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.