10TH EDITION OF AGREEMENT FOR SALE AND PURCHASE OF REAL ESTATE; SUBTLE BUT SIGNIFICANT CHANGES
Posted by Deanna Clark on March 18 2020 in News
The Auckland District Law Society and Real Estate Institute of New Zealand have released the 10th edition of the widely used form of agreement for sale and purchase of real estate.
This latest edition introduces some significant changes that both vendors and purchasers should be aware of. There will be a period of transition in the marketplace as agents and lawyers shift to using the 10th edition as the base document for property transactions and while those working in the industry familiarise themselves with the new provisions and the implications of those changes from a practical perspective.
One of the more significant changes from a practical perspective is the operation of the finance condition. It is widely accepted in the industry that some purchasers have misused the finance condition by cancelling an agreement because they have decided against buying the property they had contracted to buy, rather than because of an inability to raise necessary finance.
The new wording of the finance condition makes the agreement conditional upon the purchaser arranging finance of such amount as the purchaser requires from a lender of the purchaser’s choice. This allows a degree of flexibility on the purchaser’s part to make their own choice as to the financial institution and the amount of finance required.
However, purchasers should be aware that, in order to cancel the agreement under the wording of the 10th edition finance condition, there must be a genuine lack of ability to raise finance necessary to complete the purchase. Under the new provisions, purchasers may be called upon by the vendor to provide evidence that the necessary finance could not be raised, or that their loan application was granted but on terms and conditions that are unsatisfactory to the purchaser. Evidence might include a letter or email from the purchaser’s bank confirming that finance has been declined. If the required evidence cannot be produced by the purchaser, the purchaser might be forced to proceed with the purchase or be subject to other legal action that might be available to the vendor.
The standard form agreement (both the previous edition and the new 10th edition) contains an express, general obligation for the purchaser to do all things reasonably necessary to fulfil the purchaser’s conditions (including finance conditions). However, in the past, if a vendor suspected that a purchaser had failed to do all things reasonably necessary to obtain finance, the vendor might allege that the purchaser had breached its obligations and request that the purchaser produce evidence to support the valid cancellation of the agreement under the finance condition. However, if that information was not forthcoming, the vendor would then need to file proceedings against the purchaser for breach of this general provision. The new wording provides the vendor with a clear and express process for ensuring that the purchaser complies with its general obligations under the agreement.
Recommendations for purchasers:
- Take legal advice before entering into an agreement to ensure the implications of the agreement are fully understood
- Speak to your funder prior to entering an agreement to fully understand your financial position
Other changes to the standard form agreement include:
- Toxicology report: An optional toxicology report condition is now included
- Condition periods: The time periods for building report and toxicology report conditions now match the LIM condition of 15 working days from the date of the agreement
- Building Report: Purchasers must ensure that any building report is produced in writing – if the agreement is cancelled for non-fulfilment of the building report, the purchaser must, upon request by the vendor, provide the vendor with a copy of the building inspector’s report.
- OIO Consent: New provisions allow a degree of purchaser subjectivity as to the whether the conditions of consent are acceptable
- Compensation regime: A detailed process to resolve compensation disputes between vendors and purchasers has been included – this new process may result in deferment of settlement in certain circumstances
- Vendor warranties: 'Fixtures' and ‘chattels’ have been removed and replaced with new definitions and warranties – the vendor must specifically list which items are to be delivered on settlement in an ‘as is’ condition and which will be in ‘reasonable working order’ (fair wear and tear excepted)
- GST provisions and warranties: The GST clauses have been revised - the risk of any change in the purchaser’s GST status now rests with the purchaser
- Release of deposits: The timeframe in which deposits may be released has been clarified
- Tenancy documentation: Tenancy documents must be provided by the vendor on the settlement date
As with any agreement, it is essential that both vendors and purchasers take legal advice prior to signing, particularly during this transitional period while the new provisions are tested and the implications of the new provisions are fully understood.
If you have any questions as to how these changes might impact your property transaction, please contact us to discuss.
Deanna Clark | Special Counsel
t +64 9 300 8751 | Deanna.Clark@shieffangland.co.nz
This paper gives a general overview of the topics covered and is not intended to be relied upon as legal advice.