It is always important to check with your lawyer before signing on a sale and purchase agreement or bidding at an auction. The conditions of your agreement give you some ability to negotiate or cancel the agreement after agreeing to the price.
When entering into a sale and purchase agreement, it’s crucial to have a clear understanding of the key elements that could impact your purchase. This article outlines some of the most important aspects, such as the deposit, conditions, and insurance, to help you navigate the process confidently.
The Deposit: A Key Component
The deposit is the initial amount you’re paying to the vendor. Typically, this amount ranges from five to ten percent of the purchase price and is paid to the vendor or agent. It forms part of the ‘deposit’ your bank expects you to pay towards the purchase with your own money. The deposit can be paid when signing the agreement or once the contract becomes unconditional.
For most buyers, it is generally advisable to pay the deposit after the agreement becomes unconditional. If you are planning to use KiwiSaver funds for the deposit, it is essential to inform your lawyer well in advance. Withdrawing KiwiSaver funds can take some time.
Conditions: Protecting Your Interests
Conditions in a sale and purchase agreement serve as safeguards for the buyer, providing potential exit points if certain criteria are not met. The three main conditions to consider are the finance condition, the LIM report condition, and the building inspection report condition.
Finance Condition
The finance condition is designed to protect buyers who need a loan to complete the purchase. If your loan application is not approved, this condition allows you to cancel the agreement. Finance conditions are not ‘get out of jail for free cards’. It is important that you take proactive steps toward securing financing–sellers may now request proof of your finance application. Failing to provide this proof will complicate your ability to cancel the agreement under this condition.
LIM Report Condition
The LIM (Land Information Memorandum) report summarises the council’s records for the property. This report can reveal critical information, such as unconsented works, the property’s historical compliance with local regulations, and designations like flood-prone areas or coastal erosion zones.
Building Inspection Report Condition
The building inspection report condition is another important safeguard. Under this condition, you can hire a qualified building inspector to assess the property. You can cancel the agreement if the inspector’s report reveals issues. The standard ADLS agreement allows buyers to cancel the sale and purchase agreement if building inspection reports reveal issues the purchaser is unhappy with. This condition is sometimes modified in some sale and purchase agreements. The variation may require you to give the seller an opportunity to address any identified issues before you cancel the agreement.
Considering Insurance: An Essential Step
While this is not a usual condition in sale and purchase agreements, you must ensure the property is insurable before the agreement is declared unconditional. It can be easy to assume that every property can be insured, but this is not always the case. Properties located in high-risk areas, such as earthquake zones, flood-prone regions, or areas with coastal erosion, may be challenging or even impossible to insure. If you cannot secure insurance, your bank may refuse to give you the loan, even if the loan was initially approved. To avoid this situation, you should confirm with several insurance companies to ensure they would insure the property before the agreement becomes unconditional.
Conclusion
A sale and purchase agreement is a significant legal document that requires careful consideration. By understanding the importance of the deposit, the key conditions, and the property’s insurability, you can approach this process with greater confidence. Always consult your lawyer before signing any agreement to protect your rights and interests throughout the transaction.
Article kindly written for our readers by Max Gunawan – Millenium Lawyers, Phone: 09 265 2400
