The standard Real Estate Institute/Auckland District Law Society Incorporated form of Agreement for Sale and Purchase of Real Estate has recently undergone review and, as a result, has been updated and changed. These changes affect both buyers and sellers of residential properties.
This new standard Agreement is likely to be one of the most commonly used legal forms in New Zealand, and signing one carries big risks for both the seller and buyer. To assist you when buying and selling property we set out the following information about the updated Agreement.
The changes – What are they and what do they mean for buyers and sellers?
Some of the changes to the Agreement.
Default Interest Rate: The default interest rate for late settlement has been changed. It is important to always remember to specify an interest rate for late settlement in your agreement.
LIM Conditions: The standard LIM condition clause has been amended by the addition of a requirement that purchasers must now have “reasonable grounds” for not approving a LIM report. This will make it difficult for buyers to use a LIM condition as an escape if they want out of a contract. It could potentially also leave a buyer and seller in dispute over whether or not a purchaser’s objection to the LIM report is, in fact, “reasonable”.
Breach of Warranties: The clauses in the Agreement which set out what is to happen if the seller is in breach of a warranty under the Agreement have been changed significantly. These changes are in light of the recent Supreme Court decision. These changes make it clear that, if the seller is in substantial breach of a warranty under the Agreement, and the purchaser elects to proceed with the purchase, then the seller does not have an entitlement to demand the full purchase price from the buyer. These changes also make it clear that in such circumstances the buyer has no right to defer settlement, but must settle when settlement is due despite the breach.
The changes have highlighted the fact that even matters that appear to be straight forward for a sale and purchase can get very complicated if the Agreement does not anticipate the needs of the buyer and seller sufficiently. It is so important to consider these issues before you sign.
Some Common Misconceptions:
“It is just a standard form of agreement; I just need to fill in the blanks”
Agreements should always be tailored to your needs so as to avoid problems; everyone’s circumstances are different.
“I will just cancel it if there is a problem”
Even a conditional agreement can only be cancelled if reasonable endeavours to satisfy the condition have proved unsuccessful. So you will not necessarily be able to cancel an agreement - even if it is conditional.
REMEMBER: Once signed, an Agreement for Sale and Purchase is a legally binding contract - it is essential that care be taken to ensure that all the necessary terms are included in the Agreement and are in your favour BEFORE it is signed.