Decisions decisions
As discussed in Alexandra Isherwood’s article, New REINZ land sale agreement – Potential pitfalls, there are now two main choices of agreement when buying or selling real estate. The Auckland District Law Society’s agreement for sale and purchase of real estate (‘ADLS agreement’) and the REINZ agreement for buying and selling real estate (‘REINZ agreement’).
Whether you use the REINZ agreement or the ADLS agreement when buying or selling real estate may well depend on the preference of the parties or their advisers. However, before you sign any agreement, make sure you seek guidance from your lawyer. While the documents are standard your circumstances are unique. Accordingly, the standard documents may need minor or major adjustments to account for your particular circumstances. Always bear in mind that once an agreement is signed its provisions are binding on both parties – the time to make sure an agreement meets your needs is before it is signed.
The agreement
This article sets out some items that you should discuss with your lawyer if you are looking to purchase a property. The relevance of those same items for vendors is discussed at the end of this article. You should ask your lawyer to check any draft agreement before you sign it. Although you can include a solicitor’s approval condition in any agreement you sign before obtaining legal advice, these conditions are often limited in scope.
Some of the matters your lawyer will want to discuss with you are:
- The identity of the property: Your lawyer will ensure that the property you are buying is the one described in agreement.
- Timing: Make sure that the dates for settlement and the fulfilment of conditions within the agreement provide enough time for you to complete all the steps necessary to comply with your obligations. Your lawyer can advise you on what time frames will be appropriate. Also ensure that if you are selling your existing property to finance the purchase that the settlement dates for both agreements coincide.
- Purchase price: The price paid for a property is solely at the discretion of the parties and is generally the most negotiated item in any agreement. It is quite common for this negotiation process to involve writing down a proposed purchase price with that proposal being crossed out and replaced by the other party. This process can be repeated several times and this can create a messy agreement with the final agreed purchase price being unclear. You need to make sure that the final agreed amount is easily discernable from the numbers that have been struck out.
- Deposit: Do not ignore the significance of the deposit. This is the sum that you must pay first. It should be affordable for you but vendors will want to ensure that it is significant enough to cover their costs if you default. Your lawyer will be able to advise you on whether a deposit figure is reasonable or not. If the deposit is significant or if you have concerns about the financial stability of the vendor, your lawyer may recommend that you take steps to make sure the deposit is held by an independent party until the sale is settled.
- When is the deposit payable? The terms of both the ADLS and REINZ agreements state that the deposit becomes payable on execution of the agreement unless provided otherwise. Your lawyer may recommend that you make a change so that the deposit is payable when the agreement becomes unconditional.
- GST: It is strongly recommended that you get advice about the GST implications of your agreement, particularly if the property is tenanted or if any sort of business is being conducted from the property. Missing out on or having to pay 12.5% of the purchase price to the IRD could end up being a very significant unexpected cost.
- Should the agreement be subject to finance? Particularly now that the banks have their purse strings tied so tightly, your lawyer may recommend that the agreement be subject to finance. You should not commit yourself to complete a purchase without first knowing that you have the money to do so. If you are able to obtain pre-approval from your bank to complete the purchase your bargaining position will be improved in that the agreement will not be subject to finance. However, now more than ever, you will need to be certain of finance being available before signing up without this protection.
- Get a LIM: A Land Information Memorandum (‘LIM’) will give you all of the information that the local council has collected on the property. This document is relatively inexpensive to obtain but will provide you with important details about the property such as whether or not all building work on the property has been undertaken in compliance with the relevant legislation and council expectations.
- Vacant possession or tenanted? If there is a tenant, the details of the tenancy arrangement need to be added to the agreement. If you do not want to buy the property with a tenant in possession, your purchase agreement will need to provide that the property is to be transferred to you with vacant possession.
- Is the chattels list complete? Both standard agreements include a list of standard chattels. You may need to add or remove chattels from the standard chattel list so that the correct chattels are included in the purchase. If there are heat pumps or additional fittings that are to be included in the sale, they must be listed in the agreement.
- Builder’s report: The REINZ agreement contains a standard builder’s report condition. While this condition does not appear in the ADLS form, your lawyer can add such a provision to that agreement. A builder’s report may reveal issues with the property that are not included within the LIM report or apparent by way of a superficial inspection.
- Add further terms: There are many other conditions and terms that can be added to the agreement. For example, you can include conditions to deal with matters such as:
- obtaining a specialist weathertightness inspection;
- obtaining a valuation report;
- obtaining a soil/geotechnical report;
- obtaining solicitor’s approval of title, the agreement, a lease or other legal documents; or
- completing the sale of your existing property.
What about vendors?
If you are selling your property, you will also need to be sure that the agreement protects your position and covers all of the issues that are important to you. As a vendor, you will also need to keep an eye on all the items listed above. If you receive an agreement from a purchaser wanting to buy your property, you should contact your lawyer to discuss the agreement before signing it. All of the issues raised in this article have important (but often quite different) implications for vendors.
When buying or selling real estate, whether you are using the new REINZ agreement or the tried and true ADLS agreement, consult your Lawlink lawyer before signing up.
© Harkness Henry
Email: owen.culliney@harkness.co.nz
Website: www.harkness.co.nz