A new 10th Edition REINZ/ADLS Form of Agreement for Sale and Purchase of Real Estate issues to real estate agents at the end of the week.
Any existing signed agreements are not affected by this change. Just new agreements that are put in place on the new 10th edition form of agreement. Both editions will be in the marketplace for a period of time.
From a vendor’s point of view the changes require consideration of the following matters:
Changes to compensation regime
Consideration of the compensation regime will be needed to determine if it is acceptable to vendors. There was a compensation regime in the previous 9th edition form but there are changes to consider:
- The regime is now broader in ambit, so may be used more
- Potentially a purchaser can give notice later than currently. If they can allege the vendor’s conduct or omission means they could not do so earlier.
- Where the vendor disputed a compensation claim previously that could create leverage to require settlement in full. That is no longer the case as the vendor must reply to a compensation claim within 3 working days. Following which the legitimacy of the vendor’s response is then determined, for example, by an experienced property lawyer or litigator. If notice is not given by the vendor, the purchaser’s claim is deemed accepted.
- Settlement is potentially deferred to enable the vendor’s notice that a claim is disputed to be determined. That may move some of the leverage to the purchaser in the case of a compensation claim, presuming both parties want settlement on the scheduled date.
Conditions
- The new periods for building report and the toxicology report match the LIM (15 working days allowed) but mean that there is a significant period of time that a deal is going to be conditional. That might give rise to the need for a cash-out clause and/or these timeframes may not be acceptable to a vendor.
- Most vendors will be pleased to see the new requirement giving them a right to request evidence where an agreement is cancelled for non-satisfaction of the finance condition.
- When dealing with an overseas buyer, note also that OIO consent is now a condition that brings an element of subjectivity for a purchaser, as to whether the conditions are acceptable. A vendor may or may not be prepared to accept that.
Notices
It will be for the lawyers in the most part to navigate and manage the revised notice requirements, including the provisions that provide email notices, are deemed served when sent. However, we will want vendors to consider if it is appropriate for them to insert their own email addresses on the contract for the purposes of service of notice. Cash-out clauses and contemporaneous settlement clauses may (where relevant) also need to be redrafted.
Tenancy requirements
Vendors will need to ensure they are in possession of the documents required to be delivered at settlement (e.g. original leases/tenancy agreements). Also that details as to tenancies that are entered into the agreement are correct.
New/revised vendor warranties
The new warranties include:
- A warranty that, as at the date of the agreement, the vendor is not aware of any threatened or actual “legal proceedings”. Less usual for a standalone property but will need to be confirmed with vendors.
- Changes to the warranties as to chattels. There is now a need to specifically list in the schedules which items are delivered ‘as is’ (fair wear and tear from the date of the agreement to the date of settlement excepted) and which are ‘in reasonable working order’ (fair wear and tear once again excepted). We may see most items are in the first list?
- Vendors will need to consult accountants to ensure that the GST warranties are answered properly, if applicable.
Deposit release
A new requirement means the 10 working day requirement under the Real Estate Agents Act (during which the deposit must be held by agents) starts once the stakeholder obligation is at an end. That might mean for vendors, that it makes more sense for the vendor’s lawyer to hold the deposit. They could then ensure it is available, for example, at settlement to repay the bank. Vendors will also need to ensure there is express confirmation in writing from a purchaser that there are no requisitions to enable deposit release.
Privacy
Agents retain the right to provide statistical information to REINZ but that must not include parties’ names. Most vendors are typically ok to accept these provisions.
From a purchaser’s point of view the changes require consideration of the following matters:
Conditions
- The finance condition changes. This means a purchaser needs to produce evidence if finance is not offered. It will not be an issue for the vast majority of purchasers. But for those who have uncertainty over finance, amendments to the clause may be preferred.
- We have seen less “P report” conditions post the change in what is an “acceptable level”. So whether or not the new toxicology condition is required is debatable.
- Purchasers may be pleased to see the 15 working days allowance to satisfy the toxicology, building report and LIM conditions, given there is some degree of cross over and particularly as urgent LIMs are not available at Auckland Council now.
- Purchasers must ensure a building report is in writing and meets the other requirements of the clause. This is important if it is to be relied on to give rise to a right to cancel if unsatisfactory.
- A full due diligence clause may be the preferred route for purchasers. It would better address the uncertainties that need investigating and allows more control over the decisions that then follow.
Compensation
As for vendors, the new compensation regime needs careful consideration by a purchaser. It will mean that a purchaser will need to complete pre-inspection for settlement purposes at least four or five days prior to settlement. This is not the current practice but is necessary if they are to raise the compensation claim in good time so as not to affect the scheduled settlement date. If it is raised late, and a vendor challenges the claim then there will be a deferral of the settlement date. The expansion of the types of compensation claims is helpful to purchasers and the revised process does otherwise favour the purchaser on balance.
Chattels
The revised warranties mean purchasers need to consider which items are for sale ‘as is’ and which are in ‘reasonable working order’. The specificity should assist purchasers so they are clearer on the quality of items being delivered under the agreement. It may be we see a default position where everything is specified to be “as is”. A purchaser may need to specifically request items that should be “in reasonable working order”.
Notices
As with vendors, we will want purchasers to take care as to the insertion of their own email addresses for service purposes. Management of this change otherwise will sit with purchaser’s lawyers.
GST
Where relevant the revised GST clauses might require consideration by purchasers with their accountants if there is any uncertainty. The risk of change in a purchaser’s GST position rightly rests with a purchaser. For the vast majority of residential purchasers, this will not be an issue.
Privacy
Agents retain the right to provide statistical information to REINZ but that must not include parties’ names. Most vendors are typically ok to accept these provisions.
Recommendations
As with any agreement, vendors and purchasers should speak to and take advice from their lawyers before signing an agreement. Whilst we transition to the new form, it is prudent for real estate agents to strongly recommend that to their clients.
Developers already make a number of amendments to the standard form of agreement when they sell off the plan. I anticipate a need for slightly more changes to those currently made. We will address that with our developer clients on a case by case basis.
Although there are a number of changes, the base agreement does not move away from its underlying purpose. It remains an agreement suitable for the vast majority of vendors and purchasers contemplating the sale and purchase of property in New Zealand.
