On 19 February 2007, the Auckland District Law Society released the 8^th Edition 2006 Agreement for Sale and Purchase of Real Estate. The release followed a year-long review of the 7^th Edition (3) July 1999 Agreement and contains several important changes.

The front page of the Agreement now contains spaces for both a settlement date and a separate possession date. Settlement date is the date on which money is exchanged for title documents. Possession date is the date on which the purchaser enters into possession of the property. Often, both possession and settlement occur on the same date however, there are circumstances where a purchaser may wish to enter into possession prior to settlement without triggering an obligation to pay the purchase price.

Another notable change to the front page of the Agreement is the removal of the chattels list. The chattels list is now at the back of the Agreement. It is hoped that by distancing it from the purchase price on the front page, more attention will be paid by both parties to the chattels passing under the contract. Under the old Agreement, the listed chattels were only included in the sale if they were situated at the property at the time of the Agreement. This led to confusion when chattels were present at an open home on Saturday, but may or may not have been present when the Agreement was signed during the following week. The new chattels list refers simply to chattels which will pass under the contract. It is irrelevant whether the chattels were present on the property at any time. If a chattel is listed in that list, the vendor must supply it on settlement. Therefore vendors should pay careful attention to what is included in the chattels list in Schedule 1 of the new Agreement.

Changes regarding payment of deposit have also been made. Under the old Agreement, once the deposit was payable the vendor could issue a notice of intention to cancel. If the deposit was not paid within three working days of this notice, the contract would be automatically cancelled at the end of the three day period. Under the new Agreement, the vendor may issue a notice requiring payment of the deposit. If the deposit is not paid within three working days, then the vendor may proceed to issue a notice of cancellation. This will give the purchaser a further three days to pay the deposit before cancellation is automatically effected.

A further change regarding the payment of deposit has been made under clause 2.4 of the new Agreement. Under the old Agreement, a real estate agent, for example, would hold the deposit until any conditions had been satisfied. The agent would then release the deposit less their commission to the vendor’s solicitor. Under the new Agreement, the agent is required to hold the deposit as stakeholder until all the conditions of the Agreement are satisfied, but also until requisition procedure has been completed. The requisitions procedures is outlined in clause 5 which provides that the purchaser may require the vendor to rectify serious defects in title as a condition of the contract. Strict time limits apply. This is the reason we encourage our clients to check that boundaries and rights of way appear the same on the property as on the title and deposited plan. As requisitioning can extend the conditional period of a contract, a vendor should be careful when entering into another contract for which they require the purchaser’s deposit in part payment. The second contract should be drafted with care to avoid non payment or late payment of deposit.

The vendor may issue the notice requiring payment and the notice of cancellation at the same time, reducing the purchaser’s opportunity to make payment to a total of three working days. The new clause has the advantage that a vendor does not have to risk cancellation of the contract in order to demand payment of the deposit. The notice requiring payment may simply be used to encourage payment of the deposit and to trigger accrual of penalty interest at the rate for late settlement listed on the front page of the Agreement. Interest will apply to the deposit only, as it is the only part of the purchase price due for payment at that time.

Clause 3.14 has been added to the new Agreement. This concerns a purchase made from a residential property developer of a household unit. In this case settlement will be the later of the recorded settlement date or the 5^th working day following the date upon which the code compliance certificate for the household unit has issued. If settlement date passes and the code compliance certificate does not issue for some time, this can cause a significant delay to settlement. A purchaser should consider putting a “sunset clause” in recording that if code compliance certificate has not issued by a certain date, then the purchaser has the right to cancel the contract.

Changes have been made regarding the vendor’s warranties under clause 6 of the Agreement. Under the old Agreement, the vendor warranted and undertook that all work done or permitted by the vendor for which a permit or building consent was required by law had the required permit or consent and code compliance certificate. This put onerous obligations on a vendor who had work done 20 years ago, for which no permit or consent had issued. The vendor would be required to obtain the equivalent of a code compliance certificate (code compliance certificates cannot issue for work done prior to 1991). However a vendor would have no recourse against a builder because of the statutory limitation of ten years contained in the Building Act 1952.

Under the old Agreement, a vendor would warrant that any work done or permitted by them requiring a building permit or consent by law had been done in accordance with the permit or consent. That warranty has been removed in the new Agreement. A vendor simply warrants that any work done requiring a permit or building consent or resource consent had the appropriate permit or consent and a code compliance certificate has issued for the work where appropriate. The reason for the change is that if the work had not been done in accordance with the permit or consent, a vendor would often have no recourse to the builder who performed the work because of the statutory limitation protecting builders under the Building Act to ask an innocent vendor to stand behind work done by a third person who is no longer required to stand behind their own work therefore seemed unfair.

On GST taxable supplies, particular attention should be paid by the purchaser to the new clause 12.4. This clause provides that where any GST is not paid to the vendor within one month of the GST date, then whether or not the purchaser is in possession, the vendor may immediately give notice to the purchaser calling up any unpaid balance of the purchase price, which shall upon service of the notice fall immediately due and payable. The date of the service of notice under that sub clause is then deemed to be the settlement date for the contract. Therefore, issuing such a notice triggers penalty interest on the entire purchase price and GST. This is regardless of whether the possession date is still six months away or what the recorded settlement date on the front page of the Agreement is. We would urge purchasers of GST taxable properties to consult with us before signing this Agreement.

Many of our clients enter into Agreements for Sale and Purchase as trustees of a Trust. We would draw your attention to new clause 14.0 which automatically affords an independent trustee limited liability under the contract. The clause provides that any person who enters into an Agreement as the trustee who has no right to or interest in any of the assets of the Trust except in their capacity as a trustee has liability under the contract not exceeding the value of the assets of the Trust. Protection under this clause is lost if the trustee acts in breach of trust but then only to the extent that that breach of trust has caused a loss of Trust assets.

Finally, special care should be taken when drafting additional terms of sale. The finance and LIM conditions on the front page of the Agreement are governed by clause 8 of the Agreement. This sets out the timeframes and liabilities associated with satisfaction of these conditions. When LIM or finance conditions are inserted as special clauses of the Agreement, this can afford less protection to both parties under the contact. It can also produce inconsistencies within the Agreement which can lead to expensive and expansive debate about what was the intention of the parties.