From the Property Team
Finding a home that ticks all your boxes is the first challenge, are you ready for what comes next? The real estate agent will likely ask if you want to put any conditions into the agreement… what does that even mean?
Conditions deal with matters that a purchaser wants fulfilled before the agreement goes unconditional and therefore proceeds through to settlement. They give you the opportunity to ensure everything is satisfactory before you fully commit to the purchase.
What conditions could I consider including?
The list of conditions you can consider including is virtually limitless, however it is important to keep in mind that the fewer conditions, the more appealing your offer will be to the vendor. Ultimately what conditions you do or don’t include are at your discretion, but it’s always best to consult your lawyer who can provide expert advice on your unique situation. Here’s a summary of the most common conditions used.
Including a finance condition means the agreement is subject to the purchaser securing suitable finance to complete the purchase. The standard condition provided by the Auckland District Law Society (ADLS) states that the purchaser is required to do all things which may reasonably be necessary for the condition to be fulfilled – i.e. you must actively seek finance. However, if adequate finance genuinely can’t be obtained, the purchaser can cancel the agreement if this condition is used.
Land Information Memorandum (LIM)
A LIM is a report prepared by the local council containing information on the property such as building consents, drainage and water information, rates and zoning. Including a LIM condition in the agreement enables a purchaser to obtain and review this information to ensure it is acceptable to them.
Under the standard ADLS wording, the approval of the LIM by the purchaser cannot be arbitrarily or unreasonably withheld and the vendor is to be given the opportunity to remedy any issues prior to settlement date if it’s possible to do so.
The alternative condition we recommend using simply states that the LIM has to be satisfactory to the purchaser in all respects. So if the LIM revealed unsatisfactory matters, the purchaser could simply cancel the agreement on that basis rather than being obliged to offer the vendor the option to remedy them.
Building Inspection Report
A building inspection report condition enables a purchaser to obtain a builder’s report for the property. The ADLS wording puts considerable onus on the purchaser in particular that the builder’s report should be satisfactory to the purchaser on the basis of an objective assessment – i.e. would any reasonable purchaser, on reading that report, have found it unsatisfactory? The answer must be yes to validly cancel the agreement. In addition, under the ADLS agreement, the purchaser has to provide a copy of the report to the vendor if the vendor requests it.
We recommend that a separate condition is inserted into the agreement which enables the purchaser to cancel the agreement if the report is not satisfactory to the purchaser in all respects (based entirely on a subjective assessment).
A common version of the solicitor’s approval condition makes the agreement conditional upon the purchaser’s solicitor approving the agreement as to form, content and title.
If the purchaser’s solicitor does not approve the agreement, it can be cancelled without any liability on the purchaser. Under the standard wording, the solicitor is limited in the circumstances in which they can withhold their approval to “conveyancing aspects” of the agreement – e.g. the vendor is not the registered owner of the property and the purchaser’s solicitor needs to inspect the relevant documentation in this respect.
We recommend a broader wording is used to enable the purchaser’s solicitor to withhold their approval for any reason that protects the interests of the purchaser.
An insurance condition allows a purchaser the time to check the availability of insurance for the property. This is particularly important in areas affected by the relatively recent earthquakes as obtaining insurance here is not necessarily a given.
The risk of methamphetamine contamination has risen over the past few years and therefore a purchaser may wish to insert a condition into the agreement which makes the agreement conditional upon obtaining a methamphetamine testing report which is satisfactory in all respects to the purchaser.
There have been various high profile cases of the costs involved with resolving methamphetamine contamination issues where a purchaser has bought a property without testing for methamphetamine contamination prior to entering into an unconditional agreement. The New Zealand Law Society has a useful article on this: https://www.lawsociety.org.nz/practice-resources/practice-briefings/Property-transactions-with-potential-methamphetamine-contamination-Dec-2015.pdf
General Due Diligence
From a purchaser’s perspective, if there are a number of conditions that you wish to include in an agreement, it is likely to be easier to insert what is called a general due diligence clause. This covers most matters upon which a purchaser is likely to want to cancel an agreement. However, from a vendor’s perspective, this is a particularly unfavourable clause as it basically entitles a purchaser to cancel an agreement for any reason.
Like with any contract, seeking legal advice before entering into a Sale & Purchase Agreement is going to put you in the best possible position going forward. Wakefields are residential and commercial property experts so if you have any questions about an agreement get in touch today: phone 04 970 3600 or email email@example.com