Each week, national law firm Simpson Grierson answers commercial property questions, which can be emailed and headed "Prime asset question". This week's question is answered by senior associate Daniel Kelleher who can be contacted at daniel.kelleher@simpsongrierson.com.
Q. I run a property management firm and deal with a lot of clients who are involved in buying and selling commercial properties. I read your article on the new "plain English" Real Estate Institute of New Zealand (REINZ) sale and purchase form. You mentioned that the form was split into two sections, one with the particulars of sale and the other with standard clauses. I have heard that the standard clauses won't be in the contract to be signed. Is that true?
A. You are correct that the new REINZ form is split into two parts, Part A and Part B. Part A has essential information about the property, parties and price as well as common conditions such as LIM and finance. Part B contains the standard clauses, such as how the conditions work, settlement requirements, damage to the property, etc.
As you have heard, Part B may not be part of the document that you sign. Under the REINZ agreement, physically connecting Part B to Part A is not necessary.
It is designed so that you sign Part A and get a copy of Part B at that time, but the two parts are not joined. Some people have asked whether that means people will not be bound by Part B.
A contract does not have to be in one document, but can be made up of a number of documents. In simple terms, for two documents to form a contract, one document must be signed, that document must contain some reference to the other document, and there must be a sufficiently complete contract formed by reading the two documents together.
Having a contract that consists of a number of documents is not uncommon. When you buy a bus ticket, you are likely to be bound by the terms and conditions that are listed on the timetable, or the company's website.
In the case of the REINZ form, when you sign Part A you agree that you are buying the property according to both Part A and Part B of the agreement. Parts A and B read together forms a complete contract. Therefore, despite Part B not appearing in the document that you sign, it will form part of your contract.
When signing Part A you agree that you have been given a copy of the standard clauses or the standard clauses are attached to the agreement. Also, if more than one person must sign the agreement, both parties are treated as having received a copy of section B when one of them receives it.
There has been some discussion surrounding how real estate agents will "give" you a copy of the standard clauses. It has been suggested that the agent may only refer you to the link to Part B on the REINZ website. This might cause problems where there have been amendments to the standard clauses between the time you read them and when the contract is signed.
The problem with not having Part B in the document you sign, and having to take trouble to get it, is that you may not read the terms and conditions before you sign the agreement. Trustees signing agreements may also face the problem of being deemed to have received a copy of section B, when have never received it.
The issue then becomes, will you be bound by terms and conditions that you have not read? You generally won't be bound by unusually onerous, unexpected or especially far-reaching terms or conditions without your attention being specifically drawn to the term or condition.
The REINZ form does contain some terms and conditions that are significantly different from those in the Agreement for the Sale & Purchase of Real Estate form provided by the Auckland District Law Society Inc (ADLS), and these could arguably be unusually onerous, unexpected, or especially far-reaching.
However, this argument is unlikely to be successful.
In Part A, the statement saying you have received a copy of Part B, and you agree that you are bound by both Part A and Part B, is directly above where you sign.
If your clients choose to use the REINZ form, you should recommend that they get a copy of the Part B standard clauses, and familiarise themselves with its contents.
The information contained in Prime Assets is intended to provide general information in summary form current at the time of printing. The contents do not constitute legal advice and should not be relied on as such. Specialist advice should be sought in particular matters.
