ADLS Agreement Changes for Sale and Purchase of Real Estate

2019 ADLS Agreement Changes for Sale and Purchase of Real Estate

From 5 December 2019 a revised edition of the ADLS Agreement for Sale and Purchase of Real Estate came into force. This new edition contains some significant changes which both vendors and purchasers need to be aware of. In this article, we discuss the main changes to one of the most widely used agreements in legal practice.

Changes to existing conditions

Changes have been made to existing finance and building report conditions to tighten up the purchaser’s ability to cancel an agreement for non-satisfaction of the conditions.

Finance condition The change which has received most of the attention, is the change to the finance condition. If you are a purchaser and your agreement is subject to a finance condition and you cancel the agreement because you are unable to arrange the finance, if the vendor asks, you will be required to provide evidence that proves you have been unable to arrange finance – e.g. a letter from the bank.

Building Report condition – If you are purchasing a property and the agreement is conditional on obtaining a building report, this report must now be in writing. The time period for satisfaction of this condition has been extended to 15 working days (from  ) to bring it in line with the LIM condition period.

Overseas Investment Act condition – this condition has changed to require that the consent must be on terms and conditions that are satisfactory to the purchaser, acting reasonably. 

New Conditions

To address the issue of “P” contamination, if you are purchasing a property you can include a condition that requires a toxicology report is obtained in respect of the property. The purpose of this report is to detect whether the property has been contaminated by the preparation, manufacture or use of drugs, including methamphetamine. The report is to be prepared by a suitably qualified inspector in accordance with the relevant New Zealand standard and if the purchaser cancels the agreement because this condition cannot be satisfied, the purchaser is required to provide the vendor, upon request, with a copy of the inspector’s report. This is not the issue it once was, so it will be interesting to see how often this condition is used in agreements.

Vendor Warranties

If you are selling a property, there are changes to the warranties you will be giving to the purchaser. 

Threatened or actual legal proceedings – You will now be warranting that as at the date of the agreement, you have no knowledge or notice of any fact which might result in proceedings being instigated by or against the vendor or the purchaser in respect of the property. This could relate to non-compliance with the Building Act 1991 or health and safety issues.

Chattels Warranties – The warranties you will be giving for any chattels which are being sold with the property have changed. Chattels now fall into 2 separate categories (and there is a schedule attached to the agreement to list each type) and the warranties you give for them depends which category they fall into. For instance; if the chattels have an operational function such as blinds, curtains and fixed floor coverings, you will be warranting that these that these items will be delivered in the same state of repair as at the date of the agreement (fair wear and tear excepted). If the chattels have an operational function, for instance; a stove, dishwasher and heat pumps, you will be warranting that these items will be delivered to the purchaser in reasonable working order.

Targeted Rates – If your property is subject to targeted rates that are imposed to repay a loan subsidy or other financial assistance provided by Council, you will be warranting that you have paid the amount required to remove that targeted rate.

New Compensation Regime

There is now an extensive provision relating to a purchaser’s right to compensation from the Vendor for breach of any term, a misrepresentation, a breach of section 9 or 14 of the Fair Trading Act, or equitable set-off. It also applies if there is a dispute between the parties regarding an amount payable for late settlement or failure to give possession by the vendor, or if the property is destroyed or damaged prior to possession being obtained by the purchaser and there is a dispute over the reduction in value. The process is:

  • If a purchaser wants to make a claim for compensation it must serve notice of the claim prior to the settlement date. 
  • If the parties can agree on the amount of the compensation it is to be deducted from the amount to be paid by the purchaser.
  • If the vendor disputes the purchaser’s right to make a claim, then it is to be determined by an experienced property lawyer or an experienced litigator provided by the parties, or if they cannot agree, by the New Zealand Law Society.
  • If the purchaser makes a claim for compensation and the vendor does not give notice that it disputes the purchaser’s right to make a claim within 3 working days, then the vendor is deemed to have accepted the purchaser’s right to make a claim.
  • If the parties cannot agree on the amount of compensation, then an interim amount is to be paid on settlement to a stakeholder.
  • If the interim amount cannot be agreed then it is to be determined by an experienced property lawyer or experienced litigator, or registered valuer or quantity surveyor.
  • If an experienced property lawyer or litigator determined that a purchaser is not entitled to compensation, this does not prevent a purchaser pursuing that claim after settlement.

The major change here is that previously even if a purchaser had a right to compensation it could still be required to settle in full. Here if the purchaser makes a claim for compensation and the vendor does not respond within the 3 working day period, the purchaser’s claim for compensation is deemed to be accepted. It puts the pressure on the vendor’s lawyers to ensure they respond within the relevant time periods.

Changes to the GST provisions

If the agreement states that GST is to be charged at zero percent but between the date of the agreement and settlement GST is no longer chargeable at that amount then the purchase price shall be plus GST (if any) even if it has been expressed as being inclusive of GST (if any). If the vendor has already had to account to the IRD for the GST and it is on the basis that the GST would be zero percent, the purchaser is to pay the GST and any default GST to the vendor immediately upon demand. Where GST is likely to be an issue, the purchaser should obtain tax advice on the impact of this clause for them. Changes to the standard clause maybe required in certain situations.

Other changes

Tenanted properties – If a property is sold tenanted, the vendor must provide the purchaser with all of the leases/tenancy agreements, and a copy of the notice from the vendor to each tenant advising them of the sale of the property and directing them to pay the purchaser as landlord all rent and other amounts due under the leases.

Use of Information – There is a provision in the agreement which allows the agent to provide certain information relating to the sale to the Real Estate Institute of New Zealand Inc. This information is password protected and will not include the parties’ names or personal information under the Privacy Act and is collected for statistical purposes.

Fax machines – the ability to serve notices by fax has been removed. Changes that have been made provide that notices sent by email are deemed delivered when sent to the email address provided in the agreement (or subsequently notified) and to allow for notices via secure web document exchange.

If you are looking at buying or selling a house it is vital you understand the effect of these changes on your obligations. We strongly recommend you seek legal advice prior to signing an Agreement. We can assist you to understand your obligations and provide advice on any changes which are required to protect and assist you. For more information contact one of our Property Experts.

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