Each week, national law firm Simpson Grierson answers commercial property questions which can be emailed and headed "commercial property 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 real estate agency specialising in the sale of small commercial properties like shops and office units, and some residential property. For as long as I can remember, we have used the form for the Sale and Purchase of Real Estate jointly produced by the Auckland District Law Society (ADLS) and the Real Estate Institute of New Zealand (REINZ). The only time we have not used this form is when we have sold a property by way of auction or tender. In those cases we have used documents that we have used for a number of years and which were drafted for us by a lawyer ... I have been advised that REINZ is now producing its own form for the use of real estate agents which will result in agents having to choose which form they will use. Can you advise what advantages the new REINZ form could have over the long-established ADLS Agreement for Sales & Purchase or vice-versa?
A. You are correct that REINZ has started producing its own form for the sale and purchase of real estate. As far as we are aware, this form is now available for use. If not, it will be so within the next few weeks. We already have some other questions on the detail of the REINZ form, which will be answered in the coming weeks, but your question is a good way of introducing the form.
The REINZ form consists of two sections. Section A is fairly short and includes the particulars of sale (eg names of the parties, address and any conditions that apply to the sale) and Section B incorporates the standard clauses applying to all sales. Section A will change depending on whether you are selling in the normal manner or by auction or tender.
This means that you will simply use a different Section A depending on what sort of transaction you are undertaking. This would reduce your need to have different forms as the standard conditions will never change and hopefully bring some consistency to the forms that you use.
The REINZ form has been written in "plain English". The plain English approach aims to produce documents that are clear, concise, well structured, and appropriate to the reader. Layout is a key part of a plain English approach.
This is one area where commentators have already suggested issues with the REINZ form.
One is that the process of simplifying language has meant important legal concepts may not be worded correctly or in a way that lawyers, in particular, can easily interpret. We do not have enough room to go into this argument in any detail, but will do so in upcoming articles, as it is a valid concern.
What cannot be disputed is that this plain English goal is a worthy objective.
Buying and selling homes is one of the largest financial decisions that New Zealanders undertake during their lives. It is imperative they can read and understand the contract that carries out this transaction.
Anyone reading the REINZ form would concede that it is very easy to read. One of the criticisms of the ADLS form is that it is written in a style that is very difficult for the lay person to read.
A more relevant criticism of the REINZ form flows from this change in language. The issue for some commentators is that the wording of the ADLS form has been the subject of extensive court cases over the years. This means that people understand how the ADLS form operates and the critics go on to state that transactions are made simpler and more cost-effective as a result.
The final part of this criticism is that, with entirely new wording, there will be less certainty about how clauses will operate and, as a result, transactions costs may be higher. Obviously that is not a commercial result that anyone wants.
The counter to these criticisms is that with good clear language, the chances of dispute or litigation is, in fact, lessened.
It is difficult to provide you with a comprehensive answer to your question. At this very early stage there is much to recommend the REINZ form. Clear precise language should be a goal of everyone involved in commercial transactions, provided the legal concepts in the contract do not suffer as a result.
As indicated above, we will examine the REINZ form in much greater detail in the weeks to come. This may help you identify areas that could be of concern to you or your vendor clients.
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.
