Property buyers will now have to prove that they've had finance denied to pull out of a deal. Photo / File
Property buyers will now have to prove that they've had finance denied to pull out of a deal. Photo / File
People who want to withdraw from a housing deal due to being declined finance will from the end of this week have to prove they are unable to get the money.
Bindi Norwell, Real Estate Institute chief executive, said the latest or 10th edition of the REINZ/ADLS Agreement for Saleand Purchase had a new clause for consumers withdrawing from a purchase offer.
That becomes effective on Friday.
Now, if a finance condition is inserted but money can't be obtained, people's word is generally enough for them to pull out of a contract.
But under the changes effective from December 6, buyers must provide evidence, she said, citing a letter or email from the bank.
"This is a significant change to the sale and purchase agreement and it's imperative that consumers understand the implications as if they can't provide evidence they can't raise the finance, they could be forced to proceed with the purchase or face other legal action by the vendor," Norwell said.
"It's also essential that anyone looking to purchase a property takes legal advice and talks to their financial provider so that they understand exactly what they're signing or else the implications are pretty significant," she said.
Joanna Pidgeon, a partner at Pidgeon Law, said case law established that if a specific lender wasn't stipulated, you would also need to try to seek vendor finance if other avenues had proved fruitless.
Joanna Pidgeon of Pidgeon Law. Photo / file
"In the past, if a vendor suspected that a purchaser hadn't done all reasonable things to obtain finance, an allegation might have been made that the purchaser had breached that obligation and a request made to provide evidence of the steps which they had taken," she said.
"If the information was not forthcoming, a vendor would need to make a call on whether they wanted to pursue a possible breach of the clause - which could be risky - and during discovery, the evidential burden would shift to the purchaser to prove that they had taken reasonable steps."
That had led to some buyers taking a punt and using a finance clause as almost an option to purchase, expecting that a vendor might not file legal proceedings.
But the new clause removed the reference to a particular lender. It now requires a purchaser to provide evidence, if required by the vendor, that they had taken reasonable steps to obtain finance on satisfactory terms, she said.
"This is giving teeth to the pre-existing requirement to take reasonable steps," Pidgeon said.
The institute said other changes also coming in on Friday are an optional toxicology report condition, a new process to resolve compensation if there are disputes between vendors and purchasers and fixtures and chattels have been removed and replaced with new definitions and warranties.
GST clauses have been revised, the timeframe for deposits being released has been clarified, references to fax machines are removed, tenancy documents must now be provided by the vendor on the settlement date and various other changes to language and formatting have been made.
The Auckland District Law Society said last month significant amendments reflected suggestions of practitioners and changes to the law in terms of legislation and judgment.
A seminar was held on November 27 where barrister Tim Jones, sole practitioner Peter Nolan and Deloitte's indirect tax national leader Allan Bullot spoke.
"The 10th edition is the result of a comprehensive review by a number of leading property lawyers working in conjunction with Peter Nolan in his capacity as an adviser to the subcommittee and principal drafter of the revisions," the society said.
