Article: Commercial, REINZ News, The Professionals Advice
Introducing New Contract Format for Buyers and Sellers with John Gilding
Buyers and sellers of real estate will soon be presented with a totally new form of contract to that used in the past. This will be in two parts. Section A deals with the essential information, such as the buyer, the seller, the property, the price etc. Section B is a separate booklet containing all the standard terms and conditions that will apply, unless amended by the parties in section A at the time the contract is negotiated. It is therefore very important that, at the very least, you read both sections thoroughly before signing the contract. This agreement has been drawn up by REINZ. Both real estate agents and solicitors will have to get used to this new form of agreement and possibly differing interpretations as to its content. Your solicitor will recommend that you consult him/her prior to signing the contract, as once signed, there is a binding contract in force.
The issue of “leaky buildings” is well known, with such matters in the news almost every week. Even if the house is not a “leaky building”, most solicitors would recommend that a purchaser has the property inspected to see whether or not there are any serious defects in the structure, which are not readily apparent from your walking through the property with a view to buying. The new form of agreement now contains as a standard option, a condition that the property is subject to a satisfactory builder’s report, although you may choose not to include this option.
People are prepared to pay hundreds of thousands of dollars for a house, but seem reluctant to pay for a properly qualified building inspector to examine the house for defects which may cost thousands of dollars to rectify.
The council supplied LIM report will probably have no information about the current state of the building, and even if there is a code of compliance, this does not mean that the building is in good condition. The cost of such as report, as with conveyancing fees, is generally about .003% of the purchase price, taking the Whangarei median house price as a basis. It is even less on higher value homes. With the cost of the purchase, would it not pay to have the property properly examined by a competent building inspector before committing to buy the property? Are you not doing yourself a disservice by looking for the cheapest available option, rather than a more expensive but more thorough service?
A recent High Court decision (Lerner’s case) has held that “where a contractual condition requires a purchaser is to be satisfied as to certain matters, he must satisfy the court that he was not satisfied on a reasonable and fair basis”. The court went on to hold that the test is an objective test and not a subjective test. You cannot therefore simply say “I am not satisfied” and then cancel the contract.
The court also went on to state that the building report must be prepared by a person qualified to give such a report, in good faith, and in accordance with basic inspection and reporting principles and methods for building reports. The report itself “would always need to contain sufficient relevant detail to enable the purchaser to reach an objective assessment as to whether the report revealed a ‘satisfactory’ situation in relation to the matters reported upon.”
Since that decision, the New Zealand Institute of Building Surveyors has developed a series of standards of practice, standards of survey inspections and building inspection report standards. The Accrediting Building Surveyor Association and the Buildings Officials Institute of New Zealand have also introduced an accreditation system.
If a report is obtained from a person who does not meet the criteria, or whose report does not contain the required information, then a purchaser may not have done all that is reasonably required to have satisfied the condition and may not be able to cancel the agreement where defects are discovered. This will inevitably result in increased legal fees where the buyer tries to cancel, and the seller insists on the contract proceeding.
