New Zealand Law Society - The new ADLS-REINZ agreement: Part 1

The new ADLS-REINZ agreement: Part 1

By Thomas Gibbons

Introduction

Any change to the ADLS-REINZ Agreement for Sale and Purchase of Real Estate is usually something to suffer rather than savour. Hard work on understanding the changes is ahead.

The agreement, now in its 10th edition, is in some ways a thing of beauty: a standard form that does its job so well that: (a) it’s used a lot, and (b) unlike web-based terms, is actually read sometimes. In other ways, it is an endless compromise, a ‘one size fits all’ document that is designed to meet the sometimes conflicting objectives of real estate agents and lawyers, which consistently requires tailoring, and which of course is always in need of improvement, incremental or otherwise.

Then – then – when agents, property lawyers, and legal executives have fulfilled their roles, their work is, on occasion, picked apart by litigators and judges, for whom client expedience is less of a necessity, and for whom hindsight produces liturgical wisdom. And also, sometimes, a need for a rewrite of the agreement. This then requires those agents, property lawyers, and legal executives to review and understand oft-significant changes.

With these editorial comments in mind, this series of articles considers the 10th edition of the ADLS-REINZ Agreement for Sale and Purchase of Real Estate, with a focus less on the changes themselves, than on what they mean for property lawyers in practice. A further remark: I am not part of the committee that revised the agreement, I don’t know (or envy) their internal debates, and overall I think they have done an excellent job.

Page One

The new cover page looks reasonably similar. There is a new reference to a toxicology report – discussed below. Reference to standard conditions around finance and a builder’s report remains. Two or three comments can be made here:

  • First, it’s worth noting that the builder report condition gets changed by agents so often, it might have been worth considering options for this condition. I rarely see the builder report condition in unaltered form.
  • Second, it might have been worth moving one of the ‘warnings’ on the back page to here. Something like: ‘Warning: conditions may not allow you to exit the agreement. Talk to your lawyer before signing!’. The number of clients who still believe a finance condition will allow a general right of exit is astonishing.
  • Third, it is worth asking whether a standard ‘solicitor approval’ condition should have been added. (I can hear the grumbles already … there is no standard solicitor approval condition, but instead a range of clauses; solicitor approval isn’t a right of exit anyway, and so on.)

My own view is that given the increasing responsibility put on solicitors through the conveyancing process, we have almost reached a situation where a prudent solicitor could use a solicitor approval condition to say ‘I want a broader due diligence condition added’, at least in the context of residential property. A prudent solicitor reviewing an agreement prior to signing would almost certainly seek this, so why should the position change after signing? I acknowledge that the case law on solicitor approval clauses takes a much narrower approach, but in light of modern conveyancing, my view is that it is desirable to revisit this case law, to recognise that solicitors accept significant risk in property transactions, and that the scope of their role is increasingly seen as advisory rather than transactional.

Of course, the notion of ‘legal executive’s approval’ might be the next step in our conveyancing maturity. Or perhaps we need an umbrella term to cover all those – property lawyers, legal executives, licensed conveyancers – who are involved in the process: ‘legal professional’ is one colleague’s suggestion.

Some information – for example on tenancies – has been shifted to schedules.

Page Two

Page two is occupied by an increasing number of definitions. Many of the changes are designed around legislative consistency – for example, with the Unit Titles Act 2010, the bright-line rules in the Income Tax Act 2007, the Building Act 2004, and the Goods and Services Tax Act 1985. (Not to mention the Overseas Investment Act 2005, the Tax Administration Act 1994, the Local Government Act 2002, the Resource Management Act 1991, and, of course, the Land Transfer Act 2017.)

Some of these changes are designed to reflect amendments to these other Acts – perhaps most obviously, the Land Transfer Act 2017. What this highlights, of course, is the many complex statutes that property lawyers and legal executives must deal with on a day-to-day basis.

There are some interesting new definitions – the terms “leases” and “proceedings” have been cast in a more expansive manner which will help avoid them needing to be redefined by over-eager legal drafters (clauses 1.1(15) and (21)).

Of further interest is the definition of “title”, which “includes where appropriate a record of title” under the LTA 2017 (clause 1.1(34), emphasis added). I would have thought that a “title” would most naturally be a record of title under the LTA 2017 – so perhaps my wording would have been ‘“title” means a record of title [under the LTA 2017] unless the context requires otherwise”.

Page Three

Hoorah! Hazzah! No more faxes!

The removal of provision for service by fax is probably the most welcome change in the 10th edition. Faxes are old school – hardly anyone owns a fax machine anymore – and many if not most law firms send and receive faxes through an email system.

Previously, an email was deemed to be served when acknowledged; now, an email is deemed served when sent, as long as it is sent to the email address notified on the back page of the agreement, or to another email address notified in writing (clause 1.4(4)(c)).

To help avoid the issue of an email being sent to an absent lawyer or legal executive, McCaw Lewis has set up a transactions@mccawlewis.co.nz email account, for all condition and settlement notices, with rules about how it is accessed and used.

So much is done by email; this addition is long overdue. However, it is also worth noting that clause 1.4(e) provides for service by “secure web document exchange”. This kind of portal is surely the next step for 21st century conveyancing. So much is done by email, but email has its own serious limitations, and web-based portals are the way of the future.

In future, conveyancing will be done almost entirely through web portals. A written agreement may exist to satisfy agents’ desired sense of formality about property transactions – and perhaps to keep litigators happy – but any written agreement will quickly be converted into agreed data that is entered by one party and confirmed by the other.

Once the agreement terms (individual terms and standard terms) are entered into a portal and confirmed by each party, much of what property lawyers and legal executives do will then happen automatically – preparation of rates requests and settlement statements will be done by and within the portal, and there will be less need for undertakings with blockchain-type technology ensuring that payments and Landonline dealings occur interdependently and contemporaneously once the agreed data is within the portal. We may like to have some deliberation and inefficiency built into our systems, but increasingly technology will minimise the role of people in the conveyancing process.

Finally, in terms of what hasn’t changed, it’s worth noting that a lawyer’s working day apparently still begins at 9am (clause 1.1(37)). ‘Not last time I looked,’ is all I can say.

Thomas Gibbons Thomas.gibbons@mccawlewis.co.nz is a Director of McCaw Lewis. He writes and presents extensively on property law.

Lawyer Listing for Bots