Lawyer horror stories – What can go wrong

Any diligent lawyer can run the administration and conveyancing of your property.

But, if you’re going to be a successful property investor, you need more than the basics.

This is why you’ll get more value from hiring a specialist property lawyer. This is especially the case if you’re investing in New Build properties.

Why? Build contracts are specific and lengthy. So, if you’ve got a lawyer who’s unfamiliar with these types of contracts they can:

• miss some important clauses

• take more time; and

• charge you more money.

Or they could just straight up give you bad advice.

In this article, you’ll hear case studies of people who have used a run-of-the-mill lawyer rather than a specialist. That way you can avoid some of the common mistakes investors often make.

Horror story #1 – “My Lawyer charged 6k for a property I didn’t buy”

Our first horror story comes from when Opes Partners managing director Andrew Nicol was working with one of our investors.

Joe was looking to buy a New Build property and decided to use his friend as his lawyer – Darren.

Now, Darren’s a good lawyer who specialises in relationship property and family law.

But because of that he hardly ever looks over a sales and purchase agreement for property.

Because it’s not his area of expertise, Darren took a very long time to look over the contract.

And he wrote a lengthy letter (called a reporting letter) detailing his concerns about the contract.

Now, writing a reporting letter that highlights what you as an investor need to know is a standard part of using a property lawyer.

But, the issue here was:

1. Darren’s letter was pages and pages long

2. It raised concerns about clauses in the build contract that are really not of concern and have been standard for the last 20 years

In the end, that level of detail made Joe nervous, and he decided to not go ahead with the property.

That might not have been an issue, but then Joe received a $6,000 bill from Darren.

This is an exorbitant amount – even by lawyer standards – for simply overlooking a property transaction. From our experience, this should only cost around $800.

And in the end Joe paid the bill and didn’t query the figure because he didn’t want conflict with his friend.

Horror story #2 – “My lawyer was hell-bent on negotiating an impossible clause”

Next up, is Hollie – who was trying to purchase a New Build standalone house in Rolleston.

Hollie was working with Opes’ Property Partner Stevie Waring, but like Joe she also chose to work with a lawyer who wasn’t specialised in property.

Hollie’s lawyer spent a lot of time going backwards and forwards with the developer’s lawyer, because she focused on a specific clause in the contract.

She wanted to give Hollie the ability to cancel the contract … almost right up until settlement.

And the reason for this was that the lawyer worried that the developer might change the property from fee simple (freehold) to a unit title midway through the build.

This showed that the lawyer had little experience working in the development sector. Because to get the money to build the property developers need to have contracts fully unconditional, otherwise the bank may not lend them the money.

And as Opes-approved lawyer Sue Foley, of Landley Law, says: “The contract’s been like that for 20 years. The industry is self-policing.”

After a lot of to-ing and fro-ing, eventually Hollie got spooked and walked away from the property.

She figured the developer must be hiding something if they were so unwilling to meet what her lawyer told her was a “reasonable” request.

Horror story #3 – “Lawyer gives incorrect advice”

Our last case study is couple Simon and Tim, who were planning to purchase a New Build in Whangarei.

Their lawyer wasn’t a specialised property lawyer and (as it turned out) was handing out flippant and very incorrect advice.

When Simon and Tim talked to the lawyer he veered into giving financial advice and told them not to invest in New Builds and to invest in existing properties instead.

In his view: “Don’t worry about the new interest deductibility rules, I invest in old properties and they are just fine.”

The issue here is that under the new interest deductibility tax rules, existing properties pay a significantly higher amount of tax.

This level of tax may be palatable for a lawyer on a high income – or if they invested decades ago when property prices were significantly cheaper – but in today’s market they may not be suitable for Simon and Tim.

Especially since the new rules can mean paying up to an extra $2,000 in tax per year for every $100k of mortgage an existing investment property has.

Do you have a question or comment about our lawyer horror stories? Feel free to leave your thoughts in the comment section at the end of the page.

Investor mistakes – What are the main issues with using a run-of-the-mill lawyer?

There are three common themes that run through these 3 horror stories.

#1 – Non-specialists take longer, and cost more

Investors can’t walk through a New Build property … because they aren’t built yet.

All you have to work with are the terms of the contract that will say: “This is what it will look like”.

And these are all written into the fine print … clause upon clause upon clause.

A specialised property lawyer deals in these very specific turnkey contracts, day-in day-out.

So, this means they will be able to cast an eagle eye over your contract and know (relatively quickly) what to call your attention to, what can and should be negotiated, and which clauses are standard.

Whereas a non-specialist will take longer to read the contract and figure out what’s important and what’s not. As we saw in the first case study, that can make your lawyer over 5x more expensive than they need to be.

What should a property lawyer cost me?

Generally speaking, a lawyer should cost you somewhere between $2k-$3k + GST, depending on how complicated the contract is.

But, this is for a completed deal.

If the deal falls through, our investors usually pay something like $800.

So, Joe (from our first example) was overcharged by his friend in our view.

He learned the hard way that it can be a big mistake to enlist the help of a lawyer without a clear indication of what the price is going to be.

This is why it’s always a good idea to ask: “Hey what’s this going to cost me”, before you send them rummaging through your contract.

#2 – Non-specialists could spook you off investing

For lawyers who don’t deal with property transactions and turnkey contracts, they can be startled by some of the clauses, when in reality some (or most) of the risks are just part and parcel of buying off the plans.

The issue here is that they can end up quibbling about issues that are standard.

And the problem for investors is that the lawyer mis-identifies the risk; they make a bigger deal of it than they should because they are unfamiliar with how the contract works.

And yes, this causes higher costs since you’ll be footing the bill for the lawyer running up bankable hours trying to negotiate a commonplace clause.

But, it can also scare you off investing, because the risks in the contract are made out to be larger than they actually are in practice.

This can spook would-be investors and stop them growing the property portfolio they want.

Of course, you should make an informed decision, and the way to do that is by using a lawyer who can give you solid legal advice on the contract you’ve signed.

#3 – Non-specialists can give you bad advice

This may all sound really nit-picky and specific, and you might ask: “What does it matter if the lawyer understands build contracts or not?”

But at the end of the day it DOES matter because you could be getting bad legal advice.

Yes, lawyers are in a position of trust and we should respect them, but in some instances we’ve seen lawyers overreach or give advice outside their realm.

For instance, in horror story 2 and 3 these lawyers are giving bad advice that will ultimately have an effect on your investment decision.

But worse is that if your lawyer is unfamiliar with a build contract they may miss an important clause that actually would be a concern.

For example, if your lawyer is so busy trying to negotiate a clause that has been standard for multiple decades they may miss a particularly punishing sunset clause (for example) that could later cost you hundreds of thousands of dollars.

So … How do you pick a good lawyer?

The bottom line is: when it comes to New Builds and turnkey contracts you really (really) want to be working with a lawyer who specialises in this space.

This is going to become more important to a lot more people as interest in New Builds increases – thanks to the new interest deductibility laws.

So, how do you sort the good lawyers from the not-so-good?

First, you can grill your lawyer before you hire them. Ask them: “How many turnkey contracts have you looked at?” or “How often do you deal in New Build contracts?”

Or second, you get a recommendation from someone who’s worked with them previously and can vouch for their expertise.

Here at Opes Partners, because we work with 1000s of investors every year (and we all use lawyers for our own property transactions), we often get asked for our lawyer recommendations.

Over the last 2 years we’ve worked with 691 lawyers in total. And from those our top 5 picks for property lawyers in New Zealand are:

1. Sue Foley | Landley Law
2. Jenny Turner | Wynn Williams
3. Katherine Mexted | Convex Legal
4. Penny Liu | Liu Legal
5. Michelle Erasmus | The Conveyancing Shop

To be clear, these guys don’t pay us to recommend them. These are the ones out of all 691 lawyers we’ve worked with who we know give good property advice.

So, to avoid higher bills, and potential mistakes, investors buying New Builds should err on the side of caution and use an Opes-approved lawyer from this list.

For more information on each of these lawyers head to our article titled: Top 5 Property Lawyers.