By Thomas Gibbons

This article continues on from the one published in the March issue of LawTalk (pages 47-48), addressing the changes in the ADLS-REINZ Agreement for Sale and Purchase of Real Estate (10th edition 2019).

In that article I covered in detail the changes to the first three pages, so logically here are the changes on subsequent pages.

Page Four

Stakeholder requirements

The stakeholder requirements of clause 2.4 have been amended by the inclusion of provisions requiring the deposit to be held by a stakeholder until the agreement is cancelled at the end of a requisition period under clause 6.2(3)(c), or under sections 36-37 of the Contract and Commercial Law Act 2017 (CCLA) (relating to repudiation or a misrepresentation that induces entry into the contract), or until the right to cancel in section 151(2) of the Unit Titles Act 2010 (UTA) has ended.

We now have a cascading series of steps that must be considered before any deposit is released. In simple terms these are:

1. No requisitions;
2. Satisfaction of all conditions;
3. Provision of all disclosure statements under the UTA;
4. No cancellation under the requisitions provisions, nor under the CCLA;
5. No cancellation under section 151(2) of the UTA.

It is the last of these that is perhaps most problematic, as the right of cancellation under section 151(2) of the UTA remains enigmatic, providing for a 10-day notice period if UTA disclosure is not provided on time, without stating why this relatively long period should exist, and without any ability to rectify during this period. In addition, the cancellation remedy set out in section 151(2) is based on time frames not being met, not on whether disclosure information is subjectively or objectively unsatisfactory. In unit titles, as in sketch comedy, timing is everything.

One must have some sympathy for the drafters of the 10th edition form, who have to work in with statutory cancellation provisions such as this, and restate them within a contractual framework.

The new clause 2.5 aims to clarify an agent’s responsibility in relation to a deposit, stating that the period for which an agent must hold a deposit under clause 2.4 runs concurrently with the 10-working day period in section 123 of the Real Estate Agents Act 2008 (REAA).

There are however provisos (upon provisos). While these periods run concurrently, the agent must hold the deposit for the longer of those two periods (subject to any agreement of the parties to earlier release under section 123 of the REAA), but in no event can the deposit be released before the requisition period is complete (unless the requisition period is expressly waived in writing by the purchaser after the purchaser has received advice on the effect of this waiver). This is all clear, but the cascading series of steps to determine how this clause should be read is better subject to a flow-chart. Perhaps an interactive ADLS-REINZ agreement is the next step.

There is no standard provision addressing where interest on a deposit should go. This would have been helpful, as interest (less administration costs and RWT) usually follows its destination.

Possession and settlement

The right of re-entry to determine compliance by the vendor with works under clause 3.2(2) has been clarified to be no later than the day prior to the settlement date. In practical terms, a pre-settlement inspection usually covers an examination of the property and chattels, and confirmation of any works, but these two steps could in theory be distinct. Unfortunately, or perhaps fortunately, the new version has not addressed an important practical point: that many pre-settlement inspections take place on the day of settlement, when under the agreement they should not. This makes sense, as a permitted inspection on the settlement date would allow too little time to resolve any issues.

Clause 3.8 of the agreement provides for the payment of the purchase price in cleared funds, less any credits. The credits include those matters under clauses 3.12 and 3.13 (relating to purchaser and vendor defaults), deductions allowed for damage or destruction under clause 5.2, agreed compensation in relation to a purchaser claim under clause 10.2, and for any interim amount under clause 10.8. This may seem like a myriad of cross-references, but at least settlement remains a contractual phenomenon, and one that exists independently from statutory requirements. On …

Page Five

… we see that in addition to all leases, the vendor’s settlement obligations include a letter to each tenant advising them to pay future rental as the purchaser directs. Purchasers still, of course, have to communicate what these details actually are.

Clause 3.12(3) provides that where the parties cannot agree on any amount payable for a purchaser default under 3.12, either party may make a claim for compensation under clause 10.

Page Six

The same provision flows through to vendor default or failure to give possession under clause 3.13: clause 3.13(7) references the same claim for compensation under clause 10.

Page Seven

A cross-reference in clause 5.2(4) has been updated.

Page Eight

The vendor warranties have seen some material changes. Clause 7.2 provides a warranty that the vendor has no knowledge or notice of any fact which might result in proceedings being instituted by or against the vendor or purchaser in respect of the property. This is broad: the phrase “fact which might result in proceedings” could cover a whole range of concerns, and we could place emphasis on the word fact, or the word might, or the word proceedings – or all three – depending on the nature of the issue or risk at hand. We can anticipate some future litigation on this clause.

Clause 7.3 has sensibly divided up warranties as to chattels and other items.

So – under clause 7.3(1), those items in Schedule 2 are to be in the same state of repair as at the date of the agreement, excepting fair wear and tear. Failure to deliver them in that state only allows a right of compensation.

And – under clause 7.3(2), those items in Schedule 3, including any equipment, systems, or devices, must be in reasonable working order, but otherwise in the same state of repair as at the date of the agreement, again excepting fair wear and tear.

The practical implication here is that a vendor can decide whether an item is included in the sale as it is, or whether it is included in the sale in reasonable working order. This is a good thing – rather than an assumption of reasonable working order, vendors can be more accurate, and purchasers can be more careful.

Clause 7.3(4) has also seen changes. Where a targeted rate has been imposed as a means of repayment for a loan, subsidy, or other financial assistance, the amount required to remove the imposition of that targeted rate has been repaid. This requires lawyers’ and legal executives’ attention not just to general rates and water rates, but to targeted rates that fit these parameters (loan, subsidy, or other financial assistance). A detailed understanding of rates within a local authority will often be necessary.

Conclusion

This article is one of a series on the new ADLS-REINZ agreement. It highlights the complexities of modern property practice – the interplay of contractual provisions with statutory rules, the difficulties of stakeholder arrangements, and the detail and uncertainties inherent in vendor warranties. Further articles in this series will consider other clauses, but at the moment, the rest is still unwritten.

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