What is a Compensation Claim?

Put simply, a Compensation Claim is a formal notice to someone in order to claim compensation regarding a property under an agreement for sale and purchase of real estate. There are some misconceptions though.

Misunderstandings:

a. Existing properties

Purchasers often mistakenly think that they have a right to ask for anything “broken” or imperfect to be fixed prior to settlement. This is incorrect. Existing properties are virtually purchased “as is” and the vendors only have an obligation to ensure that things are in working order, unless otherwise provided for in the agreement. For example, if a chattel that is listed on the Sale and Purchase agreement is not working, like an oven, then the vendor would need to have this fixed prior to settlement, but if a broken washing machine was not listed in the chattel, it would not need to be repaired. However, existing marks or damages to walls or carpet would not ordinarily need to be repaired.

b. New properties

With new properties, it often means the vendor will have a 12-month defect liability period to attend to defects to the property after settlement and not before. Therefore, there is often no obligation to fix chattels or things prior to settlement.

5 Basic things about Compensation Claims:

1. Costs

If you are going to make Compensation Claim that is substantial, you will likely be charged additional fees by your lawyers so you should be careful that the costs do not outweigh the benefit.  

2. Basis to claim

A compensation claim can be made for:

a. Breach of contractual term - Typically on warranties for chattels;

b. Misrepresentation – for instance when the marketing is incorrect stating that the property is legally home and income when it is unconsented and “illegal”;

c. Fair Trading Act – Misleading and deceptive conduct in the course of trade (This is generally not made against “mum and dad” vendors, but could be made against the vendor’s agent);

d. Equitable Set Off – An example being when the vendor owes the purchaser money; and

e. Dispute between the parties – The vendor and purchaser could have a previous relationship. For example, a rental agreement where funds are in dispute.

3. What the claim must include

a. Contain all claims in one notice (so you can’t serve more than one compensation claim notice);

b. It must be in writing;

c. Not be sent without prejudice;

d. Not be conditional on anything;

e. Be served before 5pm one day before the settlement date;

f. State the particulars of the claim; and

g. Provide a genuine pre-estimate of the cost relating to the claim.

4. Pre-inspection timing

Purchasers will need to arrange their property inspection multiple days before the settlement date. If the purchaser were to do the inspection on the settlement date, or even the day prior, this would likely give insufficient time to prepare and send a Compensation Claim if issues are discovered so timing is important.

5. How to respond

Once the vendor receives the compensation claim, they have 3 working days to respond and the settlement date will be deferred to 2 working days after an expert determination has been made. 

If you have any questions, Tina and the Queen City Law Property Team are here to help. Property@qcl.co.nz

Disclaimer:
We have taken care to ensure that the information given is accurate, however it is intended for general guidance only and it should not be relied upon in individual cases. Professional advice should always be sought before any decision or action is taken.