Don’t Rush into Signing an Agreement for Sale and Purchase

Always wait to get legal advice

Buying a house – on a stress scale of 1 to 10 (10 being the worst) – is said to be an 11. You have viewed numerous houses, taken off your shoes at every single one of them as you traipse through living rooms, kitchens and bathrooms, and agonised and argued over which house to buy. Now comes that important decision – to sign or not to sign?

You’re then presented with an agreement for sale and purchase, which is possibly one of the most important documents you will sign. In these days of escalating property prices and short supply, there’s often pressure to sign without your lawyer’s input, with no due diligence clause and often it is an unconditional offer. Once you sign the agreement, you are committed to the purchase.

You can, however, be prepared before you sign the agreement. Talk with us when you’re starting to look for a new property and we can help you with the drafting of some clauses; two of which we discuss below.


Equitable set-off

Clause 8 in the standard agreement covers claims for compensation by way of what’s called equitable set-off (ESO). An ESO situation can arise after a purchaser’s pre-settlement inspection, which is usually done two or three days before settlement.

Here’s a real life ESO example. The purchaser carried out a pre-settlement inspection and noticed a locked cupboard in the house. The vendor said he was growing cucumbers. The purchaser had her suspicions that the vendor was growing cannabis, which turned out to be the case. A claim for compensation was lodged by way of an ESO for in excess of $100,000 to pay for decontamination.

The timing of an ESO claim is critical. If there’s no settlement notice in place, the claim must be made on or before the last working day before the settlement date in the agreement. It’s not, as is so often the case, on the day of settlement. Any claim must be genuine and realistic. You should not, for example, claim $5,000 because the back porch is dirty.

We recommend you carry out the pre-settlement inspection a few days before settlement, not early on the day of settlement. If you make an ESO claim, we need a reasonable opportunity to sort it out before settlement.

And following up the cucumber claim, happily – for the vendor – it was sorted out by settlement date as the purchaser withdrew her claim.


Solicitor’s approval clause

Some people believe that having a solicitor’s approval clause in their sale and purchase agreement is as good as a due diligence clause. It is not.

A solicitor’s approval clause is useful where there is a genuine legal objection or impediment to the sale, such as the validity of the title. This clause can be for the benefit of the vendor or the purchaser – if there are genuine reasons to use this clause.

The clause is less than useful if you want to cancel the agreement because you made a bad decision.

A true life example of how this clause works follows. A purchaser put in an offer on a house on a Saturday before a Sunday open home. The vendor insisted on a standard solicitor’s approval clause, for her benefit, and both parties signed. More than 200 people came to the Sunday open home. The vendor realised, with horror, that she could have got $100,000 or more than the agreed sale price and attempted to cancel the agreement on the basis that her solicitor did not approve it. One caveat and a flurry of letters later the vendor accepted the inevitable and the deal went ahead. The fact that the vendor had changed her mind was not enough to invoke the clause to enable her to get out of the agreement.

In conclusion, read your agreement before signing and don’t be persuaded to sign anything you’re unsure about. Most importantly, however, talk with us before signing, not after. 

Disclaimer: All the information published in Property Speaking is true and accurate to the best of the authors’ knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this newsletter. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in Property Speaking may be reproduced with prior approval from the editor and credit given to the source. Copyright NZ LAW Limited, 2017
Copyright, NZ LAW Limited, 2016. Editor - Adrienne Olsen, em.  ph. 029 286 3650 or 04 496 5513