Property problems: Certificates of title and how to search them

Q. I am buying a commercial property and would like to know more about Certificates of Title. Can you explain more about the concept of titles to land, what the term "Certificate of Title" means, why it is necessary to undertake a search on the Certificate of Title, and how I do it? Also, what is the difference between a "normal" search on the title and a "guaranteed search"?

A. Title to land is recognition of an owner's vested interest in a particular parcel of land and is an important protection mechanism to defend any adverse claims against the land from competing alleged owners. It also provides a certain level of immunity from those restrictions, encumbrances or interests that have not been noted (or registered) against the title.

Although title is not a blanket protection against all adverse claims, it does provide a high level of comfort and security to the owner. A certificate of title is a formal (if not symbolic) recognition of all the rights and interests noted against a particular estate or parcel of land including written confirmation of ownership. The traditional form of a paper "Certificate of Title" has now become obsolete given the inception of the computer registration system controlled and operated by Land Information New Zealand (Linz). Linz has established an automated land titles system which provides accurate and up-to-date registration details and recordings of all interests and encumbrances noted against a particular certificate of title.

The three most common types of estates that can be recorded in a certificate of title include fee simple, stratum in freehold (ie, unit title) and leasehold interest in a registered lease document. The most appropriate type of estate ascribed to a parcel of land is invariably determined by the history of ownership and surrounding circumstances. The greatest and most unrestricted type of estate that can be transferred to a purchaser upon settlement is "fee simple" (commonly referred to as freehold) because it conveys permanent and complete ownership in a particular parcel of land until the owner decides to sell or otherwise deal with the land.

A stratum estate exists wherever freehold (ie, fee simple) land has been subdivided for the purpose of creating individually owned and occupied units or flats. A purchaser acquires (unless or until the unit plan generated at the time of subdivision is either cancelled or amended) fee simple title in the flat together with an undivided share in the land that is occupied and enjoyed by all the unit holders (otherwise known as "common property" such as driveways and footpaths).

A leasehold interest is created by virtue of entering into a registered lease arrangement with the vendor, for the duration of a stipulated term. The distinction between fee simple estate and a leasehold interest is that the purchaser's enjoyment and possession of land is only for a pre-determined period of time and is subject to the terms and conditions of the residual lease document and the rights of the owner of the fee simple estate.

It should be noted that all estates in land are subject to the Crown's rights of acquisition under certain pieces of legislation such as the Public Works Act.

Any person considering the purchase of land should obtain a search of the title from Linz or from an agent such as a solicitor having access to the Landonline database. The search of title will alert you to any encumbrances such as easements, mortgages, rights of way, etc, which affect the land. If such an interest has been registered over the title to the land it will, unless released before transfer of the title to the purchaser, continue to affect the land after the purchase. Generally an interest which is not registered and therefore does not show up in the title search will not be binding on the purchaser unless the purchaser has notice of it by some other means.

The value of a search is that it identifies any adverse interest affecting the title to the land and enables the purchaser to examine the extent and application of such interest before deciding whether to proceed with the purchase of the land.

At settlement most purchasers obtain a guaranteed search of the title from Linz to confirm that no adverse interests exist (other than pre-existing interests which the purchaser has accepted will continue to affect the title). The value of a guaranteed search is that should any pre-existing, adverse interest, which should have been noted on the title at time of purchase, subsequently come to light, the purchaser is entitled to seek compensation from the Crown.

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