Thursday 12 December 2019
If you are a purchaser, you should be aware of the following changes in the latest edition (10th edition) of the real estate sale agreement standard form.
Finance Condition
There has been a perception that a finance condition is a “get out of jail free card” if you do not wish to proceed with a purchase. Case law has shown it is otherwise for some time. Changes to the finance condition clause now make this abundantly clear. A purchaser who is unable to confirm finance must provide explanation, with supporting evidence, if required by the vendor to do so. The purchaser must arrange finance from a bank or other lending institution which they choose, but if the terms offered are not satisfactory to them, they are entitled not to proceed.
Building Report Condition
A purchaser now has 15 working days to obtain a building report. However, it must be in writing.
Toxicology Report Condition
It may now be a condition of purchase that a toxicology report satisfactory to the purchaser is obtained. The purchaser has 15 working days to do so. Again, the report must be in writing. Where the testing is in relation to methamphetamine, it must be completed in accordance with NZ Standard 8510:2017. As with the case of building report, where the purchaser wishes to cancel an agreement based on a toxicology report, the vendor may require the purchaser to provide a copy of the report.
Claims for Compensation
For some time now, a purchaser, finding that there has been a breach of the agreement or warranty, is able to claim for compensation on settlement. They may invoke what is now Clause 10 of the agreement. This requires them to give notice on or before the last working day before settlement date. The notice must state particulars of the claim and must give a genuine pre-estimate of the loss and quantified and particularised the claim to the extent reasonably possible.
Clause 10 has now expanded the grounds of claim to the following:
In addition, disputes over the amounts payable in the event of either party’s default, or over the reduction in value of the property due to destruction or damage will also be covered by that Clause.
If the amount of compensation is agreed, it will be deducted from the amount payable by the purchaser on settlement.
If the right of claim is disputed, the latest edition introduces a new procedure. The vendor must now give notice of that to the purchaser within 3 working days after receiving the purchaser’s notice of claim.
The matter will then be determined by an experienced property lawyer or litigator appointed by the parties.
If the amount of the claim is disputed, the parties will endeavour to agree on an interim amount of compensation payable on settlement. The interim amount will be held by a stakeholder after settlement until the amount is determined.
If the right of claim is disputed, or that the parties cannot agree on the interim amount payable, then settlement will be deferred to the second working day after determination of the dispute.
If the experienced property law or litigator determines that the purchaser has no right of claim, the purchaser may still pursue that claim after settlement.
It is always important to have the pre-settlement inspection completed 2 to 3 working days prior to settlement so as to give time to consider making a claim under Clause 10. The process for Clause 10 will be suitable for any claims for compensation which are significant. If the amounts are reasonably small, the parties are most likely to agree to reserve their right to refer the matter to the Disputes Tribunal for determination after settlement.
GST
Schedule 1 of the agreement now requires further detail on whether the residential part of the property (if any) will be a taxable supply for GST purposes. It is important for the GST schedule to be completed properly and the purchase price to be stated correctly as to whether it is GST inclusive or exclusive. This is to ensure that the GST risk (if there is any) is borne by the appropriate party. One needs to be cautious when the taxable activity is only applicable to part of the property and/or where nomination is involved. If in doubt, tax advice should be obtained.
Chattels and Tenancies
The chattels are now split into those which have an operational function (e.g. dishwasher, heat pump) and those which do not have one (e.g. blinds, curtains, and fixed floor coverings). Those with an operational function must be in reasonable working order on settlement. Furthermore, tenancies to be set out are now split into residential tenancies and commercial/industrial tenancies.
Email addresses
Real estate agents should obtain the relevant email addresses for the parties or their lawyers for service of notices. Once agreed, the email address will be used for any service of future notices unless clearly stated otherwise.
Teresa Chan
This article is for general use only. Advice should be sought for specific circumstances. Please consult Teresa Chan at Teresa Chan Law Limited, Level 3, Westpac Building, 106 George Street, Dunedin 9016, ph. 477 1069, or email teresa@tchanlaw.co.nz
KEYWORDS: Agreement for Sale and Purchase of Real Estate, property agreement, property purchases
