Most real estate transactions are finalised with a minimum of stress and inconvenience but when there is a problem, the effects can be frustrating, ongoing, and expensive to remedy – particularly if legal intervention becomes necessary. Previously on our blog, we have written about the vendor’s responsibilities regarding warranties and disclosures, but this is an area that still causes concern from time to time and we believe is worthy of highlighting again in this week’s blog.

The obligations of any practising real estate agent regarding disclosure are quite specific and are well documented. Licensed agents are obliged to observe specific regulations in compliance with the industry’s Code of Practice and the Real Estate Agents Act, 2008. Home sellers also have specific responsibilities which must be understood at the time of listing their property for sale, and also when signing a standard Sale and Purchase Agreement with a prospective home buyer. Agents who fall short in the area of disclosures are liable to fines and possible suspension by the Real Estate Agents Authority.

Items that should be disclosed to potential home buyers fall into a number of categories but in simple terms, any matter that may adversely influence a buying decision should be disclosed. An agent is obliged to disclose such matters to prospective buyers whether they ask about them or not. Staying silent regarding a potential problem is no defence for the appointed agent and does not absolve them from their responsibilities. An agent, however, must have the vendor’s approval to disclose any known issues of importance and if this approval is not forthcoming, agents are advised to withdraw from the sale process.

Homeowners are sometimes reluctant to disclose adverse issues as they fear highlighting a potential problem may prejudice a sale. To give them the benefit of the doubt though, they are often either unsure or totally unaware of their obligations and this is why an agent may be justified in asking some searching questions at listing time. A vendor who takes the attitude that it is up to the purchaser to find any known fault, or who believes they don’t need to disclose anything they are not directly asked about is misguided and heading into potential problems at or after the settlement date.

There are a number of obvious matters that require disclosure such as water tightness issues, subsidence or other land issues and even any known developments on adjoining properties that may impact on the sunlight, view or general enjoyment of owning the subject property. There are also a variety of warranty topics covered in a standard Sale and Purchase Agreement some of which we repeat below:-

  • Confirmation that there are no outstanding notices or demands from any local or government authority or other statutory body or from a tenant or other party.
  • That any chattels are in reasonable working order (fair wear and tear excepted) and that they are free from any charges or encumbrance.
  • That there are no arrears of rates, water rates, or similar charges outstanding.
  • That any works carried out on the property have an appropriate permit, resource consent or building consent and that such works have been carried out in accordance with those approval documents and a code compliance certificate has been issued.
  • That there are no outstanding issues relating to compliance with the Building Act or Resource Management Act.

Vendors of properties that come within the ambit of the Unit Titles Act (and this embraces most apartment buildings) have even greater responsibilities when selling. They are required to disclose a raft of information pertaining to the running and management of the body corporate structure such as details of the body corporate fees, ongoing maintenance levies and plans for any future works that are to be carried out. These matters are covered in a series of pre-contract disclosure documents as prescribed by the Unit Titles Act, 2010.

This may all sound somewhat daunting but it needn’t be. As suggested earlier in this article, a good yardstick is to make available any information you would like to receive yourself if the roles were reversed and you were the buyer. A prudent buyer will obtain a Land Information Memorandum (LIM) report and carry out their own due diligence exercise before buying. Your Tommy’s agent will be pleased to guide you through this process and if you are still in doubt, we recommend you seek legal advice on this very important part of the buying and selling process.

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