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PLEASE NOTE: This article was published on the date listed below and may now contain information that has since been updated or changed. We have retained this article as it may still contain helpful comments. However, we advise you to make an appointment to see us for the most up to date information on this topic.

September 2009

Beware! A new form of Agreement for Sale & Purchase has arrived

If you are looking at selling or buying a property through a Real Estate Agent, chances are you will be presented with the new form of agreement for sale and purchase as published by the Real Estate Institute of New Zealand (“REINZ”).

Until now, both agents and lawyers used the standard ADLS/REINZ agreement, which has been in use for many years. The change has been driven by the real estate industry wanting a “plain English” agreement with less “legalese” and the desire to have standard, compatible forms for private treaties auctions and tenders. The result is a new agreement which is markedly different in form and language.

The current ADLS/REINZ agreement is a single document; the new REINZ agreement is in two separate parts – Section A (which is divided into three parts and covers the details of the transaction, and the conditions) and Section B which is the REINZ Book of Standard Clauses. The current ADLS/REINZ agreement is 8 pages long, including the standard terms and conditions; the new REINZ runs to 27 pages. In addition, to avoid a potential breach of copyright, the new REINZ agreement has been drafted using different words and phrases from the current ADLS/REINZ agreement. The legal concepts are similar, but they are expressed in different terms.

In the new agreement, there are now five standard conditions, compared with two in the current agreement (the finance and LIM condition). These conditions are finance, LIM report, Building Inspection Report, Title approval, and Tenancy approval. While the finance and LIM conditions are very similar to the current agreement, the others are new, and both vendor and purchaser need to be aware of them. For example, if you make the agreement subject to getting a building inspection report, as a buyer you are obliged to obtain a report from “a suitably qualified person”.

Unfortunately, the new agreement doesn’t define what a “suitably qualified person” is; however you can be sure that a cursory glance over a property by a friend or relative won’t be sufficient grounds for you to try and avoid the contract.

The wording of these conditions, when read in conjunction with the new standard conditions don’t always give an automatic right to cancel to the purchaser, and they can also place a greater obligation on the purchaser to carry out the requirements of the conditions.

As a vendor, you don’t get off lightly either. The new agreement replaces the old warranty provisions with references to “promises”. The promises in the new agreement are broader than the warranties in the old agreement, and there are a number of them which are open to interpretation – which could lead to more disputes between parties.

Part of the problem we see with the new REINZ agreement, is that there are a number of parts which are not clearly defined, or are open to a number of interpretations. While the current ADLS/REINZ agreement is not perfect, it has the distinct advantage that there has been a large number of court decisions over the years to interpret different aspects of the agreement. Therefore, you could feel reasonably comfortable in signing the ADLS/REINZ agreement which everyone interprets in the same way. You cannot have that same confidence with this new agreement.

With the new Agreement, you will need to contact us at the earliest opportunity to go through it to point out the pitfalls and ensure that you are aware of your rights and obligations. You can not and must not assume that the new Agreement provides you with the same rights and protections you previously had when you last bought or sold a property. Also, it is important to remember that the current ADLS/REINZ agreement is still in use, and will continue to be available through us. In fact, some Real Estate Agents are opting to keep using the current agreement as well.

This new agreement will be a work in progress, and I have no doubt will be subject to a number of changes over time – and court challenges too. Even more reason for you to consult with us before entering into any agreement for the sale and purchase of property to avoid future difficulties and minimise costs.