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10 Tips On The Sale & Purchase Agreement

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  • 10 Tips On The Sale & Purchase Agreement


    This article, written by Carol Bucknell, appeared in the NZ Herald October 2006

    Stick to this 10 point plan to ensure your Sale & Purchase Agreements won't come unstuck in the future.

    Most real estate salespeople might find the Sale & Purchase Agreement a relatively straightforward document. But it does need to be carefully drafted to avoid sometimes costly problems further down the track and to ensure it is a binding and enforceable document.

    Solicitor Tim Jones, a specialist in residential and commercial property law with Glaister Ennor Solicitors in Auckland, runs a series of nationwide seminars for REINZ on how to avoid future legal glitches that can arise with the Sale & Purchase Agreement.

    Jones says that the issues he raises in the seminars are all about "best practice stuff". Ten points that he would regard as a priority for real estate agents (and of course salespeople as well) are:

    1. Proper identification of parties involved
    "The first thing I advise agents to do is to ensure that they correctly identify all the parties involved in the sale – vendor and purchasers", Jones explains. "This includes their names and all their details. It's particularly important when there are parties that are represented by another entity in the sale, for instance companies or trusts. Agents need to identify all the trustees or company members correctly. Also they should make sure they know who they are dealing with. Asking for photo ID is to be encouraged. "

    2. Accurate property description
    The second key point for agents and salespeople is to ensure they have the correct legal description of the property involved in the sale, says Jones. They should carry out a property search as early as possible during the sales process to be certain they have the right property details.

    "I advise agents to do this with the vendor when they are signing up the selling authority."

    3. Transferring the legal description onto agreement
    "This needs to be done very carefully," Jones stresses. "If the agent is unsure of how to do this because the legal description is complicated he or she should get legal help, preferably the vendor's lawyer."

    4. Unique clauses
    These can be quite tricky provisions, says Jones, and many agents have to seek legal advice on drafting clauses for sale & purchase agreements. This is because the standard agreement is essentially very generic and cannot possibly cover the multiplicity of different situations that can arise on a day-to-day basis.

    When drafting unique clauses and conditions in the agreement it is essential to clearly identify what it is you are drafting the clause about. It's a good idea to go through a series of questions and answers with either the vendor or the purchaser (informally) to ensure you get the facts right with both parties. Also ensure you have captured what they want to say or do by the clause, eg. a condition for a builder's report, he advises.

    Other important points he makes about drafting unique clauses is to use plain language, easily understandable expressions and avoid jargon. "As a test, put it in front of your client vendor, ask them to read the clause and see whether they understand what is said."

    "A point that is often forgotten in this area is that all special conditions must have a sunset date, an expiry point when something has to happen by. This could be, for instance, acquiring finance by a certain date, or that the purchaser/s have to sell their property by a certain day."

    5. Condition or warranty?
    Determining whether something is a condition or a warranty can also be difficult. The agent or salesperson must be able to make a distinction between the two and draft accordingly, Jones asserts.

    "A condition is when a party to the agreement has to do something by a specific date, failing which the contract may fall over. A warranty is a promise to do something (but does not always specify the date it must be done by), where failure to do so will result in a breach of contract."

    6. LIM report
    This is another section of the agreement where care needs to be taken, says Jones. Agents and salespeople need to clearly make a distinction on the front page of the Sale & Purchase Agreement whether the purchaser does or does not want a LIM report. If the agent does nothing, and neither YES nor NO are crossed out, then this means the purchaser does not want a LIM report. This point is often misunderstood.

    7. Return of LIM reports
    Timing of LIM report returns also needs to be clarified in the agreement, he points out.

    "Agents need to appreciate that the Sale & Purchase Agreement states the timeframe for purchasers to get a LIM report is15 working days because a standard agreement is used throughout the country. However the speed of return time for LIM reports differs depending on where you live. Agents need to be mindful of that, which is why we don't leave it as optional.

    "Where any council can return a LIM more quickly, agents tend to modify the LIM clause by shortening the periods in clause 8.2. This should be done only when the agent is confident the Council can deliver the LIM in a shorter period of time by deleting the specific clause and retyping the new period in a new clause – say [numbered as clause] 15 – with the new time period in it. This is clearer and more obvious than handwritten changes that are often overlooked."

    8. Signing documents
    Another common misconception among agents and salespeople when having clients sign documents is that a person can sign for and on behalf of absent parties. This has major legal complications, warns Jones.

    "Best practice is to get a written authority from the absent party for others to sign for and on behalf of. Verbal assurances are not provable, nor are emails necessarily valid. With an email you can't always prove where it came from."

    9. Multi-party situations
    The best arrangement when a number of parties have to initial changes to the agreement is to ensure you separately identify the initials of the vendor and the purchaser, he suggests. "Otherwise it can get very messy with all the initials running into each other. It's better to retype the agreement if there are too many initialed changes."

    10. Dating the agreement
    Jones's final piece of advice for agents is to always make sure the agreement is dated once it has been signed and initialed in its "final binding form". That is once all initials are completed if there has been an offer and counter offer.

    "We do come across situations where an agent forgets to date an agreement. Agreements definitely should not be dated during the course of negotiations and agents should certainly not allow anybody to post date an agreement."

    Tim Jones has been a member of the Auckland District Law Society Forms Committee for many years and works with REINZ on the preparation of its conveyancing forms, in particular the Sale & Purchase Agreements. He also regularly advises the Institute on these conveyancing forms.
    "There's one way to find out if a man is honest-ask him. If he says 'yes,' you know he is a crook." Groucho Marx