Protecting your rights and deposit when buying [Mar 2008]

With the recent media publicity concerning difficulties when purchasing property, (particularly investment property), it seemed appropriate to make some observations about various ways that buyers can protect themselves - the rights that they have and the deposit that they pay when buying a property, whether it is for their own home or for investment.

First, let us look at the question of deposit.  The NZ standard Agreement for Sale & Purchase which is the ADLS/REINZ agreement provides for a deposit to be paid upon execution of the agreement by the seller and the buyer.  This deposit can be well protected if certain basic principles are followed.  The deposit paid should be in most cases no more than 10% of the purchase price.  If you are asked to pay more then find out why.  Sometimes the seller has to pay GST but you would not be keen for them to use any of your deposit money until settlement has occurred.  Always pay the deposit to the real estate agent as they have various rules to protect that deposit in their trust accounts.  Alternatively pay it to your solicitor or the seller's solicitor but never pay it to the seller themselves.

If you sign a conditional contract that deposit should stay "frozen" until such time as all conditions are met or if they are not met and the contract is cancelled you are entitled to your deposit back intact.  You need to be careful with some developers' contracts which differ from the New Zealand standard as they may have some special rules concerning the deposit.  Get your lawyer to check this agreement out thoroughly first.

When you are buying new property where there is a new title to be issued, then in such contracts the agreement should be conditional upon the title issuing which is often not until the settlement date.  Therefore your deposit should be held until such time as the title has issued.  You should not allow the deposit to be released any earlier.  If the deposit is to be released sooner, then you need to get your lawyer to look into this issue and take extreme care. 

As to signing the agreement, it is a legally binding document and you must take care to ensure that you understand the nature of the document and what you are getting yourself into.  If not, get a lawyer to read it through with you so that you can say that you knew exactly what you were signing.  You are entitled to see your lawyer first and there is no obligation on you to sign beforehand.  When signing the agreement if it is husband & wife or a couple buying a property then both must sign the agreement to be binding and this applies to the seller.

If the property is being brought through an agent they have an obligation to provide you with a copy of your agreement as soon as you have signed it before taking it away to the seller for signing.  This is so that you know what the offer was that you made.

Some people ask "can I put a solicitor's approval clause in the agreement?" and the answer to that is of course you can.  However, you need to be careful that the solicitor's approval clause is not a general "catch-all easy out".  Solicitor's approval is limited by the Court's to a narrow range of tasks that the lawyer can do for you.  Therefore it is not a "change of mind" clause by any means.

In making an offer to buy a property you are entitled to insert as many and as varied conditions as you like.  E.g. - subject to the sale of another property or finance, a builder's report, valuation report and a myriad of other conditions.  When you insert conditions you have to remember of course that this makes the offer less attractive to the seller.  Conditions must always have a period of time by which you are to satisfy the condition.  It must always be remembered that when you insert a condition you have an obligation to make the very best effort to try and satisfy that condition.  If you fail to make good that effort you could possibly be subject to an action by the seller later.  It is simply not good enough to turn around and say - "I could not be bothered to try and arrange the finance therefore I can get out of the contract".  Maybe you will not be able to.

When buying a property, especially if buying investment property where there are various offers made as "inducements" always ensure that you get these in writing from the seller.  If you do not then make sure your lawyer gets them from the seller's solicitor.  For example, if they are offering certain rental guarantees or a financial contribution towards legal costs or a discount against the price if you settle early then all of these should be in writing so that you are sure of exactly what you have got and the seller is committed to those offers.

Lastly, always take your time, do your homework and do not be rushed into signing up.

In all this it is very valuable to have a lawyer that you know and trust and certainly do not choose your lawyer based upon the fee that they will charge.

For more information contact Tim Jones at .(JavaScript must be enabled to view this email address)

The contents of this newsletter are of a general nature only. While the information is believed to be correct no responsibility is accepted for its accuracy. Readers are advised to establish the applicability of information in relation to specific circumstances and not to rely solely on the text of this newsletter.

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