Conditions - What should my purchase be conditional on?

8 Oct 2019
Author: Isaac Whatnall
 
So, you are a purchaser in the process of negotiating an agreement for a house. You are under pressure to present the best offer possible to the vendor. However, you want to make sure you are protected in case the property turns out to be a lemon. You may be asking, what conditions should I insert to shield myself from loss? Here are a few things to consider.

Finance

Unless you have the capital to purchase a property outright, a finance condition is going to be necessary to allow time for your lender to confirm they are happy to use the property you are purchasing as security for their loan to you.

Many purchasers are confused by pre-approval, and erroneously are under the impression that pre-approval negates the need for a finance condition. To briefly summate, pre-approval is the Bank’s confirmation that they are agreeable to lend to you, given your income and financial standing. Approval is the Bank’s confirmation that they are happy to use the property as security. Bank’s are more often requiring registered valuations before giving approval to lend, a registered valuation may need to be obtained by you at your cost.

Kiwisaver and HomeStart grants also play a part here. As they form part of your financing to purchase a property, both of these need to be organised and confirmed before the finance condition to be satisfied. This raises another important question – how long should the finance be? Previously, finance conditions were usually due 10 working days after the date of the agreement. However, Kiwisaver Withdrawal and HomeStart Grant applications can take up to 15 working days to fully process. Therefore, if you are using Kiwisaver or relying on a HomeStart Grant, you should consider inserting a 15 working day finance condition.

Builder’s report

A house on the market is by and large never going to be free of defects and/or damage. That is the nature of purchasing a house that has been lived in, a degree of wear and tear is expected. Even a brand-new house is seldom without faults. However, one does expect to purchase a property that is structurally sound and in a reasonable state of repair, with fixtures, plant and equipment in reasonable working order. This is the domain of the building report condition.

The standard building report condition makes the agreement conditional on the purchaser obtaining a building report on or before the tenth working day after the date of the agreement that is satisfactory to the purchaser on the basis of an objective assessment. The agreement states the building report must be prepared in good faith by a suitably qualified building inspector and must be provided to the vendor if it is being relied upon to avoid the agreement. This means that having a builder friend give the place a look over will not be sufficient if you are going to avoid the agreement or ask for a price reduction/remedial work under the builders report clause.

LIM Report

A LIM or Land Information Memorandum is a report issued by the local authority (i.e. city or district council) containing a precis of all the information that local authority has on file about that property. it bears a cost to obtain. The standard due date for the LIM condition in the agreement for sale and purchase is 15 working days after the date of the agreement. The Council usually requires a fair portion of this time to compile and issue the LIM, so bear in mind that if you shorten the due date for the LIM report condition you will likely have to pay additional costs for an expedited LIM report.



Making an agreement subject to a LIM condition means you can require the vendor to remedy any unconsented works or withdraw from the agreement if the vendor will not agree to remedy those works. Under the agreement for sale and purchase there are vendor warranties that state that the vendor has obtained all the necessary permits and consents for works on the property – however if the vendor fails to abide by those warranties you can only claim compensation from the vendor (which can be a lengthy process) rather than cancel the agreement. The LIM also lets you withdraw from the agreement if there are any natural hazards, historical sites or future road widening that would negatively affect the property.

Another reason to purchase a LIM report is that if the LIM report is inaccurate or contains incorrect information then there is the possibility of raising a negligence action against the Council. To establish liability from the Council in respect to incorrect information or an inaccurate LIM report the party relying upon it must purchase the LIM report itself – meaning if you do not purchase a LIM report then you are not able to rely on any inaccuracy in a LIM report obtained by another party such as a Vendor in respect to any negligence action against the Council.

A LIM holds information regarding the area generally – whereas the council property file you can peruse for free at the Council office usually pertains to the specific property – this is important in terms of contamination, flooding, geotechnical risks, etc.

Title requisition

This clause is included in the standard terms of the ADLS form of agreement and relates to defective title. The clause states that if you do not object to or requisition the vendor’s title within 10 working days of the date of the agreement, then you are deemed to have accepted it. It further provides a procedure for requisitioning the title, with provision to cancel the agreement if the vendor refuses to correct the defective title. Hence it is a good idea to get in touch with your solicitor before signing an agreement for sale and purchase so that they can check over the title for you. A defective title can be prohibitively expensive to rectify, and there are all sorts of issues you could miss if you don’t know what you are looking for. Incorrect easements, faulty cross-lease plans, onerous and unreasonable land covenants – the possibilities are endless, so it is best for your solicitor to look the title over.

Conclusion

These were examples of conditions commonly inserted in agreements for sale and purchase. you should always talk to your lawyer before signing an agreement, so that they can review your offer and recommend conditions to ensure you are protected. This article is for informative purposes only and is not intended to be relied upon as specific legal advice. If you are in need of expert legal advice, feel free to contact our friendly and experienced commercial/private client team who are more than happy to help.


 
 
 
Conditions - What should my purchase be conditional on?
About the Author
Isaac Whatnall
Isaac Whatnall is a Solicitor in the Commercial, Property and Private Client team at DTI Lawyers. You can contact Isaac at isaac@dtilawyers.co.nz