There was a time when the sale and purchase of residential property were transacted on a basic, single-page document.The document was concise, it was simple and easy to understand and above all, it was legal and binding. Those in the real estate industry who can remember this form of documentation state that the single-page agreement met the requirements of that era when there were fewer disputes and less legal intervention than there are today. Change is inevitable, however, and we now operate with an agreement approaching 20 pages long!
Change has come about largely due to law changes, changes in established business practice, changes in technology and above all the emphasis that has permeated all forms of business practice relating to consumer protection. All good and valid reasons for a change! For many years now, real estate agents and solicitors have used the standard form of agreement as approved by the Auckland District Law Society (ADLS) and the Real Estate Institute of NZ (REINZ); a form that is upgraded at regular intervals to reflect changes in consumer needs. The 10th edition of this document was released late in 2019 and there are some significant changes that both buyers and sellers should be familiar with.
A large number of offers made on residential property have conditions that are attached to them which must be satisfied before the transaction is declared as unconditional. As an example:-
A common example is a clause relating to the buyer obtaining sufficient finance to complete the purchase. In the past, a loosely written finance clause could be used as a means for a buyer to withdraw from an agreement, often for the simple reason that they had second thoughts. That is no longer possible however as the agreement states, “If the purchaser avoids this agreement for failing to arrange finance, the purchaser must provide a satisfactory explanation of the grounds relied upon by the purchaser, together with supporting evidence, immediately upon request by the vendor.”
The latest agreement allows 15 working days for a building report to be obtained. This may seem an excessively long time and obviously a lesser negotiated time (provided it is realistic) would likely improve the appeal of an offer. The builder’s report must be carried out by a suitably-qualified building inspector and must be in writing. The inspector must not carry out any invasive testing without the homeowner’s written consent. The homeowner must give reasonable access to the inspector (subject to the rights of any tenants). If the agreement is terminated based on an adverse building report, a copy of that report must be provided to the homeowner (vendor) on request.
A relatively new condition but one that has become commonplace in the last few years is a toxicology report or in more common parlance a report to detect whether the property has been contaminated by the preparation, manufacture or use of drugs including, but not limited to methamphetamine. The 10th edition of the ADLS/REINZ agreement also provides 15 working days for an objective assessment prepared in good faith by a suitably-qualified inspector. Once again, a vendor is entitled to a copy of an adverse report that terminates the agreement.
There is any number of other conditions that a buyer may need to include in an Agreement for Sale & Purchase. The 10th edition highlights on the front page, some of these such as obtaining a Land Information Memorandum (LIM) report for which it again suggests 15 working days, Overseas Investment Office (OIA) consent and Land Act consent. The latter two are not usually required by NZ citizens for most normal residential transactions.
The parties to an Agreement for Sale and Purchase (vendor, buyer and agent) all strive for a seamless transaction and to achieve this end, we encourage both buyers and sellers to familiarise yourself with the standard form of agreement before negotiations take place. Above all, we urge you to seek legal advice on what is an important and complex document for the uninitiated to understand.