Are you a first home buyer? Have you just moved to New Zealand? Do you know what a ‘conditional’ agreement is or an ‘unconditional’ agreement is? Do you know what the difference is between buying a house at auction or by negotiation?

In an ideal world, you would seek legal advice before you sign a contract to buy a house. The downside to that is, it costs you money before you’ve signed an agreement to buy a house. In this article, we’ll give you a few tips that could save you a lot of money – and stress – in the long-run and to help you find the right house for you.

By Auction or By Negotiation?

If you want to buy a house at auction you must do all your homework on the property before you go to the auction. This is an example of an ‘unconditional’ agreement to purchase a house. Effectively, you are buying the house ‘as is’ and, once you sign the auction agreement, there’s no going back – you are legally obliged to complete settlement (referred to as ‘completion’ in Australia and the United Kingdom).

If you make an offer on a house that’s not for sale by auction, then you can add purchasers’ ‘conditions’ into the agreement which will allow you to do all your homework on a property before you decide that you definitely want to buy it and, therefore, complete settlement. This is what is called a ‘conditional agreement’.

I’m not buying at an auction so do I really need to put conditions in the agreement? Won’t that put the vendor off?

Yes! You should DEFINITELY put conditions in the agreement! If you don’t check the property thoroughly before you buy it, then you could end up buying a house with lots of problems that you won’t know about until after you’ve moved in and, either you won’t have enough money to fix those problems, or it could leave you out-of-pocket by thousands of dollars – if the price is right, then the vendor is unlikely to reject your offer.

How do purchasers’ conditions work?

Each condition will have a ‘condition date’. A condition date is either an exact date or a specified period after the date of the agreement (the date of the agreement is when you and the vendor have both accepted all the terms of the agreement and both of you have signed the agreement).

Each condition can either be ‘satisfied’, ‘waived’, or ‘not satisfied’.

‘Satisfied’ means that you have done the necessary checks for that condition and you are happy with the results of those checks.

‘Waived’ means that you have decided that either, you no longer require the agreement to be conditional upon that condition or, you have done your checks under that condition and found some issues as a result of those checks, but you want to tick that condition off your list anyway and go ahead with buying the property.

‘Not satisfied’ means that the results of the checks you did under that condition were not satisfactory and, therefore, you don’t want to go ahead with the purchase. The agreement is cancelled and any deposit that you paid will be refunded to you in full.

If all your conditions are ‘satisfied’ or ‘waived’, then the agreement would be declared ‘unconditional’ and you would be legally required to complete settlement of your purchase of the property.

What conditions should I put in the agreement?

1. Finance condition

On the front page of the Auckland District Law Society agreement (the most widely used and accepted form of agreement for buying and selling property in New Zealand) (“the ADLS Agreement”), there is a standard finance condition. If you need to borrow money from a bank (i.e. get a mortgage) to assist you with buying the property, then we strongly recommend that you put in a finance condition.

We recommend a finance condition date of 7 working days after the date of this agreement. You would use that period to apply for a mortgage. If your mortgage application is approved, then you can confirm your finance condition ‘satisfied’. If your mortgage application is declined, then you can cancel the agreement for non-satisfaction of your finance condition.

2. Building Report

On the front page of the ADLS Agreement, there is a standard building report condition. We strongly recommend that you make the agreement conditional upon a building report.

Clause 10.2 of the ADLS Agreement Ninth Edition 2012 (5), gives you 10 working days after the date of this agreement to satisfy (or otherwise) the building report condition.

The building report condition stipulates that you must obtain your own building report for the property – you can’t, and you shouldn’t, rely on the vendor’s building report (if they have one). This means you need to engage a professional building inspection company to conduct a thorough inspection of the property and notify you of any defects that they find, in that report. The building report will also give provide a general description of the overall condition of the property.

If you would like a recommendation for a building inspector for your building report condition, please contact us and we would be happy to recommend a reputable building inspection company to you.

3. Land Information Memorandum (LIM)

On the front page of the ADLS Agreement, there is also a standard LIM condition. A LIM is a report which contains some of the information that the local Council holds on any given property. Clause 10.2 of the ADLS Agreement Ninth Edition 2012 (5), stipulates the terms of the LIM condition.

Clause 10.2(1) requires the purchaser to obtain the LIM within 5 working days after the date of the agreement.

Clause 10.2(2) gives you 15 working days after the date of the agreement to either:

(a) requisition the LIM condition due to an unsatisfactory item in the LIM e.g. the vendor didn’t get a code compliance certificate for the carport that they built on the property; or

(b) confirm satisfaction of the LIM condition if there is nothing of concern contained in the LIM.

If you requisition the LIM, the vendor can either agree to rectify the problem or not. If not, then you can decide to then either waive the LIM condition or cancel the agreement for non-satisfaction of the LIM condition.

Important note about the LIM condition: Clause 10.2 stipulates that you must obtain your own LIM. For the purpose of the LIM condition in clause 10.2, and contrary to what a real estate agent might tell you, you can NOT rely on a copy of a LIM that the vendor or agent has given to you – believe us, this is for your own protection! The wording in clause 10.2 gives the BEST protection for a purchaser and this clause (or any part of it) should not be deleted if you want to include a LIM condition.

4. Due diligence condition

The ADLS Agreement does not have a due diligence condition. A due diligence condition allows you to make any other further checks on the property that you wish to make. For example, if you are planning on building an extension to the house, you should check the ‘property bag’ that Council has for the property and check that there no other rules that prohibit your proposed works on the property. A due diligence condition is particularly important when buying an investment property.

Your lawyer will be able to draft a due diligence condition for you to insert into the “Further Terms of Sale” page at the end of the ADLS Agreement. To make things easier and cheaper for you, we recommend you use this due diligence condition.

Okay, great – thanks for that information but I want to buy a house at auction and I can’t put any conditions in the agreement. What do I do?

You need to do the following:

Get a LIM

Get a building report

Get a pre-approved mortgage

Get your lawyer to check all the legal issues before the auction*.

Note: For a pre-auction legal check our estimated fees are $300 plus GST and disbursements. Additional fees apply if you want us to check the LIM and/or building report. Our pre-auction check includes a fully comprehensive and bespoke report on legal issues for the property. If you’ve paid us for a pre-auction check on a property and you win the auction for that property, our final fee on completion of settlement may be discounted at our sole discretion, depending on the type of property you have bought.

Other matters to consider when buying a house

In addition to the above issues, there may be other matters that you need to consider, depending on the house you want to buy, including (among other many other things), for example:

• Are you buying an apartment?
• Is there a body corporate and what is a body corporate?
• Is it a crosslease property and what does crosslease mean?
• Is the vendor buying the property from the current owner and immediately selling it on to you on the same settlement date?
• Is it a leasehold property and what does leasehold mean?

These are legal matters that are important and which you should seek legal advice from your lawyer before signing any agreement to purchase a property.

Conclusion

To sum up, make sure you do the following checks and include these conditions if you can:

Finance condition – 7 working days (use the standard condition in the ADLS Agreement)

LIM condition – always use the standard 15 working days in the ADLS Agreement

Building report condition – always use the standard 10 working days in the ADLS Agreement

Due diligence condition – we recommend 10 working days from the date of the agreement (you can use this one)

Happy house hunting!

This information was accurate as at March 2017

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.