Once you find a home that you love, it is time to make an offer to purchase the property.
In New Zealand, the vast majority of contracts for the sale and purchase of residential property occurs on the TLANZ/REINZ Sale and Purchase Agreement. This contract includes the usual standard legal terms (which are important – we will speak to these in other articles) but can also be customised according to the conditions that you would like to put on any offer that you make.
A conditional contact is a contract where the buyer and seller have agreed to the sale, but the contract still depends on one or more conditions being satisfied. This contrasts with an unconditional contract, where there are no conditions (or they have been satisfied or waived), and the buyer is fully committed to the transaction.
The advantage of including conditions in your offer is that you have certainty that the seller is prepared to sell to you on a certain date at a certain price, before you incur costs (e.g., a building report) in carrying out the necessary investigations to do to ensure that the property is the right one for you. The conditional period gives you breathing room to carry out specific enquiries in the property to be sure that you do want to buy it.
But it is important to remember that a conditional contract is still a binding contract. Simply including “conditions” does not give you the ability to simply change your mind and walk away. If you were to cancel the contract based on one of the conditions (e.g., “my bank won’t give me finance for this property”), you may be asked to show evidence of it. It is up to the seller to ask for that evidence, but they can – and might – where they have turned away other offers to accept yours.
The standard form contract lists the common types of conditions that buyers include on the first page, and includes:
- Finance – This gives you time to get approved lending from your lender for the actual property you want to purchase. While you will likely have pre-approval, this gives you time to confirm that the bank is satisfied that the property you are purchasing will provide suitable security for the loan.
- Building report – A building report gives you an independent assessment of the property’s condition, and you can determine whether there are any defects, if maintenance is required and whether the property is otherwise in a good condition.
- Land Information Memorandum (LIM) – A LIM is provided by the Council and sets out the information relating to natural hazards (e.g. the property being in a flood zone), building and resource consents, and other relevant information. We would usually review it and provide a summary of the key information. Natural hazard and consent information can affect your ability to obtain insurance, so it is important this information is provided to your insurer.
- Toxicology report – A toxicology report identifies if there has been any toxic contamination of the property (e.g., methamphetamine). The report identifies the level, if any, of contamination in the property and whether it is safe for habitation.
- OIA Consent – If you are an overseas person, you may need consent under the Overseas Investment Act before you can purchase the property, and the offer can be conditional on you getting that consent.
It is also always open for you to include broader, or more bespoke, conditions as a Further Terms of Sale. The types of conditions many buyers include are:
- Due Diligence – Some buyers elect to include a due diligence clause, which is intended to investigate both the property and the transaction more broadly. This may include checking the title, LIM, council records, zoning, consents, boundaries, services, proposed developments. This can give the buyer considerably more scope to investigate, but the exact wording is very important!
- Insurance – Generally, obtaining satisfactory insurance (meaning there are no circumstances which may arise which will not be covered) is a requirement of receiving your bank lending. It is important that you give yourself time to ensure that you can find an insurance company that is prepared to insure the property.
- Solicitor’s Approval – This condition can give your lawyer an opportunity to review the contract and raise any legal issues with the contract before you are committed to the purchase. These clauses tend to be narrower than buyers expect and are not a substitute for due diligence.
Finally, there is a standard title clause that gives your lawyer an opportunity to check the property’s title and raise certain legal issues or defects with the seller. These are particularly important with a cross-lease property. If these title issues cannot be resolved, this may give you the right to cancel. But this is not a general “title check” condition, your rights are limited by the terms of the clause.
Conditions require a specific timeframe which they must be satisfied by. We usually recommend 15 working days, to allow you enough time to make full and detailed enquiries into the property.
In short, there is a lot more to consider than simply the price when you make an offer to purchase a property. Our property team is happy to discuss with you the conditions which should be included in your offer.
