Vendor Responsibilities and Possible Liabilities

Before entering into an agreement to sell a property you must read and understand the warranties you are giving at general term 6 (or 8 in an auction agreement) of the Auckland District Law Society (“ADLS”) Agreement.  In an ideal world you will seek advice from your lawyer prior to signing any Agreement because unravelling issues after the Agreement is executed by both parties is far more difficult (and costly) than sorting them prior to the Agreement being executed.

The standard ADLS Agreement contains warranties, or promises, by you, the seller, to the purchaser as follows:

• You have not received, nor have any knowledge of any outstanding requirements from any local or government authority which you have not disclosed to the purchaser in writing  – for example a notice to fence a swimming pool, or that a building does not comply with the building code, or that the septic tank needs repairing/cleaning. If you cannot give this warranty it needs to be varied or excluded in writing in the further terms of the agreement.  This is even if the purchaser has indicated on the front of the agreement that they are obtaining a LIM which should disclose any such issues.
• You have not given any consent or waiver to any application under the Resource Management Act directly or indirectly affecting the property which has not been disclosed in writing to the purchaser.  An example of this would be consent given to a future housing development at a neighbouring property.
• All chattels you have agreed to sell to the buyer will be in the same state of repair on settlement as they were when the contract was signed and that they are not subject to any charge.  The purchaser has a right to a pre-purchase inspection prior to settlement but, nevertheless, if after they settle they find issues they can sue the vendor for breach of warranty.
• If you owe money on any chattels which are subject to a charge in favour of the lender (e.g. a hire purchase agreement) then the money will have to be paid and the charge cleared before settlement. Please call your lawyer to discuss if you think this is relevant (creditors rarely advise the consumer that a charge will be registered over the property).  Your lawyer can conduct a PPSR search and, if the chattels are subject to a charge, they will arrange for it to be paid out of the proceeds of sale and discharged at settlement.
• Where you have done any work to the property which required a building consent:
• You have obtained the consent;
• The work was carried out in accordance with the consent;
• Where appropriate (and it is nearly always appropriate), you obtained a Code Compliance Certificate.
• You have complied with all obligations imposed on you under the Building Act.

In addition the ADLS agreement provides that if the property is a bare residential lot that all boundary markers are present and will be in their correct position as at the possession date.  This can be an expensive omission and better to sort early on in the sale process.

If you breach your warranties the purchaser can’t back out of the Agreement (unless the breach is really fundamental to the whole deal) but you can be sued for that breach.  Litigation is expensive so it is better to know what you are warranting or promising before you sign the Agreement and if you know you can’t honour any of those promises deal with that in the way the Agreement is worded.