Buying a property is a big investment, often the biggest individuals make in their lifetimes making the Sale and Purchase Agreement one of the most important documents they will ever sign. It is therefore quite alarming to see how many people enter into this legally binding contract without getting advice from a lawyer and without understanding what is contained in the agreement.
Only last week I had a young couple bring in a signed agreement to purchase a property that contained no conditions. They had found a property on Trade Me and signed up a Sale and Purchase agreement with the Vendors thinking that they were just “negotiating the price” and now wanted to order a LIM report and apply for finance approval. They were extremely surprised to discover that they had entered into an unconditional contract without including the necessary conditions! I come across this type of easily avoidable problem on a daily basis that purely result from individuals not getting legal advice before entering into an agreement. Some other examples are purchasers not realising that the price they have agreed to is plus GST, poorly drafted clauses that lead to disputes over the interpretation and the worst case of a client signing a blank agreement and leaving their friend to fill in the details!
Another misconception is that purchasers or vendors can cancel the agreement if they change their mind. This is not the case so it’s imperative that conditions are inserted into the agreement (before signing!) allowing the purchaser time to do their homework on the property.
The three most common conditions which are recommended for most residential property purchases are:
1. Finance Condition
Even if you have pre-approval from your bank you still need to get unconditional finance approval for the particular property you are purchasing.
2. LIM Report
This is report prepared by the City Council giving information regarding the property such as land features, rates, building consents, zoning and more
3. Building Inspection Report
Get a qualified building inspector to investigate the property for any potential maintenance, water tightnessor structural issues
If you are purchasing a house that is being built or subdivision that is not yet complete a Sunset Clause may be appropriate. This would give you the option to get out of the agreement should the work not be completed and settlement not have occurred within a specified time frame. If you are an overseas person wishing to purchase sensitive land in New Zealand then an OIA consent condition would be required
Other common conditions include a subject to a Registered Valuation, Solicitors Approval, the Sale of an existing property and Due Diligence..
It is important that conditions are properly worded so that their meaning is clear and they are not disputed at a later date. A lawyer can help you in drafting a clause tailored to your specific situation.
Do not rely on verbal agreements with the Vendor or Agent. If they have agreed to do something like maintenance work on the property prior to settlement include this in the further terms of sale
Remember – No two property purchases are the same it is therefore essential to always consult your lawyer before entering into an agreement for Sale and Purchase to discuss what conditions are appropriate for the specific circumstances.