Property Problems: New sales form could have ended house dea

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 and associate Man Sum Chiu, who can be contacted at daniel.kelleher@simpsongrierson.com and mansum.chiu@simpsongrierson.com

Q. Recently I sold my house and bought a new one at the same time. The settlement date was the same for both the sale of my old house and the purchase of my new house. This is because I needed the money from the sale of my old house to be able to buy my new house. Ten days before the settlement date, the separate garage at my old house burned down and could not be rebuilt in time for the settlement date. But it was rebuilt quite a few weeks after the settlement date. There was some delay in the rebuilding because a building consent from the council was needed. It was a very stressful time because the money I received from the sale was reduced by the lowered value of the property and I needed all the money from the sale of my old house to buy my new house. Fortunately my insurance company agreed to pay the difference between the original sale price and the money my buyer paid on settlement. However, I had to arrange for a short-term overdraft to cover the difference and the uncertainty over the insurance payout made life difficult for a while.

I phoned my lawyer to tell her that I was planning to sell one of my investment properties. My lawyer said not to sign anything until I had discussed it with her because of differences in real estate forms. I have since read in the media that the new agreement for sale and purchase of real estate form created by the Real Estate Institute of New Zealand (REINZ) is basically the same as the Auckland District Law Society (ADLS) standard form. If the Real Estate Institute's form and the Auckland District Law Society standard form are basically the same, why did my lawyer tell me that I should not sign immediately?

A. The Auckland District Law Society's agreement for sale and purchase form and the Real Estate Institute's agreement for sale and purchase of real estate are not "basically the same". There are a number of differences between the two.

As an example, the situation that you described could have ended differently if you sold your old house on the REINZ form. This is because under the ADLS form, the buyer has to complete settlement at the purchase price less a sum equal to the amount of the reduction in the value of the property if the property is "not untenantable". Damage to a stand-alone garage without any damage to the house would not make the property "untenantable" as the buyer can still live in the house and park his or her car outside.

However, under the REINZ form, the agreement will end if any part of the property is damaged and the damage is serious. The form provides that the damage is serious if an estimated cost of repair is 5 per cent or more of the purchase price (up to a maximum of $200,000) or if a building consent is required from the council for repairing the damage. In your situation, rebuilding the stand-alone garage required a building consent and therefore the damage would be classified as "serious" under the REINZ form. If you had sold your old house under the REINZ form, the buyer could have chosen to end the agreement. You would then have been in a situation where you would not receive money from the sale of your old house to complete settlement for your new house and at the same time would have been obliged to complete settlement for your new house.

It is possible under the REINZ form for the buyer to continue with the purchase of your old house even if the damage is serious. In that situation, the buyer would have to pay the full purchase price on settlement and you would have to pay the buyer the sum you receive from your insurance company for the damage. Your risk as the seller would have been that the buyer decided to end the agreement.

Under the ADLS form, the buyer would not have the option to end the agreement and would have had to proceed with settlement.

The information contained in Commercial Property 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.