Standard terms – pitfalls often overlooked
Gagan Tangri, Partner
As a purchaser of a property the principle of “caveat emptor” (let the buyer beware) plays an important role, in that a purchaser must satisfy themselves that the property is suitable for them in all respects before proceeding to buy.
Under the standard form REINZ/ADLSI sale and purchase agreement, however, there are provisions which displace the “buyer beware” principle and require particular attention by vendors.
Some potential pitfalls often overlooked by vendors include the following:
A vendor warrants that all chattels, and all “plant, equipment, systems or devices which provide any services or amenities to the property” will be provided to the purchaser in reasonable working order. The key thing to note here is that even if the particular item is not mentioned in the chattels list (but is included in the sale), it will be caught by this warranty. The warranty would therefore apply to (for example), security systems, heating/cooling/ventilation systems, central vacuums and range hoods.
Where a vendor has carried out any building works on the property, the vendor warrants that any required building permit, building consent or resource consent was obtained. In addition, if a building consent was obtained, the vendor warrants that a code compliance certificate was also obtained in relation to the same. Therefore, if a purchaser discovers under the LIM condition (or otherwise) that the vendor carried out building work on the property without the required building consent, the purchaser can proceed to settlement and simply make a claim against the vendor for breach of warranty.
On the settlement date, the vendor is obliged to provide to the purchaser “keys to all exterior doors that are locked by key, electronic door openers to all doors that are opened electronically, and the keys and/or security codes to any alarms”. The vendor does not have to provide these items however, if the property is being sold subject to a tenancy, and the keys etc are being held by the tenant.
Issues such as missing keys or remotes and malfunctioning systems included in the sale are often raised by purchasers on the settlement day, or just one day prior. The proposed solution by the purchaser is almost always to retain a part of the settlement funds, until the issues are resolved. This can not only delay settlement, but can really add to the vendor’s problems if the entire settlement fund is required on the same day to complete a subsequent purchase.
Therefore, if a vendor has any concerns in relation to missing keys/remotes/alarm codes, unconsented/unpermitted building works or the workings of any system included in the sale, they should be catered for by way of additional clauses in the further terms of sale. Doing so could prevent delays (and therefore costs) late in the piece.
The information contained in this paper is necessarily of a generalised nature and specific advice should be sought in relation to any particular situation. Further information and assistance in relation to this article can be gained by contacting senior personal property lawyer Gagan Tangri.