Vendor Obligations After Signing an Agreement for Sale and Purchase

A case heard in the Supreme Court earlier this year presents a cautionary tale for property sellers.

In this case, a seller was embroiled in a long legal battle over their last-minute cancellation of an inspection for their buyer’s due diligence condition after the seller became aware of a potential better offer on the property. The buyer argued that, because the seller’s actions had prevented the buyer from gathering necessary information on the property, the seller could not also then cancel the agreement to pursue the better offer when the buyer was consequently unable to satisfy (or waive) the due diligence condition by its deadline. The Supreme Court’s decision came more than two years after the dispute first arose and was only focused on some preliminary legal issues (rather than resolving the dispute fully).

For all sellers, this case signals that even though you have a signed agreement for sale and purchase, there is likely to be more for you to do than just wait for settlement day when money will change hands.

In many agreements, the next stages of the deal are not necessarily left to the buyer alone; there can be obligations that you as seller must meet. If you don’t meet these obligations, you risk outcomes such as being pulled into a lengthy dispute preventing you from selling your property, as in the Melco case, or having your buyer request that money is held back on settlement. In this article, we cover some examples.

Meet any express obligations in the agreement

Your agreement might contain some express, deal-specific obligations for you as seller such as conditions you must meet or work you must complete before settlement. If you are using a standard ADLS/REINZ agreement, these obligations will be usually set out in the further terms of sale section.

Most agreements will also contain some warranties about the state of the property. For example, the standard ADLS/REINZ agreements contain warranties about the condition of chattels, rates payments being current and any work you have arranged on the property having appropriate consents.

Hopefully, where possible, you will have addressed any warranties before signing the agreement. If not, however, you must ensure that all warranties and other obligations are met by settlement day, otherwise this can lead to disputes around settlement, including the buyer proposing to retain settlement monies.

Help with the buyer’s conditions where necessary

As highlighted in the Melco case, even where there is not an express obligation, you may have an implied duty to assist the buyer with meeting the buyer’s conditions. You can help the buyer by, for example, providing any requested information in a timely manner and allowing access to the property.

The dispute in Melco also shows that even where you want to exit the deal, you should not do things like prevent your buyer from accessing the property for the purpose of gathering sufficient information for a due diligence condition. Taking this kind of action that deliberately blocks the buyer from fulfilling their conditions, or their own obligations under the agreement, could compromise your position.

Allow a pre-settlement inspection

Another area where a seller has obligations is pre-settlement inspections. Under the standard ADLS/REINZ agreement, the buyer may visit the property once for a pre-settlement inspection (with reasonable notice in writing). The buyer also is allowed another inspection to check you have met any agreement to carry out work on the property (no later than one day prior to settlement) if your agreement provides for such work.

Where your agreement provides for these types of inspections, you must allow this access, otherwise, the buyer could, for example, seek that money is held back until the inspection can take place.

Confusion can arise if the buyer wants to access the property for other purposes. If you want to allow this, you should be clear about the purpose of any access to avoid disputes about whether the access was for the set inspections under the agreement or for something else.

Failure to meet your obligations as seller can lead to long and costly disputes. Every agreement is different; please contact us for guidance about your obligations under your specific agreement to help avoid an outcome similar to what occurred in the Melco case.

DISCLAIMER: All the information published is true and accurate to the best of the authors knowledge. It should not be a substitute for legal advice. No liability is assumed by the authors or publisher for losses suffered by any person or organisation relying directly or indirectly on this article. Views expressed are those of individual authors, and do not necessarily reflect the view of this firm. Articles appearing in this newsletter may be reproduced with prior approval from the editor and credit given to the source. Copyright, NZ LAW Limited, 2019. Editor: Adrienne Olsen. E-mail: adrienne@adroite.co.nz. Ph: 029 286 3650 or 04 496 5513.