What would you do?

14 November 2007

I thought it might be interesting to others and useful to me, if I documented what’s been going on with the sale of our section of land in Upper Queen Street.

Last year, Lisa and I brought a piece of land with the intention of building a home on it. It took as a while to find an architect who understood what we wanted. However, by August of 2007 we were working with a friend, and ex-MBA student, JH, to build something for us.

Around 10 August 2007, I was approached by an agent who had a client interested in buying the section. We’d had the odd agent approach us before so I wasn’t surprised at the approach.

By the 13 August 2007, JVV brought us an unconditional offer with settlement on the 27 September 2007. He said he also had a cheque for $60k as the deposit. JVV explained that the purchaser was friends of the people who were redeveloping and planning to live in a redeveloped 900 m2 (or so) commercial property across the road from our section. JVV said the purchaser had been unable to renew the lease on the property he currently used and had decided to buy and build his own place, and would like to be near his friends. The purchaser was offering $600k.

As we had previous interest at $650k, we went back to JVV and suggested a price of $675k.

JVV returned with an unconditional offer, the same cheque for a $60k deposit, but settlement was to be 90 days from the agreement, i.e. 15 November 2007.

Lisa and I were unsettled by the long settlement period. When asked about this, JVV responded that we had annoyed the purchaser with the revised price and he was going for a longer settlement so he could do more of the planning work with Council before settlement. Later that evening, when Peter met with JVV, JVV reassured Peter saying that the purchaser was well known to him, and he thought it was very unlikely that the purchaser wouldn’t settle on time. The deal seemed fair, albeit it somewhat distant in the future so we signed the contract and the purchaser also signed it (as a director of the limited liability company that was actually purchasing it). Thus, on the 17 August 2007 everything was signed by both sides, and the deposit was paid into the agent’s trust account.

It took over a week, and many phone calls for us to obtain the deposit from JVV’s trust account.

On the 16 October, we were surprised, and not in a nice way, to receive a request from the purchaser, via our solicitor, asking for an extension of the settlement date to 14 December. The purchaser wanted to delay settlement by one month. With little information to go on, we declined the extension.

We were now on tenterhooks, as to whether the purchaser would settle on time. Nevertheless, we continued our own search for a new property to purchase. As an aside, we’ve found a lovely place that was due to go to auction a week or so after the planned (original) settlement date of the 15 November 2007.

Two days before the settlement, I received a call from the agent JVV. He explained that the purchaser was a builder and was in some difficulty. The purchaser had placed three properties on the market (two apartments he had built in Remuera, plus his own home). According to JVV the two apartments were each worth over $1 million and the house was worth about $2 million. The purchaser had expected at least one of the properties to settle by the time he needed to settle with us; but that had not happened. He had sold one of the properties, but he was not due to settle on that property until mid-January. So, could the purchaser have an extension until then. In consideration, JVV said the purchaser would pay an extra $20k deposit. I suggested that in such a case, the purchaser should be able to get a bridging loan from the bank, rather than get an extension for the settlement date. JVV explained that the purchaser had exhausted his line of credit and couldn’t possibly get a bridging loan to complete the sale. He also said that the purchaser had indicated that he was 85% certain that he couldn’t settle on the agreed date.

We agreed in principal, but said we would need to see contract for the sale of the property that the purchaser was using to fund the purchase of our section. We also said that whilst we wouldn’t contractually tie the two property deals, settlement on our property should be close to the settlement of the purchasers other property that he was selling.

In the meantime Lisa and I did a little digging. Rather than a builder, the purchaser seemed to be a well-known property developer. He had been a director (often the only director and shareholder) of about 55 companies. Furthermore, he was in the process liquidating about 15 of them at the present time. Indeed, several of those liquidations had begun only after we had signed the contract to sell our little section. One company may have been liquidated by the IRD several years before, but it looked as if all the others were voluntary liquidations. Most (if not all) of the liquidations were handled by the same trustee. The weekend before, the purchaser had been mentioned in an article in the Herald linking him to a high profile sale of a $21 million dollar property.

On the afternoon of the 14 November, I got a call from JVV. The purchaser will do an electronic transfer of the money to our account. I point out that there is no variation agreement yet, and that we haven’t agreed a date nor have I seen the contract for the sale of the other property of the purchaser. JVV says, let’s say the 29 January, “that way the solicitors have time to get back from holiday”. I point out that a) I haven’t seen the contract, and b) the date should be dependant on the date of settlement of the other contract.

So, it’s the day before settlement. JVV has said he is transferring the 20k in to our bank account. There is no agreement yet as to the new settlement date and there has been no agreement as to the variation to the contract. Nor have we seen the contract that shows there is another property being sold in January. If we go ahead, the purchaser would have had the benefit of sitting on at least $600k for about five months. What would you do?