Conditional v Unconditional Agreement for Sale and Purchase
When you buy real estate, you may enter an Agreement (contract) that is either conditional (subject to conditions being satisfied) or unconditional (the parties are obliged to settle the sale and purchase). If you buy at auction, the Agreement will usually be unconditional as you will be expected to have checked the property to your satisfaction and had all finance and other such arrangements ready before bidding. But more often than not, if you enter an Agreement outside an auction, the Agreement is likely to be conditional.
This article describes the typical conditions found in Agreements for Sale and Purchase in New Zealand. For more information on what conditions are appropriate for your sale or purchase, talk to the friendly and experienced conveyancing team at Saunders & Co.
Typical Sale and Purchase Conditions
The standard Auckland District Law Society ‘Agreement for the Sale and Purchase of Real Estate’ (ADLS Agreement) contains numerous conditions which may be excluded or added to depending on the mutual agreement of the vendor and purchaser. The conditions can be found on the front page of the Agreement, throughout the General Terms of Sale, and also in any Further Terms of Sale. Changes to timeframes of the inclusion of any non-standard conditions tend to be included in the Further terms of Sale that are written by the agent or solicitor who drafts the Agreement in accordance with the agreed to terms.
The most common conditions, where they can be found in the Agreement, and their standard time frames are listed below:
– Front cover and Clause 9.1.
– The finance condition means that the purchase of the property is conditional on the purchaser being able to arrange satisfactory finance within a specified timeframe. The timeframe is usually 10 working days from the date the Agreement was signed by both parties. The condition and timeframe will usually be specified on the front page of the Agreement or in the Further Terms of Sale.
– Clause 9.1 reiterates that any finance conditions inserted on the front cover will apply.
2. Land Information Memorandum Report (LIM)
– Front cover and Clause 9.2.
– The LIM condition means that the purchase of the property is conditional on the purchaser being satisfied with the information about the property contained in the LIM report within a specified timeframe.
– A LIM report is a report compiled by the local council containing the council’s information on the property. It contains numerous pieces of information such as the building consents that have been issued, any hazards (flooding, contamination site), the property’s zoning, waste and water connections, rates and waste collection timing.
– If the LIM report does not come with the contract (as is usual), your lawyer will order the LIM on your behalf and check through it and then report to you on the key information or any issues they see.
– Clause 9.2 specifies that the LIM is to be ordered before the 5th working day after the Agreement has been signed and must be approved or not on or before the 15th working day after the signing of the Agreement. Often this timeframe is shortened to the 10th working day. Most councils say that getting the LIM may take up to 10 working days so ordering this as soon as possible is essential.
3. Building Report
– Front cover and Clause 9.3
– The purchase may be conditional on the purchaser arranging and being satisfied with a building report on the property on or before the 10th working day after the date of the Agreement.
4. OIA Consent
– Front cover and Clause 9.4
– The OIA condition refers to the property purchase needing consent under the Overseas Investment Act (OIA). Consent is needed for overseas persons (including trusts and companies) wishing to purchase sensitive land. Such a condition is usually not applicable for most purchases of residential property. However, it is best to always check this with your lawyer just in case.
– Clause 5
– Under clause 5 of the Agreement, the purchaser is deemed to have accepted the title to the property (i.e. there have been found to be no issues to object to) if the purchaser has not objected or requisitioned the title within 10 working days of the signing of the Agreement.
– Have your lawyer obtain and check the title for you. Lawyers will check for such things as inaccurate plans, unwanted encumbrances and any other issues.
– Further Terms of Sale
– The purchase may be conditional on the purchaser arranging insurance. The usual timeframe is 10 working days from the signing of the Agreement to do this. Such a condition is usually recorded in a Further Term of Sale.
7. Solicitor’s approval of form and content
– Further Terms of Sale
– Here the purchase will be conditional on the purchaser’s solicitor’s approval of the Agreement for Sale and Purchase.
– Usually such approval will need to be confirmed on or before the 2nd or 3rd working day after the date of signing the Agreement.
8. Assignment and/or checking of EQC claims
– Further Terms of Sale
– Such a Further Term is common in Canterbury where the earthquakes have effected properties.
– Sometimes a condition will be added that the purchaser’s lawyer must approve the EQC information on the property – checking what claims have been lodged with EQC or a private insurer, the Scope of Works, that work has been signed off and completed by builders, that cash settlements or the residual benefits in the claims will be assigned.
– This information is extremely important in ensuring that purchasers receive a property that has had its works completed properly. If it has not, your lawyer can help negotiate that works be completed before settlement or that funds be deducted from the purchase price so that the purchasers can complete the works themselves.
Agreements for the Sale and Purchase of ‘As is where is’ properties are slightly different to those of normal properties. They require thorough scrutiny by a property lawyer to ensure that you as the purchaser or vendor are protected.
Overall, having your lawyer check over your Agreement for Sale and Purchase before it goes unconditional, advise you of the appropriate conditions you may need, and help you satisfy them is vital in ensuring that your sale or purchase goes as smoothly as possible. It is vital for protecting both vendor’[s interest as well as purchasers and may stop you buying property that looks like you perfect new home but is actually riddled with expensive issues. Contact a member of the Saunders & Co conveyancing team today.