Home-sale form alarms lawyers

The new form is expected to become standard.

The new form is expected to become standard.

 By Diana Clement  –  NZ Herald

Homebuyers are being warned not to use a new sale-and-purchase agreement which may not allow them to cancel a deal if a pre-inspection report shows problems with the property. The new plain English form, produced by the Real Estate Institute (REINZ), has been praised for its simplicity. But lawyers have warned there is no case law, and consumers could find themselves becoming guinea pigs for expensive test cases. The main differences include:

* Even if the agreement is conditional on a builder’s report, buyers will need “reasonable” grounds to pull out.

* The building report must be from a “suitably qualified person”.

* Problems with the title will no longer be an instant way to get out of a contract.

* Instead, buyers will have to go through a process of asking sellers to fix the problem before they can back out and can only dispute a title defect that will or might affect the buyer’s use and benefit of the property.

* Promises (previously knownas warranties) given by vendorsin the new document are widerthan they are in the old ones.

REINZ chief executive Christine LeCren said the intention of some of these changes was to avoid “frivolous” excuses for cancelling agreements. Until now, the standard legal form for the sale and purchase of property in New Zealand was the “8th edition” produced jointly by the Auckland District Law Society and REINZ.

REINZ decided late last year to go it alone and produce its own form because it could not agree with the law society on a plain English version. Property lawyers agreed the new form would become the standard simply because most buyers and sellers use the form handed to them by a real estate agent.

The law society is warning that buying a property is the most important transaction people ever make. Ironically, lawyers are set to gain financially from the change. Niamh McMahon, convener of the society’s documents and precedents committee, described the new form as “going back to the bad old days”.

“The 8th edition is a collection of all of the learnings over the last 20 years and it is the poor customers who are going to end up on the bad side of this with bigger bills,” she said. Another concern for lawyers is that the form comes in two booklets: the form and a book of standard clauses.

Lawyer Debra Dorrington of AlexanderDorrington said in her view it would be easy for agents to fail to give the clauses book to purchasers. But Ms LeCren said that under the new Real Estate Agents Act 2008, which comes into effect on November 16, agents would be required to hand out several other documents and it would become second nature to them. There are also advantages for buyers.

For example, said lawyer Tony Steindle of Steindle Williams – who nonetheless does not recommend it – the new agreement required in the case of unit-title properties that the vendor gave the buyer all the information and certificates that a buyer might require. GST on property sales was also clarified.

Ms LeCren said the new agreement included compulsory, but not binding, mediation, meaning both parties would have to talk before taking legal action. Lawyers could replace clauses they were not happy with in the agreement provided the buyer or seller had not signed the document.