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When putting in an offer for a house it is most advisable to either have a lawyer check the Agreement before you sign it or to make it subject to your lawyer’s approval. Because, in practice, many people sign contracts to purchase homes before they consult a lawyer, here are some of the traps for the unwary:

 

Ÿ           Deposits

 

Ÿ                     There is no legal requirement as to the amount of a deposit. Certainly it shouldn’t exceed 10% and is often less. Under no circumstances should a deposit exceed 10% without legal advice.

 

Ÿ                     With many homes now being sold either by home owners unable to service their mortgages, it is possible that the sale price will be insufficient to clear the mortgage debt.  In that case the mortgagee may decline to discharge its mortgage thereby preventing the sale from proceeding. By the time that is discovered however the deposit may have gone – the Agents have deducted their commission and paid the balance to the vendor. Retrieving it from a usually insolvent vendor will prove difficult, if not impossible.

 

Ÿ           Signatures

 

Many homes are now owned by Family Trusts. Most Family Trusts have at least one independent Trustee who is not one of the occupiers of the home. An Agreement to sell a house signed only by the two Trustees who occupy the home, without the signature of the third independent Trustee, is unenforceable – unless that third Trustee subsequently confirms, in writing, his or her agreement to the sale. This may allow a Vendor, who have already signed the Agreement, to cancel the contract if, in the meantime, a better offer has been received.

 

Ÿ     Builder’s Report Clauses

 

It is advisable to either have a home checked by a suitably qualified building surveyor prior to making an offer, or, more commonly, to make the offer subject to obtaining a satisfactory Builder’s Report. From a Purchaser’s perspective the most suitable form for such a clause is simply to make the offer “subject to the Purchasers being entirely satisfied with a Builder’s Report on the property within five (5) working days of the date of the Agreement”.  If defects in the property are revealed in a Builder’s Report, the clause enables the Purchaser either to cancel the contract or negotiate with the Vendor for the necessary remedial work to be carried out. The Purchaser can enter into such negotiations knowing that if there is no satisfactory outcome the contract can be cancelled at the Purchaser’s entire discretion. However, some Real Estate Agents word the Builder’s Report clauses in a way which requires the Purchaser to disclose the contents of the Builder’s Report to the Vendors enabling them to consider whether they are willing to remedy the defects.  Such clauses create legal difficulties in interpretation and subsequent enforcement, and create the potential for a dispute.  We do not recommend them.

 

Ÿ     Leaky Homes and Code Compliance Certificates

 

It is important to know that the fact that a house has a Code Compliance Certificate issued by the local authority does not give any assurance that it is not a “leaky home”. The weather-tightness of a home, especially one built in the 1990’s and early 2000’s should always be checked by a suitably qualified building surveyor regardless of whether a CCC has been issued. 

 

That is not to say that Code Compliance Certificates are unimportant and any house built since 1992 must have a Code Compliance Certificate.  There is a provision in the General Terms of the standard Agreement form which stipulates that if the Vendor  has built the house or had it built or had any building work done on the house, then the Vendor warrants that a Building Consent was obtained for the work and a Code Compliance Certificate was issued on its completion.  However there are two limitations on this obligation:

 

(a)          It is limited to the actual Vendor – so that if building work was carried out by or for a previous owner the warranty doesn’t apply; and

(b)          It is a warranty only which does not therefore permit the Purchasers to refuse to settle.  The Purchasers must proceed to settle the purchase and rely on their right to damages for any costs incurred in obtaining a Code Compliance Certificate for the property. 

It is therefore advisable to ask your building surveyor, in preparing the builder’s report, to check and advise whether a Building Consent/Code Compliance Certificate was issued for the dwelling and/or for any building work undertaken post 1992.

Ÿ     Vendor Escape Clauses

Where an offer is subject to the Purchasers selling their own existing home, Vendors will often want a clause which will allow them to accept another offer for the property, subject to them giving the first buyer notice (usually 3 working days) to either go unconditional or to cancel.  That can create a serious problem for the first buyer in the following situation:

Ÿ                  A agrees to sell a house to B – escape clause in contract.

Ÿ                  B signs a contract to sell his house to C subject to C arranging finance/builder’s report within 10 working day.

Ÿ                  A gets another offer and gives B 3 working days notice.

Ÿ                  C hasn’t confirmed satisfaction of conditions (finance and builder’s report) within that 3 day working period so;

Ÿ                  A cancels agreement with B.

Ÿ                  C subsequently satisfies conditions within his 10 working day period and confirms contract buy B’s house.

Ÿ                  Result – B has sold his house but has nowhere to go!

The risk of this happening can be overcome with a carefully drafted Agreement for which legal advice should be sought.

 

Peter McLeod