Vendor Warranties and Real Estate

When you enter into an agreement to sell your property, it is almost certain you will be giving warranties to the purchaser. The scope of these warranties can often be underestimated and lead to significant woes for the vendor in the event of a breach. The most commonly used standard form of agreement is the Auckland District Law Society Agreement for Sale and Purchase of Real Estate (‘ADLS Agreement’). The standard vendor warranties are set out in clause 6 of the ADLS Agreement. It is important that all vendors are aware of the content of these warranties. A brief summary of some of these standard warranties is provided as follows.

Chattels

All chattels listed in the ADLS Agreement must be delivered to the purchaser on settlement in the same state of repair as at the date on which the ADLS Agreement was signed. A recent change in the ADLS Agreement further requires that these chattels be in “reasonable working order, where applicable”. The vendor further warrants that all electrical and other installations on the property are free of any charge (for example, not subject to finance).

Any breach relating to chattels provides the purchaser with a right to compensation, but does not entitle the purchaser to cancel the ADLS Agreement. A prospective purchaser should therefore carefully inspect the property to ensure all chattels included in the sale are of an acceptable standard and any issues are dealt with ahead of time.

Work Done to Property

In relation to any works the vendor has done, or caused or permitted to be done on the property, they warrant that:

• any permit, resource consent or building consent required by law was obtained;
• to the vendor’s knowledge, the works were completed in compliance with those permits or consents; and
• where appropriate, a Code Compliance Certificate was issued for those works.

This warranty will not extend to works done on the property by a previous owner, and purchasers are advised to carry out their own investigations, rather than rely on the warranties. Extra vigilance must also be adopted where the property is a cross lease or unit title as these may be subject to additional requirements for any work carried out on the property.

Other warranties given by the vendor at the date of the ADLS Agreement include:

• the vendor has not received any notice or demand and has no knowledge of any requisition or outstanding requirement in relation to the property; and
• the vendor has not given any consent or waiver that directly or indirectly affects the property and that has not been disclosed in writing to the purchaser.

Conclusion

The ‘fine print’ of any sale & purchase agreement needs to be carefully considered and understood by all parties to the transaction. The implications and consequences of giving warranties that are not correct can be significant. If there are warranties that you cannot accurately give, amendments to the warranties will be needed before signing any agreement. Consulting a lawyer from the outset is highly recommended.