We have set out below a short summary of the changes in the new 9th edition. There are some changes specific to unit titles and commercial transactions, which we cover separately. The first section is potentially relevant to all agreements. There is a lot to take in. Some of the changes assist vendors, and some purchasers, so the agreement remains appropriately balanced between the interests of the parties. Vendors should carefully consider the change to the warranty as regards chattels; purchasers whether the new building report condition protects them sufficiently. Have a look at my comments below.
What follows assumes you are broadly familiar with the current 8th edition. If you are looking at entering into a new agreement for sale and purchase of real estate, whether as vendor or purchaser, it is always best to check with your lawyer first, regardless which edition applies.
FOR ALL TRANSACTIONS:
Building report condition
A standard building report condition is introduced. Purchasers will select whether to include this building report condition. If selected, the purchaser must consider whether the report is satisfactory (being objective). They will have 10 working days. The report must be prepared in good faith by a suitably qualified building inspector in accordance with accepted principles and methods. If the purchaser avoids the agreement (because they are not satisfied with the report) then the vendor can insist they are given a copy. Purchasers may wish to consider writing their own condition, giving them more flexibility.
The vendor now warrants that the chattels are delivered to the purchaser in reasonable working order, where applicable, but in all other respects in their state of repair as at the date of the agreement, fair wear and tear accepted. This amendment is problematic. Vendors might want to delete the new wording. Otherwise arguments at settlement around chattels will be common place.
The warranty the vendor gives concerning building work they have done at the property has been slightly narrowed. The warranty that the works were completed in compliance with permits and consents has been narrowed “to the vendor’s knowledge”.
Where compliance schedules are required and the property being sold is part of a building the warranties are also narrowed to those matters within the vendor’s knowledge. However, for unit title property this represents the introduction of a new vendor warranty, that to the vendor’s knowledge there has been full compliance with the requirements of the compliance schedule, there is a current building warrant of fitness and the vendor is not aware of a reason which would prevent a building warrant of fitness from being issued.
There is now just one date, the settlement date. Previously there was a separate possession and settlement date but this is hardly used anymore.
Recognition is given to the fact that purchasers commonly use nominees. The description of the purchaser now includes the words “and/or nominee” by default. If a vendor does not want there to be a nomination then these words should be deleted. If there is a nomination the named purchaser remains responsible for the purchaser’s obligations under the agreement.
The insurance/damage provisions have been amended, largely driven by Christchurch experiences. Where there is partial damage and the property is not untenantable the purchaser can deduct the cost of reinstatement or repair from the amount they tender on settlement. This will be relevant to damage caused between the contract being signed and the settlement date. We expect a little more discussion around this on settlement, but at least in Auckland this will mostly be about damage caused by the vendor, not new earthquake damage. If there is a dispute about the amount then an interim amount (determined by an experienced property lawyer if not agreed) is deducted on settlement and held in trust until determined or agreed, like other claims for compensation under the contract.
Interest for late settlement
Where an interest rate for late settlement is not selected, the default rate will be the current Inland Revenue Department rate for unpaid tax, plus 5% per annum. This is likely recognition of the fact that interest rates are currently too low to be a true default rate.
Where the purchaser is in default, then the vendor must now provide reasonable evidence of the vendor’s ability to perform any obligation that they are obliged to perform on the settlement date in order to use its remedies. This may make it more difficult for a vendor to charge penalty interest as previously vendors have just needed to assert they are ready, willing and able to settle, without providing evidence.
The time for performance clause has been clarified further. Where the day nominated for settlement or fulfilment of condition is not a working day, then the relevant date will be the last working day before the day so nominated. Whilst this was clear for the settlement date not so for conditional dates.
Deferral of settlement date
Where there is a right to a deferral of the settlement date more time will now be allowed.
Where neither party is ready willing and able to settle the settlement date will be deferred to the third working day following the date that one gives notice saying that they are ready; previously it was the second working day.
Where a new title is to be issued then the settlement date will be deferred to the tenth working day following the day notice is given that title is available and searchable, previously it was the fifth. This means title must be available by the tenth working day prior to settlement for the vendor to be able to insist on settlement on that date.
Trustee limitation of liability
The limitation of liability for a professional or independent trustee has been slightly narrowed. If the right of the trustee to be indemnified has been lost or impaired then the trustee’s liability will be personal.
Lawyers settlement obligations
The way lawyers settle sales and purchases must now be done in accordance with guidelines issued by the New Zealand Law Society. Remote settlement is required, except in limited circumstances, so bank cheques will hardly be used. Lawyers will need to use SCP (the same day cleared payment system through the Reserve Bank, unless agreed otherwise). For those buying and selling there will not be much change on the face of it, although note that settlement will not happen under the contract now until the paying or receiving bank have also given direct confirmation of payment to the vendor’s lawyer. This could create delays to settlement.
It is also made clear that e-dealing is to be used to transfer title, which is what happens in practice anyway.
Lawyers may now use a secure web document exchange for serving and receiving notices. This must be agreed to by the lawyers.
Where e-mail is used to serve notices return e-mails generated automatically will not be deemed to be an acknowledgment. The same care should be taken where e-mail is being used for formal notices as these will not be served until acknowledged by the other side orally, by return e-mail or otherwise in writing.
There is however clear recognition that electronic forms of communication are appropriate, subject to the rules regarding service referred to above.?
FOR UNIT TITLES ONLY
Where a unit title property is being sold, the deposit will now be held by the stakeholder (usually the agent or vendor’s lawyer) until the purchaser’s rights to cancel the contract under the Unit Titles Act 2010 have been exhausted. This is a welcome change. Purchasers could have a right to cancel where disclosure is not properly completed, but face difficulties in recovering the deposit. However, for vendors of unit title property there is potentially a long wait before they can use the deposit. Committing to another purchase in the meantime could be difficult.
The agreement now clarifies that the pre-settlement disclosure statement is from the vendor, certified correct by the body corporate. Insurance certificates, not policies, must be supplied in addition, not less than 5 working days before settlement.
Levies and apportionments
It is also made clear that levies for the operating account are apportioned on settlement. There will be no apportionment of the contributions made to the long term maintenance fund, contingency fund or capital improvement fund. Vendors should consider the contributions they have made when pricing their units. If there is a large balance sitting in the fund they will not get this back from the body corporate or the purchaser.
Address for service
The requirements for service of notices under the Unit Titles Act were unclear as the new law required service on the individuals not their lawyers. This is addressed with the lawyer appointed “agent” for the purposes of the Unit Titles Act.
Any fee for the additional disclosure statement paid by the vendor can either be deducted from the deposit or included in the monies payable by the purchaser on settlement. This gives the vendor more protection that they will not be left with the bill when additional disclosure is requested.
Deferral of settlement
Where the settlement date is deferred under the agreement for sale and purchase the vendor can insist on further deferral in order to have time to comply with its obligations to attend to disclosure and provide insurance certificates.
FOR COMMERCIAL PROPERTY
CZR – GST
Where CZR applies, on or before settlement the purchaser needs to provide the vendor with the recipient’s name, address and registration number, if those details are not included in the specific GST schedule or if they have altered.
The GST schedule has been amended so that it is simpler to use.
“Default GST” has been widened to cover the positions of GST groups. Default GST is now expressly able to be included in the monies payable by the purchaser on settlement.
Land Act/OIO consent
Where these apply and no date is inserted on the front page for securing consent, then that date will be the settlement date or 65 working days after the date of the agreement, whichever is sooner. So this has been increased slightly – previously it was 2 months.
You have been out to buy your first home. Yesterday, you fell in love with this seemingly fantastic house with an amazing view.
After hearing that it is likely to be snatched up any time soon, you hurriedly signed an agreement to buy it WITHOUT any conditions attached.
You have been out to buy your first home.
Yesterday, you fell in love with this seemingly fantastic house with an amazing view.
After hearing that it is likely to be snatched up any time soon, you hurriedly signed an agreement to buy it WITHOUT any conditions attached.
Later, you realised that there are other aspects that are undesirable for you and you wish to pull out.. Can you do this?
Unconditional agreements are UNCONDITIONAL
Unconditional agreement has to be followed by the parties. If the deposit has been paid, the vendor can take it. If the deposit was not paid, the vendor can still sue you for payment of deposit or make you buy the house.
In particular, the successful bidder of an auction will be signing an unconditional agreement so it is crucial that the necessary homework is done before making any serious bid at an auction. Visit the house and have a thorough look at the LIM report, the builder’s report and the certificate of the title for the house. We strongly recommend you to seek legal advice as early as possible. Many law firms including us do not charge any extra fee for conveyancing clients who engage the service early on.
Despite the fact that you are bound by the terms of an unconditional agreement, there may be a way out depending on the circumstances.
Was there any reason which makes you think that you were induced into signing the contract by any misrepresentation from the vendor or the agent? If the vendor intentionally lied or unintentionally distorted a crucial fact about the house, such as the absence of any leaky issues, you may be able to argue that the agreement is invalid (section 7, Contractual Remedies Act 1979). Think about whether there was any such misrepresentation. Have a look at the marketing brochure or any emails from the vendor or the agent. Since written communications can be useful evidence of a relevant statement, any questions you ask the vendor or agent better be put in writing such as in emails or txts.
Termination by mutual agreement?
You may also be able to talk your way out of the mess by having an honest discussion with the vendor since unconditional agreements can be terminated without legal consequences if both parties agree. The real estate agent may assist in the process. If this is agreed to, instruct your lawyer to obtain a written confirmation from the other side to prevent any future disputes.
The above potential solutions may not be available in many situations so please take a special care before committing to a purchase of a house which is one of the biggest investments for most people.
No information on this article shall be construed as legal advice and information is offered for information purposes only. You should always seek advice from an appropriately qualified solicitor on any specific legal enquiry.
Unit titles – who pays?
he Court of Appeal looks at how costs for remedial works should be shared at Auckland’s Shangri-La apartments. Wikipedia notes Shangri-La is meant to be a “permanently happy land”, not so Auckland’s Shangri-La. The Court of Appeal was asked by the body corporate (i.e the owners) to look at:
The Court of Appeal looks at how costs for remedial works should be shared at Auckland’s Shangri-La apartments.
Wikipedia notes Shangri-La is meant to be a “permanently happy land”, not so Auckland’s Shangri-La. The Court of Appeal was asked by the body corporate (i.e the owners) to look at:
- the cost allocation for remedial works; and
- the penthouse owner’s claim for compensation for the 18 month period they had been denied use of their unit whilst remedial works were completed.
The High Court had approved a scheme under the Unit Titles Act 2010 that allocated costs for the installation of the new curtain wall at Shangri-La 50% equally between the each of the 15 units and 50% based on utility interest. This meant the penthouse owner, relatively speaking, paid a smaller share than the other owners. The new glass curtain wall did not have to extend to level 16. It finished at the lower level of the penthouse on level 15.
The Court of Appeal upheld the scheme. The Court considered the scheme obtained the requisite fairness. The body corporate wanted all costs allocated based on utility interest. The Court considered that would be unfair to the penthouse owner whose unit had the same amount of work done as the other units in the tower.
All owners were denied use of their units for 6 weeks, but the penthouse owner was out of their unit for 18 months. The curtain wall and support beam were installed on level 15 and other works needed to be done from the penthouse unit. The Court of Appeal agreed compensation was appropriate and should be calculatedbased on the lost market rent. The use of the penthouse during the 18 month period was for the common benefit of all unit owners. However “there will need to be a significant loss for a particular unit owner before a claim for compensation should be contemplated”. Remember also that this compensation payment was being ordered as part of the scheme, which can only be ordered by the Court following destruction or damage so this does not necessarily open the floodgates for compensation claims by unit owners.
This decision does not change how costs are allocated day to day by bodies corporate. The body corporate does not have the same flexibility as the Court in this respect. We believe bodies corporate should have more flexibility to determine different utility interests for different budget items. Others are lobbying for this too as part of the review of the Unit Titles Act 2010. For the moment, the body corporate must use the tools it has:
- charging individual owners for repairs or maintenance to building elements or infrastructure contained in their unit
- using utility interest for allocation of levies rather than ownership interest
- recovering money spent on any repair, work or act for the benefit of individual owner(s) or caused by those owner(s) from those owner(s)
Enforceability of non-competes or restraint of trade covenants
Recently a US client asked me whether New Zealand Courts enforce non-compete/restraint of trade covenants (Non-Competes) against the sellers of New Zealand businesses. If New Zealand law governs the agreement, the short answer is: yes, to the extent the Non-Compete is “reasonable”.
Recently a US client asked me whether New Zealand Courts enforce non-compete/restraint of trade covenants (Non-Competes) against the sellers of New Zealand businesses. If New Zealand law governs the agreement, the short answer is: yes, to the extent the Non-Compete is “reasonable”. However, even where a Court finds a Non-Compete to be unreasonable, it can modify the offending provision so that it becomes reasonable.
Which Non-Competes will be seen as “reasonable” on the sale of a business?
A full discussion on this topic is a cure for insomnia! However, in brief, an enforceable Non-Compete is one that is reasonably necessary to protect the buyer’s legitimate proprietary interest.
To expand slightly: a buyer must establish the following to successfully enforce a Non-Compete:
- that it will actually gain a practical benefit if the Non-Compete is enforced – an example of such a benefit is that the enforcement will afford the buyer a reasonable opportunity to secure the goodwill of the business’ customers); and
- the Non-Compete only restrains the seller from competing:
(a) in the specific market sector in which the acquired business operated;(b) in the particular geographical area in which the acquired business had trade connections – regardless of any plans for expansion the seller and/or buyer may have had in mind at the time of the sale; and
(c) for no longer than it should take the buyer to secure the goodwill of the business’ customers.
Which market sector, geographical area and/or time period will be reasonable/right/not too restrictive will depend on all the circumstances surrounding the business being sold and the nature of the overall deal agreed.
When will a Court modify an unreasonable Non-Compete?
If a Court finds that a Non-Compete is too wide/an unreasonable restraint of trade, then it must either:
- decline to enforce any part of the Non-Compete; or
- modify it so that it is reasonable. A Court is likely to modify the Non-Compete where it believes that the modification:
(a) is required when looking at the essential justice of the case requires it; and(b) can be performed without unreasonably modifying the parties’ bargain.
Please get in touch if you are a buyer or a seller and you’d like some assistance with drafting an appropriate Non-Compete or assessing the enforceability of an existing one.
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