Following the publication of this article, the 10th Edition 2019 Agreement for Sale and Purchase of Real Estate has been issued. Please see Denise Marsden’s article for considerations around the warranty provisions.
Are you considering selling a unit title? If so, you may want to have a closer look at the warranties you agree to provide. If you are an agent advising a vendor on the sale of their unit title, be sure to cover these warranties very carefully with your vendors.
Consider the following four warranties in the standard ADLS sale and purchase agreement:
Are there any demands, notices or outstanding requirements relating to the property?
Under clause 7.1(1), the vendor warrants that at the date of the agreement, the vendor has not received any notice or demand and has no knowledge of any requisition or outstanding requirement from the local council (or any other statutory body) or from any other party in relation to the property being sold.
Where consent has been provided for certain uses of the land, there may be ongoing conditions to be met. These will need to be disclosed to any purchaser. You may not be aware of such requirements as an owner of a unit. So ask the body corporate to provide all relevant information.
Are all the chattels working?
Under clause 7.2(1), the vendor warrants that everything within the property (being the chattels and other amenities) are in reasonable working order (fair wear and tear accepted).
Although everything might well be in reasonable working order within the unit being sold, does this warranty extend to those items that exist within the common areas? For instance, should a vendor have to disclose to a purchaser that the common property, within which the unit sits, has an alarm system or security system that does not function properly? What if the lifts aren’t working? If in doubt, this warranty might need amending. Consider narrowing the application down to the unit itself.
Will the purchaser be liable or have to face litigation?
Under clause 9.2(7), the vendor warrants that the vendor has no knowledge or notice of any fact that might give rise to or indicate the possibility of the purchaser incurring liability under the Unit Titles Act 2010 (or 1972), or there being proceedings brought against the body corporate or any order or declaration being sought against the body corporate or vendor under the Unit Titles Act 2010 (or 1972).
Note that this warranty might depend on what the vendor knows of. This includes all information which the vendor has notice of. This is a broad warranty. For example, if a vendor receives the body corporate minutes in the mail but doesn’t bother to open the envelope, it would be a breach of this warranty if the vendor did not notify the purchaser that the minutes reflected that the body corporate was about to be sued.
In the case of Lykov v Wei [2015] NZHC 3009, the unit being sold was not weathertight. Body corporate minutes were provided to the vendor which raised the possibility that the unit owners may be liable for levies to be raised to repair the units. The High Court held that the vendors had breached the warranty given under clause 9.2(7). The vendor should have provided a clear statement to the purchaser, prior to it entering into the agreement. That statement should have made it clear that they might be liable for the levies.
Are there leases and licenses in place that affect the property?
Under clause 9.2(9), the vendor warrants that no lease, licence or special privilege has been granted by the body corporate in respect to any part of the common property which has not been disclosed in writing to the purchaser.
This is a warranty that is routinely breached by vendors of unit titles. It is often the case that the body corporate has granted such rights over the common property. For example, there may be licenses in place to allow for air conditioning units to be installed on the roof or to allow cars to park in a certain area of the common property. There may be an area within the common property for a gym. That gym may have lockers, which can be licensed out for use. Such examples, albeit seemingly minor and self-evident, need to be disclosed to a purchaser.
Our recommendations
All of these warranties might seem numerous and daunting. So how best to deal with them? At the very least, a vendor should ensure that they understand all of the warranties that it is signing up to provide. In practice, this might mean that the vendor needs to carry out due diligence on their body corporate. This would ensure that they are not missing anything that should be disclosed. And where in doubt as to whether or not something should be disclosed – disclose it. Another option to consider might be to limit them by expressly removing certain warranties or have them amended to narrow their scope.
Keep in mind that the standard form ADLS agreement for sale and purchase is soon to be updated. Potentially, some of the warranties discussed will soon be amended.
If you are selling a unit title property and have any questions regarding these vendor warranties do get in touch. If you wish to discuss the sale of a unit title generally, we’re here to help.
