New Zealand Law Society - The new ADLS-REINZ Agreement: Part 5

The new ADLS-REINZ Agreement: Part 5

This article is over 3 years old. More recent information on this subject may exist.

By Thomas Gibbons

Introduction

This instalment of this series has been delayed by lockdown and by a number of changes to the REINZ-ADLS Agreement for Sale and Purchase of Real Estate, resulting in a 10th edition 2019 (2), not long after the 10th edition itself was released. This article concludes the series, focusing on GST and other provisions.

Page 14

GST

The GST provisions in clause 14 have seen a number of changes. We can again reflect that the GST clauses reflect a contractual overlay of statutory provisions that themselves govern particular contractual arrangements. In addition, many but not all transactions are exempt from GST, which makes GST issues a potential minefield for lawyers and legal executives.

Clause 14.1 contains a revised warranty that the vendor’s GST status on the front page, and the particulars in Schedule 1, are correct and will remain correct at settlement. This is important, as GST status changes can have large implications.

There is a greater onus on the vendor than the purchaser to ensure this correctness. Changes in clause 14.5 address the common situation of Schedule 1 not being completed at the time of signing. If any of the purchaser’s details are incomplete or alter between the date of the agreement and settlement, then the purchaser is to notify the vendor “as soon as practicable” before settlement. Arguably, this phrasing allows a purchaser too much flexibility over timing: a strict time frame before settlement, such as that required for unit title disclosure information, may be more appropriate. The purchaser also warrants that added or altered particulars will be correct as at the date provided.

There is no further warranty that the purchaser’s GST particulars will remain correct at settlement: rather, the agreement expressly contemplates that they may change, with clause 14.5(3) providing that if the supply is changed because of the purchaser’s updated particulars, the vendor may be required to amend the settlement statement (and issue a debit or credit note in respect of any tax invoice, if required).

Arguably, it would be clearer to provide that the purchaser’s GST particulars must not change without the vendor’s approval. A vendor can sometimes find difficulty when a purchaser’s GST position changes.

Clause 14.8 partially addresses this issue. If the details on the front page and the GST Schedule indicate a zero-rated GST transaction, but the purchaser’s particulars change (so that GST is no longer zero-rated), then the purchase price is changed to ‘plus GST (if any)’, even if it had previously been stated as inclusive of GST, and if the vendor has already accounted for GST on the basis of a zero-rated transaction, then the purchaser will pay GST (and any default GST) on demand by the vendor.

Clause 14.8 therefore provides for an agreement to automatically be amended if the purchaser changes its GST status, and this affects zero-rating that was otherwise intended, and this makes the vendor worse off. Of course, better levels of advice before an agreement is signed will generally assist the parties.

There is a small change to 14.6, which applies if the property is being used as a principal place of residence, by the addition of the word “then”. Clause 15.1, relating to the supply of a going concern, has also been altered: a supply of a going concern is assumed to be made on certain grounds, unless the parties agree otherwise within the agreement. This avoids side agreements as to going concern matters.

Clause Additions

There are a number of further changes.

Limitation of Liability

The trustee limitation of liability in clause 16 has been altered, with the liability of a non-beneficiary trustee limited to the amount recoverable from that trustee, which is called the “limited amount”. However, where a trustee’s indemnity from the trust assets has been lost or impaired, then that liability can become personal – to the extent that the limited amount cannot be recovered from any other person.

Two points can be made here. First, this clause seems beset with qualifiers, to the point where the scope of the limitation is unclear. Given that many lawyers remain trustees of trusts, whether personally or through trustee companies, a stronger limitation is arguably appropriate. Second, a broader exclusion of non-beneficiary trustees (usually, professional trustees) from vendor warranties would be useful.

Counterparts Clause

Electronic agreements are a fact of life. The counterparts provisions in clause 17 have been amended to provide that counterparts are to be scanned and emailed, rather than faxed. It has also been clarified that every person must sign at least one counterpart, and each party must receive a counterpart signed by all parties (clause 17.3), and unless the parties agree on a date, the date of the agreement is the date the last counterpart is signed and delivered to all parties (clause 17.4).

Real Estate Agent

Clause 18 relates to sales arranged through a real estate agent. An agent being named in the agreement is an acknowledgement that the sale was made through the agent (clause 18.1), though this clause contemplates an “executed agency agreement”, suggesting there must be a separate agreement. However, clause 18.2 makes it clear that the authority of the agent does not extend to making an offer, counteroffer, or acceptance of either unless the vendor has given express authority to that.

There is an interesting comment that “[t]hat authority, if given, should be recorded in the executed agency agreement” (clause 18.2). I comment that few contracts include the word should, which is more suggestive than mandatory. It is a suggestion to agents that they get their agent authority agreements/listing authorities correct. Clause 18.3 says the vendor is liable to pay charges in accordance with the executed agency agreement, reinforcing the critical point that the agreement for sale and purchase is not supposed to contain the agency appointment.

Sales Information

Clause 19 permits information about the sale – not including the parties’ names or other personal information – to be made available to REINZ once the agreement is unconditional. This information is for statistical purposes, and any personal information that is collected may be accessed and corrected.

Signing

The signing provisions have been updated to allow for signing by an agent, and to clarify attorney signing.

GST Schedule

Schedule 1 has been updated to clarify the vendor and purchaser sections, and to provide for the vendor to state whether part of the property is a principal place of residence, and whether the supply of that part will be a taxable supply. There are also some cross reference changes.

Schedules 2 and 3

In the 10th edition, the chattels schedule had been divided into chattels which did not have an operational function (Schedule 2), and those that did (Schedule 3). This division would, in my view, have been more clearly those which needed to be in the same state of repair v those which must needed to be in reasonable working order, as per clause 7.3.

In any event, what we have now is that Schedule 2 is to list all chattels included in the sale, and these must be in reasonable working order, but otherwise simply in the same state of repair as at the date of the agreement (fair wear and tear excepted).

Tenancy details have been moved to Schedule 3 and separated into residential and commercial/industrial arrangements.

The back page – page 19 – has had email addresses added, both for the lawyer acting, and for an email address for notices in both cases. And, to touch on a further change in the 10th edition (2), the email address on the back page will be superseded by any later notified email address, as per the revised clause 1.4.

Conclusion

The new REINZ-ADLS Agreement has been in use for some months now. As noted above, some issues have already arisen, with various ‘fixes’ set out in the 10th edition (2). These further changes will no doubt themselves be the subject of further criticism and debate, particularly as the contract itself must evolve to meet the plethora of statutory frameworks that guide property transactions and property law.

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