Caution required - alternative form of agreement for sale and purchase

An alternative form of agreement for sale and purchase is now available. We recommend you continue to use the existing form of agreement.

There is a potential hazard on the road to completing your sale or purchase free of disputes and hassles.

The existing form of agreement for the sale and purchase of property (the NZLS/REINZ agreement) has been used in New Zealand for over twenty years. It is tried and tested and has the benefit of years of settled case law and academic commentary. We can usually expect that the vast majority of sales and purchases which use the existing agreement will proceed to completion smoothly and without any unexpected disputes.

However, all this could be about to change with the introduction of an alternative form of agreement being promoted by the Real Estate Institute of New Zealand. We believe that the new agreement could be a major roadblock on the road to smoothly completing your property transaction.

The new agreement is being promoted by the Real Estate Institute as a new plain English agreement which will be more easily understood by the ordinary person in the street. However, property solicitors in general are very concerned by the potential problems which could arise from use of the new form of agreement. The new agreement introduces new concepts and new terminology. This will lead to confusion and uncertainty. Although the language used is "plain English", the legal effect of the phrases and words used is unknown. This means that there is potential for dispute between a vendor and purchaser on virtually every aspect of the transaction. There are also new unexpected time frames for settling various condition dates and issuing various notices which will catch out the unwary.

We think that the new form of agreement is particularly unfavourable to vendors. For example, the agreement gives the purchaser's solicitor the ability to withhold consent to the title for anything that "could" be registered on the title, that "might" affect a purchaser's future use of the property. This is giving a purchaser much more scope to object to the title than is presently allowed under the existing agreement. Another example is that the agreement requires the vendor to advise the purchaser of any notice given that "affects or might affect the buyer's future use or benefit of the property." This rings alarm bells for us - a clause like this raises very speculative issues over the question of what "affects or might affect" the property. The use of subjective terms is a big problem and we think that clauses like this in the new form of agreement are simply opening the floodgates to many potential disputes.

We understand that the new form of agreement for sale and purchase is now available to Real Estate Agents, but we have not seen any agreements on the new form as of yet. We think this might be because of the general concern in the legal and property community about the problems with the new agreement and the vast potential for dispute. We recommend that if you are contemplating selling or purchasing property through a Real Estate Agent that you check to ensure that it is the existing ADLS/ REINZ agreement for sale and purchase form which is being used. If you have any doubts, please talk to us before you sign the Agreement. We recommend that you do not volunteer to be a guinea pig for the Real Estate Agents Institute to test out how well their new agreement works!