There has been a very important Supreme Court decision relevant to all people using the standard form ADLS/REINZ agreement for sale and purchase, whether for residential or commercial deals.
Property Ventures Investments Limited v Regalwood Holdings Limited concerned the sale and purchase of a commercial property in Christchurch for $1.5m. The standard form ADLS/REINZ agreement was used. The vendor had warranted that the building would have a warrant of fitness on settlement. There were problems and the warrant of fitness was not issued.
After lots of debate, the vendor insisted on settlement in full. When the purchaser failed to settle, the vendor issued a settlement notice, cancelled the contract and kept the deposit.
The purchaser had offered to settle at a discounted price. It became apparent that the cost to remedy the situation was likely in the region of $500,000.00.
The Supreme Court decided the purchaser was in the right. The vendor could not insist on settlement in full when in material breach of warranty.
What’s the significance?
• Vendors need to make sure warranties given are correct. If there is any doubt when signing contracts, the relevant warranties should be changed. If contracts are on foot a commercial solution should be explored.
• If purchasers discover a material breach of warranty by the vendor, they need to assess whether to offer to settle for less than the purchase price or use any rights of cancellation.
• The REINZ/ADLS agreement for sale and purchase is currently being updated to deal with this case.