The Real Estate Institute of New Zealand’s (‘REINZ’) new Agreement for Sale and Purchase (“the new agreement”) was introduced in July this year in an effort by REINZ to create its own form of agreement that uses clear language and appeals to the lay person. Before the introduction of the new agreement, it was standard practice to use the Auckland District Law Society (‘ADLS’)/REINZ Agreement for Sale and Purchase (“the standard form agreement”).
The standard form agreement has been in use for over 20 years, is tried and tested, and very familiar to both real estate agents and conveyancing professionals. Consequently, there has been extensive discussion and critique of the new agreement.
Commentators have pointed out that:
- Much of the language in the new agreement is subjective, resulting in the potential for differences in interpretation, leading to a risk of uncertainty between the vendor and purchaser.
- Some terms are not properly defined, which may lead to differences in interpretation.
- The new agreement identifies too many terms as being “essential terms” whereas some are procedural rather than essential in nature. If a party refuses to comply with an essential term the other party may elect to refuse to complete settlement.
- Disputes must be referred for mediation, however, the new agreement does not set out the mediation process to be followed.
A significant difference from the standard form agreement is the way in which the standard conditions (i.e. title approval, LIM, builder’s report and tenancy) in the new agreement are dealt with. The party approving the condition (“the approver” which normally will be the purchaser) must not unreasonably withhold approval of a condition. If the approvers withhold their approval they must give notice to the other party that the condition is not satisfied, the reasons why it is not satisfied and what is required to rectify the problems. The other party then has five working days to either agree to rectify the problem or they may elect to cancel the agreement. During this five working day period the approver cannot cancel the agreement.
Some positive changes that the new agreement has introduced include the following:
- Layout – the font size is larger, the agreement is well spaced out and sentences are limited to 26 words.
- A new approach to GST, which requires knowledge of whether the seller is on a payments basis or invoice basis.
- Warnings throughout the new agreement which are useful for readers to alert their attention to a possible problem.
- The addition of a building report condition to the standard conditions to alert purchasers that such a report may be wise to obtain.
Overall, most commentators believe the new agreement will lead to uncertainty for both the vendor and purchaser, an increased number of disputes and a resulting increase in legal costs. It is therefore strongly recommended that both vendors and purchasers seek legal advice before signing any new agreement for sale and purchase.