Legal Guide to Buying a House in New Zealand

You find your dream home – it is within your price range, the perfect location and just the type of house you want…do you need a lawyer?

For many people the purchase of a house is the biggest investment decision that they will ever make in their lives. For new migrants to New Zealand the process can be unfamiliar and will inevitably be different to the process in their home country. The following is a nutshell guide to buying and selling a house in New Zealand.

When a Purchaser (the person buying the house) decides to make an offer to buy a house he or she will ask the Real Estate Agent selling the property to take an offer to the Vendor (the person selling the house).

The Sale and Purchase Agreement

It is essential that a written Sale and Purchase Agreement be used by the Purchaser and the Vendor to regulate the transaction. This is a legally binding contract that outlines the rights and obligations of the parties. A Sale and Purchase Agreement provides certainty to both the buyer and the seller as it sets out in writing all the agreed terms and conditions.

House sales are generally facilitated by a Real Estate Agent who will prepare a Sale and Purchase Agreement that includes the price and any conditions that the Purchaser wants to include. The Real Estate Agent will then take the Sale and Purchase Agreement to the Vendor. If the offer is accepted the Vendor will sign the Sale and Purchase Agreement and it becomes legally binding. In practice what normally happens is that the Vendor and Purchaser negotiate the price through the Real Estate Agent until agreement is reached.

Both the Vendor and the Purchaser should discuss the Sale and Purchase Agreement with their lawyer before signing it and, if necessary, further conditions may need to be inserted. Changes can be made to the Sale and Purchase Agreement during the negotiation process but once it is signed then both parties need to agree.

The Purchaser should always bear in mind that the Real Estate Agent is working for the Vendor but must treat the Purchaser fairly.

A Real Estate agent will probably use one of two standard forms of Sale and Purchase Agreement:

  • Auckland District Law Society and Real Estate Institute of New Zealand form (also known as the ADLS form).
  • Real Estate Institute of New Zealand form (also known as the REINZ form).

Which ever form is used the Sale and Purchase Agreement should include the following details:

  1. the name(s) of the Vendor(s) and Purchaser(s);
  2. the address of the property;
  3. the type of title (for example, freehold, cross lease, unit tile, leasehold etc.);
  4. the chattels that are to be sold with the property (for example, light fittings, whiteware, drapes, television aerial etc.);
  5. the price to be paid;
  6. the rate of interest that the Purchaser must pay on any overdue payments;
  7. the deposit that the Purchaser must pay once the offer is accepted;
  8. if there are conditions, the date on which the agreement will become unconditional; and
  9. the date the Purchaser pays the remainder of the purchase price for the property (this is usually the day when the buyer can move into the property).

Conditions of Purchase

Usually a Purchaser will make an offer subject to certain conditions. Common conditions required to be fulfilled before the contract completes include:

  • Title search: The Purchasers’ lawyer should confirm that the Vendor is the legal owner of the property and whether anyone else has any claim over the property (for example a bank or other third party lender to the Vendor). .
  • Finance: Often a Purchaser will need to obtain finance from a bank to complete the purchase. Sometimes it is not always possible to have these arrangements in place at the time the offer is made. A bank or other lender will probably also need to make its own inquiries in relation to the value of the property before it can confirm that it will finance the purchase.
  • Land Information Memorandum (“LIM”): This is a property specific report provided by the Local Council and provides information such as rates, building permits and consents, drainage and planning. Sometimes alterations may have been done to the house by the Vendor and the necessary consents have not been obtained. These types of irregularities will need to corrected before the sale can complete.
  • Building Report: It is highly recommended that Purchasers engage a building inspector to assess the house for any structural defects and to determine whether any repairs are required. There are numerous high profile examples of poor building standards in New Zealand resulting in leaky homes. The Purchaser should take every precaution.
  • Sale of another home: Sometimes a Purchaser will only be able to complete the sale after his or her current home sells and the proceeds of that sale can be used to purchase the new property.

Conditional and Unconditional Contracts

It is important to know the difference between a conditional and unconditional contract.

A Conditional Contract contains a set of conditions that are to be met such as those listed above. Normally a Sale and Purchase Agreement starts off as a Conditional Contract and before Settlement Date it becomes an Unconditional Contract.

An Unconditional Contract is one where all conditions in the Sale and Purchase Agreement have been met. When a Sale and Purchase Agreement becomes unconditional it is legally binding and the transfer of ownership must take place.

Obligations and Conditions

A Sale and Purchase Agreement will also include clauses that set out general obligations and conditions. Examples may include:

  1. Access rights: This is important because the Purchaser should inspect the property before settlement to ensure any conditions have been fulfilled.
  2. Default by Purchaser: If the Purchaser breaches any terms of the Sale and Purchase Agreement then he or she  may be required to compensate the Vendor. For example interest payments may need to be made.
  3. Default by the Vendor: If the Vendor breaches any terms of the Sale and Purchase Agreement then he or she may be required to compensate the Purchaser. For example accommodation costs may need to be paid.
  4. Insurance: It is very important that the property remains insured right up until settlement date. Thereafter the Purchaser must arrange his or her own insurance.

The Deposit

When the Sale and Purchase Agreement is in agreed form a deposit is paid to the Real Estate Agent by the Purchaser. The amount of the deposit is usually between 5-10% of the overall purchase price. This money is initially held in the Real Estate Agent’s Trust account. The Real Estate Agent usually takes a commission from the deposit when the contract becomes unconditional. The balance is then paid to the Vendor.

The Purchaser pays to the Vendor the balance of the purchase price for the property on the day of settlement. Normally these payments are facilitated by the lawyers.

Before the sale and purchase agreement becomes unconditional and if the sale does not go ahead because some of the conditions were not met, then the Purchaser may be entitled to have the deposit refunded in full. However once the offer becomes unconditional then the Purchaser will not be able to go back on the deal.

Neither a Purchaser nor a Vendor can cancel a Sale and Purchase Agreement without good reason. Getting “cold feet” is not sufficient reason. For that reason it is extremely important that both parties take good legal advice at every stage of the transaction.

IMPORTANT NOTE: As individual circumstances vary it is imperative that tax and legal advice be taken on a case by case basis. This information is of a general nature only and is not intended to be relied upon as, nor to be a substitute for, professional advice. Henderson International accepts no liability in this respect.

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