.2 of the agreement, not by formal notice but by their words and conduct. The High Court ultimately declined Mr Armstrong’s appeal meaning that the Mitchells could progress their legal case against Mr Armstrong based on misrepresentation. We will have to wait to see the outcome of that.

Requisitions Clause

Clause 6.2 of the standard REINZ / ADLS sale purchase agreement is commonly known as the ‘requisitions clause’ and gives a purchaser some protection in the event of any material defects with the title.

The purchaser can either object to the defect in the title or requisition the title (i.e. request that the defect in the title is fixed). The purchaser can do this by giving formal notice in writing to the vendor within a specified timeframe (typically within 10 working days of signing the agreement).

The purchaser’s notice then triggers a process. The end result of that process is that if the vendor is not willing to fix the defect, or the defect can’t be fixed, then either party can cancel the agreement.

Lessons Learned

This case provides some useful reminders for purchasers when buying land:

  1. The case is a reminder of the importance of checking the boundaries of any property you are looking at buying. It is not safe to assume that the improvements on the land are within the legal boundaries (even if the vendor tells you that everything is fine).

    There are various free mapping software products available (like District Council on-line maps) which can show approximate property boundaries overlaid on satellite photographs of the property. These are a good starting point but if in doubt you should talk to a surveyor to check the boundaries. Ideally this should be done before signing the agreement.
     
  2. The case re-confirms that a boundary encroachment is a defect in the title that a purchaser can object to or requisition under the requisitions clause.
     
  3. The requisitions clause can be a useful tool for the purchaser so it is important to check that it has not been deleted by the vendor or their agent.
  1. Sometimes older titles are designated as “Limited as to Parcels”. This means that the legal boundaries are uncertain. With ‘Limited as to Parcels’ titles there is a much greater risk of boundary encroachment and it is recommended that you discuss the implications of this type of title with your lawyer and surveyor. 
  1. Interestingly, the case shows that the Court considered that the Mitchell’s text messages to Mr Armstrong constituted an objection under the requisitions clause (even though the Mitchells had not given formal notice as required by the agreement). The Court was prepared to take a pragmatic approach by looking at the words and conduct of the parties. It is good to know that a text message could be effective but to avoid any doubt we still recommend providing formal notice as required by the agreement.
  1. One final comment that is outside the scope of this case but still relevant. You should be careful when confirming conditions that overlap with other conditions in the agreement.

For example it is common for a purchaser to add a condition that the agreement is subject to the purchaser being satisfied with a due diligence investigation of the property (including the title). That due diligence condition will usually overlap or cover similar matters as some of the other clauses in the agreement (like the requisition clause).

If a purchaser has actual knowledge of an issue like a potential boundary encroachment but still confirms the due diligence condition there is a risk that by doing so they may have also waived their rights under the requisition clause and possibly some of the other clauses in the agreement. This risk can be managed by your lawyer by expressly reserving your other rights when confirming a condition.

At Gallaway Cook Allan we have a dedicated and experienced property law team that can successfully guide you through these types of issues when purchasing a property. Please feel free to get in touch if you would like us to assist you.

Disclaimer: this article is general in nature and not intended to be used as specific legal advice.