The principle of caveat emptor (buyer beware) is a basic rule which applies to an agreement for sale & purchase. The purchaser is responsible to undertake their own investigation to discover any matters they consider important when buying a property. Despite the purchaser completing due diligence, timeframes and the pressure of securing an agreement means a potential buyer may never be fully satisfied at the time of entering into a contract. This gives rise to the exception of vendor warranties.
Vendor warranties and undertakings are terms that are used interchangeably within the Auckland District Law Society (“ADLS”) Agreement for Sale & Purchase (“the Agreement”). The Agreement provides written guarantees that a vendor gives to a purchaser with respect to a property. This concept provides some security to the purchaser, by requiring the vendor to bear the risk in respect of matters warranted at the date of the agreement, and those that are applicable before or after settlement.
Are you thinking of selling your property?
Whether the property is residential, rural or commercial it is essential to recognise there are several promises, namely in clause 7 that you as vendor make to a purchaser. We have set out a brief summary below, but stress the importance of carefully reading through the warranties and speaking with us to obtain advice specific to your situation before you enter into an Agreement.
At the time both parties sign a contract the vendor gives a warranty that the chattels listed in Schedule 2 are owned by the vendor, free of charge and will be delivered to the purchaser in reasonable working order at settlement. This includes the requirement for all equipment, systems and devices, such as security, heating and air conditioning to be delivered to the purchaser in their state of repair as at the date the contract was signed (except for fair wear & tear).
The warranties also extend to building works and code of compliance certificates. Where you have done or caused any works to be completed on the property, you warrant that a permit, resource consent or building consent was obtained and where necessary a code of compliance certificate was issued. This warranty only extends to work carried out by you as vendor and it is up to the purchaser to complete thorough due diligence before committing themselves to a purchase.
Further obligations provided under the Agreement include:
- Demand, Notice or Consent: that you as vendor have not received any notice, demand or requisition in respect of the property, whether that be directly or indirectly or have any knowledge of action required to be taken or avoided;
- Rates: that at settlement all rates, water rates and other charges that are outstanding have been paid. This includes targeted rates and repayment of any loans provided by the local authority; and
- GST: that your liability for GST has been disclosed correctly on the front page of the Agreement and in Schedule 1. In addition, that this information was correct at the date the agreement was signed and will remain correct at settlement.
Body Corporate or Cross Lease Estates
Extra caution is required when you are selling a cross lease or unit title, as additional undertakings and obligations apply to the transfer of these estates.
When selling your property, although it is possible to limit your liability under the Agreement by altering the standard warranties, we emphasise the importance of obtaining legal advice and speaking with us in the first instance so we can ensure you avoid potential loss and the likelihood of future issues arising.