Buying a house is one of the major milestones in many people’s lives, right up there with getting married, having a baby, and retiring. Signing on the dotted line of a Sale and Purchase Agreement is a momentous occasion for most people.
The Auckland District Law Society and Real Estate Institute of New Zealand has just released a revised version of the standard Sale and Purchase Agreement, which is used for the vast majority of property transactions in New Zealand.
The aim of the change is to modernise the standard agreement and take account of Court decisions and recent cases.
What are the main changes?
The main changes are as follows:
- Building Report Condition Date: the time allowed to obtain a building report has been extended from 10 working days to 15 working days so that it aligns with the time allowed for approving a Land Information Memorandum.
- A new optional condition has been added to enable a purchaser to obtain a toxicology report i.e. to assess if the property is contaminated by meth or other drugs.
- The standard agreement states that if the purchaser is unable to complete settlement on the due date, but the vendor is, then the purchaser has to pay the vendor interest for late settlement, and also any additional expenses or damages incurred by the vendor. The new agreement states that if the parties aren’t able to agree on the amount claimed by the vendor, then either of them can refer the dispute to the new disputes procedure set out in the agreement.
- Similarly, the standard agreement states that if the purchaser is able to settle on the due date, but the vendor can’t, then the purchaser can claim either compensation for reasonable costs incurred for temporary accommodation and storage of chattels, or interest for late settlement. The new agreement also says that if the parties cannot agree on the amount of compensation, then the matter can be referred to the new disputes procedure.
- The vendors’ warranties regarding the chattels included in a sale have been changed. There is now a differentiation between chattels that do not have an operational function and those that do. The vendor now warrants that items that don’t have an operational function, such as blinds, curtains and fixed floor coverings, are to be delivered to the purchaser on settlement in their state of repair as at the date of the agreement (fair wear and tear excepted). On the other hand, items which do have an operational function, such as stoves, dishwashers, ovens, burglar alarms, etc. are to be delivered to the purchaser in reasonable working order.
- The warranty regarding rates has also been expanded, so that the vendor now also gives a warranty that if the property is subject to a targeted rate that has been imposed as a means of repayment of a loan, subsidy or other financial assistance made available by the local council, the amount required to remove the targeted rate has to be paid by the vendor prior to settlement.
- The standard finance condition has been changed. If the purchaser cancels the agreement because the purchaser is unable to arrange finance, the purchaser must now provide a satisfactory explanation for why it was declined, together with evidence that the purchaser did apply for finance and was turned down, if requested by the vendor. This is to make sure that a purchaser does actually apply for finance and uses reasonable efforts to have the finance application approved. A purchaser will no longer be able to use the finance clause as an excuse to cancel the agreement because the purchaser has had a change of mind.
- A new clause has been added dealing with disputes where compensation is payable by one party to the other. If one party has to pay the other party for compensation, or if the purchaser claims compensation for a breach of the term of the agreement that does not allow the purchaser to cancel the agreement, or because of a misrepresentation made by the vendor or the vendor’s agents, or a breach of the Fair Trading Act, and the parties cannot reach agreement on the amount of compensation, then the procedure is set out in how the dispute is to be resolved. There are certain time periods set out for the giving of notice. If the vendor disputes the purchaser’s right to make a claim, then the issue is to be decided by an expert property lawyer. Until the amount of compensation is decided, a reasonable interim amount is to be paid on settlement to a stakeholder until the amount of the claim can be decided. If the interim amount cannot be decided, then an experienced property lawyer, or in some cases an experienced valuer or quantity surveyor, is to decide the interim amount.
- It is now essential for the vendor and purchaser to complete the GST schedule in the agreement. If any particulars in the schedule change between the date of the agreement and settlement, then the purchaser must immediately tell the vendor about the changes. If the change means that GST would now be payable whereas before it was not, then the purchaser will have to pay the GST.
What are the important take-aways?
Not all of the changes to the agreement are significant. However, buyers should be aware that they can no longer cancel an agreement under the finance condition without providing evidence to the vendor that they made a genuine attempt to obtain finance and were unable to do so.
The other important consequence of the changes is that both parties (and the agent) should make sure that the GST schedule is completed, even if one or both of the parties is not registered for GST.
None of the amendments is likely to change that feeling when you sign a Sale and Purchase Agreement and get the keys to your new house. Let’s raise a glass to that!
