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Insurance Best Practice
“If I had my way, I would write the word “insure” upon the door of every cottage and upon the blotting book of every public man, because I am convinced, for sacrifices so small, families and estates can be protected against catastrophes which would otherwise smash them up forever. It is the duty to arrest the ghastly waste, not merely of human happiness, but national health and strength, which follows when, through the death of the breadwinner, the frail boat in which the family are embarked, founders and the women and children and the estates are left to struggle in the dark waters of a friendless world.”
-Sir Winston Churchill
One matter the Canterbury earthquake has brought into sharp focus is the necessity for businesses to have adequate insurance. In the aftermath of a major disaster, the sufficiency of a business’ policies will be the prime factor in whether it survives, or is forced to wind up. It is accordingly critical for businesses to be diligent during the process of obtaining and maintaining insurance.
There are two very relevant types of insurance for farmers to have. The first is material damage insurance, which most farmers will have. This covers physical damage caused to your assets – like your vehicles, livestock, plant, cowshed and other buildings.
The second is business interruption insurance, which is sometimes also called loss of profit insurance. This type of insurance, commonly offered as an optional extra to a material damage policy, covers the income lost by a business in the aftermath of a business interruption, like a natural disaster. In addition to covering losses stemming from damage to your property, a good policy will also cover interruptions flowing from other properties – such as damage to a power station leaving your farm without electricity.
Cover of this nature is especially important for dairy farmers, who are particularly sensitive to business interruptions given their reliance on continuing daily production. Rebuilding a cowshed will take months at the least. Where a widespread disaster puts enormous demand on building services, it may be up to a year before the farm resumes making profits.
We urge all our farming clients to take the opportunity to review their insurance arrangements and read through their policies carefully. Work out what events you are covered for, for how much, and how long the cover will last. Understand exactly what your obligations to the insurance company will be, not only in terms of notification, but of allowing the insurer to inspect the property before attempting to clear up any damage. If any part of the policy is not clear to you, discuss it with your broker. If you’re still not happy, seek advice from your solicitor.
Lastly, develop good filing habits and keep up-to-date records of your farming operation. If your records are on computer, consider backing them up onto a flash drive. Make sure this continues throughout the periods where disaster strikes and in the aftermath. Take lots of photographs of any damage and make sure you retain any information that could help in your claim. The more information you can provide to your insurer, the quicker your claim will be processed.
Adequate insurance will give you the peace of mind of knowing you are protected from nature’s cruelty. The rub is to ensure that your insurance is adequate. How sure are you that your insurance will hold up if disaster strikes? How sure are you that the amount of your cover will give you good enough protection? For some, these may be uncomfortable questions. They need to be answered, however, if there is to be real peace of mind.
Employment Agreements
A farmer who was getting tired of early morning starts hired a young couple for milkings and most of the general farm work. As part of their remuneration, they moved into an out of use sharemilker’s cottage on his farm. Things went well at first, at the farmer enjoyed the additional leisure time. When the couple’s performance started to wane, however, and the couple complained that the farmer misrepresented their duties to them, the farmer went to see his solicitor. The solicitor was dismayed to learn that there was no employment agreement – just a handshake.
Employment disputes can be a bed of nails for many farmers. About one quarter of farm owners still don’t have written employment agreements with their staff. That this remains the case in 2010 is worrying – the requirement that employment agreements be in writing has been around for a long time now.
When things are going well for employers and their employees, the need for a properly drafted employment agreement may not be apparent. But farming is stressful, a fact few need reminding of this time of year. Formerly good relationships between farm owners and their staff can and do deteriorate into disputes very quickly.
Without a written employment agreement in place, even for casual workers, farm owners can find themselves up for thousands of dollars in fines. The Employment Court has demonstrated very little sympathy for farmers who do not comply with this requirement of the law.
An employment agreement must cover off the following things to be in compliance with the law:
- The names of the employer and the name of the employee;
- A description of the employee’s duties, workplace and hours of work;
- The wages or salary the employee will be paid;
- Provision for paying time-and-a-half for work on public holidays; and
- An explanation of what services are available to help sort out employment relationship problems, in plain English.
- If you’re providing accommodation to your workers as part of their remuneration package, as is quite common with farmers, it needs to be included in the employment agreement also.
Besides the risk of fines, having a written agreement removes much of the uncertainty around your relationship with your staff. Providing a detailed description of what you expect of your employees can save a lot of trouble down the road if there are murmurings about being asked to do jobs they weren’t hired for.
It is easy enough to build your own employment agreement at the Department of Labour website. However, farms are complicated workplaces, and good farm workers are hard to replace. For that reason it is advisable to involve your lawyer in the process.
Notes on the law of straying stock
For many years in New Zealand farmers were not liable for any of their animals straying onto the road. There was not even a requirement for animal owners to fence property adjacent to roads.
However, this farmer-friendly rule was abolished by Parliament some years ago. Now, the legal position is that animal owners are liable for damage caused by their animal, if it escapes due to negligence.
Recently, the Disputes Tribunal awarded $5,386 against a farmer after a driver hit a calf wandering on the road at night. The Tribunal held that the farmer had been negligent in not taking all ‘reasonable’ steps to ensure adequate fencing.
According to media reports, the Tribunal attached a lot of weight to the fact that the calf had just been weaned, because “recently-weaned calves can be very unsettled and … they can be unpredictable and skittish.”
The implication is that the farmer should have taken extra precautions to keep the calf on his land beyond the usual seven-wire fence, because he should have foreseen that might not be sufficient to hold in those particular animals.
The decision was heralded in The Dominion Post as being ‘precedent setting’. Most lawyers would consider that an overstatement of the weight attached to the decisions of the Disputes Tribunal.
Nevertheless, it is a handy illustration of the fact that farmers need to turn their minds to the possibility of their animals escaping, and to take reasonable steps to prevent that from occurring.
Also
- If an animal gets onto a motorway and causes damage to vehicles or motorists, then under the relevant legislation the owner will be liable for all of the damage, unless the owner can prove that there was no negligence (a ‘guilty until proven innocent’ scenario).
- Under another statute, if someone’s stock strays onto your land you must notify the owner with 24 hours. You may keep the animal on your land for 48 hours and you must feed it. By the expiration of that time, you must take the animal to the nearest pound.
- You can recover these costs and some of the costs of keeping the animal from its owner. Lastly, if the animal causes any damage to your fencing, you are entitled to claim up to $50 for repairs.
Squatting on Land
A few months ago a quarrel erupted over who had the rights to an abandoned lot opposite Central Otago’s famous Cardrona Hotel. The last known owner was a Chinese GoldmMiner named Wah Yeong. When the gold rush ended Wah Yeong abandoned the land. He has no traceable descendants and the property remains left in his name.
A surprising number of parcels of land in New Zealand have no identifiable owner. There are a number of reasons for why this might be the case. Usually, it will because the owner abandoned the land years ago and no living person seems to have a legal right to own or occupy the land. Oftentimes the adjacent owner begins using the land – especially if it is farmland.
So if you have been grazing animals on land you suspect has a lost owner, what rights do you have? Can you turn your occupation into some permanent form of ownership? If you’ve been using the land long enough you might well be entitled to claim freehold ownership of it - without having to pay for it.
The Land Transfer Amendment Act 1963 states if you have been in possession of such land for 20 continuous years, you can apply for freehold title under what is called “adverse possession”. This is an ancient legal rule that states that one person can acquire ownership of another person’s land without paying compensation if, for a long enough period, he holds and uses the property in a way that is inconsistent with the ownership rights of the real owner.
If you think you might be entitled to take ownership under this section, you can make an application to the Registrar of Land. Quite naturally, your application must be accompanied by good evidence. You will have to find someone who will attest that they know both you and your history with the land.
If the Land Titles Office is satisfied with your evidence, it will accept your application. The Registrar will then advertise your application in the local newspaper, and will give notice to any other person who might have an interest in the land. Someone with such an interest will then have the opportunity to lodge a caveat against the title, which is a notice that will block any attempted transfer of the land until the claim to which it relates is resolved.
If there no such person, or if any caveat proves to be without a proper basis, the Registrar can approve your application. You will be asked to obtain a survey and to deposit the resulting survey plan with the Land Titles Office. When that is done, the Registrar will issue a new title in your name and, hey presto - you’ll have been transformed from squatter into legally registered proprietor.
Navigating the Queen’s chain
What is the Queen’s chain? In the popular mind, it is some kind of universal right of access to beaches and lakes and rivers. In reality, it is nothing but an inconsistently applied surveying concept.
In the early days of British sovereignty, Queen Victoria issued Governor Hobson with instructions to set aside public ownership of, or at least access to, the land adjacent to waterways. The general practice was to set aside a strip of about 22 yards. This was one chain under the old imperial measurements, hence the term ‘the Queen’s chain’.
However, these instructions were then not formally incorporated into the law of New Zealand. They were therefore susceptible to non-compliance by surveyors. Naturally, surveying practices varied widely in those days. This was especially the case in the era of provincial government, when New Zealand was governed by 10 different autonomous ‘states’.
Some surveyors set aside 22 yards, others set aside less, and a significant number set aside nothing at all. Thus, only about 70% of the land adjacent to waterways is subject to the Queen’s chain.
Some readers may remember the Walking Access Bill. Several years ago, the Government intended to enact a law to force access over private land not subject to the Queen’s chain. The Walking Access Act, the version passed into law, only provides for public access where the landowner agrees.
Is your land susceptible to public access, as part of the Queen’s chain or otherwise? Take a look at the survey map on your title to see where the boundaries are in relation to the water. Are there unformed roads or rights of way that the public can use? Are there references to things like Conservation Act or the Land Act on your title? All of these things may be parts of the Queens chain. Give your solicitor a call, and he or she should be able to explain to you the rights and obligations attaching to anything appearing on the title.
Of course, if the title is ‘clean’ then generally speaking it is your land. This means you can allow and withhold access however you please.
How will the abolition of gift duty affect trust clients
The Government has just announced that gift duty is to be abolished as of 1 October next year. This decision has particular relevance for those looking to set up trusts. Farmers in particular are often aware of the value that trusts can have for their business and succession plans.
The reason for gift duty
Gift duty, which at 125 years, is one of our oldest taxes, is currently payable by anyone making gifts over a certain amount in any 12 month period. For example, for gifts between family members, liability for gift duty is incurred if the value of the gifts are, in aggregate, more than $27,000.00 in any 12 month period.
The original purpose of gift duty was to prevent us from escaping our former obligation to pay death tax by simply giving away our assets during our lifetime. With the practical elimination of death tax in 1992, however, the original rationale for gift duty no longer exists (death tax still technically exists, but is zero rated).
Gift duty has survived, however, as a means of preventing us from using “gifts” as a way of avoiding creditors or manufacturing eligibility for various Government assistance programs (for example, rest home subsidies). The Government is satisfied, however, that it has other existing powers sufficient to prevent such abuses. Government regulations in the field of Social Welfare law, for example, are both broad and flexible in determining eligibility for benefits. Furthermore, the Insolvency Act and other legislation already contains wide powers for the Official Assignee or the Courts to reverse gifts made to avoid creditors.
Significance for trusts
Nevertheless, the abolition of gift duty should be welcomed by trust clients. Without gift duty, setting up and maintaining a trust will be a lot easier. This is because a multi-year gifting program is currently the usual means of transferring assets into the trust.
Under such a program, assets (particularly properties and investments) are sold to a trust in exchange for a loan equal to the market value of the asset. That debt is then progressively gifted away at $27,000.00 per year. After some years, the property is owned by the trust, debt free. It is also usually prudent for the people doing the lending to update their wills to ensure that any remaining debt is given to the trust should the lender die (and therefore can’t complete the gifting program).
With gift duty abolished it will be possible to simply give the assets to the trust and in the case of an existing gifting regime, to simply gift off the balance of the remaining debt. In some circumstances, however, it might still be necessary to sell the property to the trust and then forgive the debt. An example of this would be for depreciation purposes where it is a commercial enterprise being transferred. At any rate, there should be no more need for an annual gifting program. Over time, this will represent large savings for clients.
The need for caution
Some caution must be advised. Annual gifting programs are often used as a convenient occasion to complete other trust administration, such as annual minutes of the trustees. These are also important in that they demonstrate to outsiders that the trust is not a sham. There may also be a reason for a debt (or part of it) back from the trust to be retained, particularly if the donor is not a beneficiary of the trust.
There are likely to be many other knock on effects of the abolition of gift duty. For instance, present law is such that if a donor gifts to a charity that is not an approved charity, the donor will be liable for gift duty if the sum of that gift, and other gifts, exceeds $27,000.00 in the previous 12 months. Once gift duty is abolished, donors can give to whomsoever they wish, with no gift duty ramifications.
Over the next year, we lawyers will be busy working out all the implications of this move by the Government and we will be sure to keep our clients abreast of any new developments, obligations or advantages that arise.
Buying a House – Check That The Wiring Does Not Void Insurance
Recently a client who purchased an old State house built in the mid 1940’s ran into a problems when trying to obtain insurance for the property that would meet the lending bank’s approval.
The problem arose due to the fact that the house being purchased had much of its original TRS (Tough Rubber Sheathed) wiring, which was flagged in a building report as a potential fire hazard.
Due to the potential fire risk involved with TRS wiring, the client’s insurance company would not offer the usual ‘full replacement and reinstatement’ insurance. Instead they offered indemnity insurance with a condition that the house be re-wired within 90 days. Once re-wiring was completed and certified the insurance company would upgrade the insurance to ‘full replacement and reinstatement’. While indemnity insurance is reasonably common in such situations, the introduction of a time period for compliance with re-wiring, is a recent requirement by many insurance companies.
Thinking all was well the client approached the bank to confirm that indemnity insurance would be sufficient, until the re-wiring was completed. However, the bank’s lending services department rejected the insurance. The bank was concerned that if the re-wiring was not completed within the 90-day requirement period, then the insurance would lapse. As such it could potentially have a loan secured over an uninsured property.
This meant that the client was without insurance, could not drawdown the loan facility and would therefore default on settlement. In such cases the defaulting party is not only subject to penalty interest until settlement is completed, but they are responsible for the costs/penalties incurred by other parties who default in turn – this can occur where there is a chain of sale and purchase transactions.
Thankfully we were able to organise acceptable insurance prior to settlement and the purchase was completed without issue. Nevertheless, this story serves as a warning to home buyers as to the importance of consulting a solicitor, prior to entering into Sale and Purchase Contracts. As a rule of thumb we would almost always recommend obtaining a building report (especially for older properties), or at least have an electrician check the wiring. With the new 90-day policy discussed above now becoming commonplace, it may also be prudent to add a condition, that the house be approved for insurance satisfactory to the bank’s requirements prior to confirmation.
If you are contemplating entering the residential market please do not hesitate to contact one of our Conveyancing experts to discuss your options.
Loaning Money to Family Members – Can it be Recovered?
By Rory Scott
Many people are unaware of it, but the law can prevent the recovery of loans or other debts between family members upon the expiry of a six year set period of time.
Recently I was asked to determine whether a loan granted over six years ago from family member A, to family member B, could be recovered given the impending bankruptcy of B.
Unfortunately for A, the loan had not been recorded in any written form such as a deed or mortgage document. Rather, as with many inter-family loans, it had been granted on the back of a good family relationship and lacked any proper written record.
Without any form of documentation governing the conditions of the loan the money, by virtue of the standard rules of commercial practice, became due the instant it was advanced. Subsequently The Limitation Act prevented recovery of the money due to the length of time that had passed since the advance.
This situation highlights the importance of a having a clear and written account of the terms of any loan between family members, particularly with regard to your expectations of repayment.
If you are in the process of loaning money to a family member and wish to discuss what form of documentation is most appropriate for you, or if you have loaned money in the past and wish assess the implications of the Limitation Act on your advance, please do not hesitate to contact us.
Residential Tenancies – Important Changes That You Need to Know About…
By Rory Scott
The Residential Tenancies Act 1986 sets out the rights and obligations of people who rent their homes and those from whom they rent. On 22 July 2010 the Government gave the green light to implement changes to the Act, with a view to modernising it. It is anticipated that these changes will come into force later this year.
Proposed changes to the Act include:
- Providing a clearer and fairer process for terminating and renewing tenancy agreements.
- Introducing penalties for tenants harassing neighbours.
- Introducing penalties for landlords providing substandard housing.
- Extending the Act to cover boarding houses.
- Clarifying what happens when a fixed term tenancy expires.
- Clarifying the process for terminating a tenancy due to non payment of rent or other breaches.
- Providing measures to encourage compliance by landlords and tenants with their obligations under the Act.
- Increasing the monetary jurisdiction of the Tenancy Tribunal to enable more tenancy disputes to be resolved efficiently and cost effectively.
- Providing more clarity with regard to liability for outgoings.
- Provide for disclosure requirements by landlords, where a premise has been cleansed under a statutory order (i.e. because the premise was contaminated due to methamphetamine manufacture).
Whether you are a landlord or a tenant the impending changes will affect you significantly.
Buying a Section? – Beware of Lapsed Building Plans
By Rory Scott
When purchasing a section, it is always important to investigate whether any documents supplied or agreed to be supplied in relation to the property are current.
Recently clients looked into buying a section on which they intended to build a new house. As part of the purchase negotiations, the Vendor agreed to provide the client with a set of building plans which they advised had been approved by the local authority.
Being provided with building plans represented a significant benefit to the client, as preparing and submitting such plans to the City Council for approval can be a costly and time consuming exercise. Having reviewed the plans, the client instructed us to draft a sale and purchase agreement incorporating the plans as part of the package.
However, as part of our pre-drafting investigation, we discovered that the Building Plans had been approved by the City Council in 2008. City Council rules require you to commence building within one year after Council approval and you have a further year from commencement, within which to complete the job. The reason for these timeframes, is to ensure that the plans stay current, as rules and requirements within the building industry are constantly updated and changed.
As the plans were approved in 2008, they had now lapsed. While the client had the option of resubmitting the exact same plans, this would not negate or reduce the cost of seeking approval, which in this case was estimated to be in the vicinity of $7,000.00.
When buying a section we recommend contacting one of our conveyancing experts to ensure your needs and expectations with respect to your purchase are met.
