Defective Titles 3 – 0

There have been a spate of recent cases about requisitions. That is, purchasers objecting to defective titles. This can be relevant to any agreement for sale and purchase of land, but it is especially relevant where there is a pre-sales contract for land or apartments.

The two most recent cases concerned covenants that were registered on the title after the agreement for sale and purchase was signed. In both cases the Court found the purchaser had an arguable right to requisition.

Sherman Limited v Harlow went all the way to the Supreme Court. In a judgment on 11 April 2011 the Court held that covenants prohibiting the shooting of wildlife, motorcycling, go karting and other similar activities and restricted the keeping of dogs on the land were something the purchaser was entitled to object to. Sherman had not formally advised Harlow the covenants would be registered.

The purchasers were successful, even though they had not followed the process for requisitioning contained in the agreement for sale and purchase. The judgment turned on whether or not these covenants concerned matters arising out of the subdivision plan, as the standard requisitions process refers to. The Court said they were not matters arising out of the plan, so the time limit for requisitioning in these clauses did not apply. So they had not by default accepted the covenants by failing to follow the right process (whether in the agreement or under the common law). The vendor was in breach of its duty as “constructive trustee” for the purchaser.

In Walter Peak Developments Limited (in receivership and liquidation) v Miller the High Court on 9 May 2011 set aside a summary judgment that the vendor had obtained against Miller, concerning an agreement for sale and purchase of a section by Lake Wakatipu.

As is often done in a pre-sale agreement for a section, the contract deleted the standard requisition process and the purchaser was deemed to have accepted the vendor’s title.

Attached to the agreement for sale and purchase was a copy of the head title. This was a fatal mistake here. The head title showed no covenants registered. However the vendor was in the process of registering covenants in favour of a neighbour. The purchaser was not told about these covenants and duly relied on the title attached to the agreement.

When settlement was required 2 years later, the purchaser’s solicitors objected to the covenants in favour of the neighbour and asked for them to be removed from the title. The vendor refused. The vendor argued the purchaser had accepted the title under the terms of the agreement.

The Court did not buy that argument. They said the clause was worded in the present tense, so the purchaser accepted the title attached to and described in the agreement for sale and purchase. The vendor was entitled to register the necessary subdivision documentation, but not anything else.

In Zhou v Grasshopper Farms Limited in late 2010, the Court of Appeal set aside a summary judgment and quashed an order for specific performance that the vendor had obtained. So they also found for the purchaser. This was on the basis that there was an arguable case that the requisitions the purchaser had made were valid. The requisitions concerned four conditions in the Council’s consent notice, required as part of the subdivision process. These included:

  • The owners to meet the full cost of fencing
  • That that fencing be maintained in accordance with a fencing plan
  • That the design and construction of any structures complied with the geotechnical report
  • That the debris protection earth fall bunds be left as is and inspected and maintained regularly at the property owners expense.

The agreement for sale and purchase contemplated a subdivision but did not expressly contemplate consent notices being registered against the title. That is where it appears the vendor has fallen down here. The agreement was not drafted widely enough.

You can see that vendors need to be very precise in this area. That is 3-0 to the purchasers.

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