The importance of obtaining a LIM when purchasing a property has been reinforced by the Supreme Court judgment Marlborough District Council v Altimarloch Joint Venture Limited  issued on 5 March 2012.

The facts were that the purchaser of a block of land in Marlborough (intended for the planting of grapes), found that the quantity of water available under the water rights held by the vendors, and to be transferred to the purchaser, was less than had been represented to it.  This mistaken information was given separately to the purchaser by the vendors’ agents and also by the Marlborough District Council in a LIM obtained by the purchaser.

The purchaser sued the Council, together with other parties.

It was argued that the Council owed a duty of care to the purchaser in respect of the misstatement of the water rights in the LIM.

The Court found that the Council did owe the purchaser a duty of care when preparing and supplying the LIM, and as a consequence, was liable for damages incurred by the purchaser resulting from the misstatement.

In his judgment, Tipping J also referred to the Sunset Terraces case where it was also stated by the Supreme Court that “it may well be negligent for a party to commit to a transaction without obtaining a LIM”.

Clearly, a LIM is an essential element of a purchaser’s due diligence programme.  It will include all relevant information which a territorial authority has in respect of a property.  Many LIM’s are “clean” (i.e. do not disclose adverse information); but that is the assurance a purchaser needs when buying a significant asset.  For those that disclose adverse information, they enable the purchaser to address concerns before committing unconditionally to the purchase.

It should be noted that in the local context, a LIM obtained from either the Napier City Council or the Hastings District Council would not include information in regard to water rights.  That information would be obtainable from the Hawke’s Bay Regional Council, although it is not obliged to provide a LIM.

Irrespective of this, it is Willis Legal’s view that, “property file inspections” are not a fully adequate for a LIM.  Inadequate enquiry by the purchaser or a mistaken interpretation of information contained on a property file, may lead a purchaser to overlook an important piece of information.  Even though, in this case, the information provided by the Council was incorrect, the LIM was clear evidence of the incorrect information so that the Council could not dispute the misstatement.

It is for these reasons that Willis Legal recommends all clients purchasing land should obtain a LIM relating to the Property.

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