Understanding the sale and purchase agreement

Understanding the sale and purchase agreement

The sale and purchase agreement (SAPA) is what forms the backbone of any residential property transaction. It is a legally binding contract between you and the vendor, and outlines essential information about both parties as well as about the property itself as well as actions that have to be taken before settlement can occur. If you’re looking at buying your first home, then it’s important to have a grasp of the basics when it comes to a SAPA.

What goes into a sale and purchase agreement?

Your SAPA should contain a number of important details about your first home purchase, both pertaining to you as well as the vendor. The agreement includes the basics such as the names of the parties involved in the transaction, the price of the transaction, and also whether or not the home comes with extras.

When it comes to extras that might be included with the first home that you’re buying, you’re going to want to check the chattels list in your SAPA. Chattels is an umbrella term for anything that is not fixed to the property, and that can be taken away without damaging the integrity of the home.

Common examples of chattels that you may encounter while in the process of buying a property include:

- Carpets

- Kitchen stoves

- Light fixtures

- Heater towel rails

- Bathtubs

Crucially, there will be details in the agreement for sale and purchase about the deposit, your settlement date (when you front up the rest of the price for your home), and what sort of property your future home is (freehold, leasehold).

The obligations that you have as a buyer will be to ensure that any conditions regarding the deposit and settlement are met promptly, as failure to do so may allow the seller to terminate the SAPA after giving you sufficient notice. You will not have to worry about clauses in the SAPA relating to commissions for real estate agents - those are the seller’s responsibility.

Basic sale and purchase agreement conditions

Last but not least, any SAPA worth its salt will contain information about the vendor's legal obligations to you, the purchaser, and vice versa. It will also outline specific conditions that both parties have to agree to during the course of the property transaction.

Examples of some of those obligations and conditions include:

- What happens if the vendor defaults on any part of the agreement

- What happens if you default on any part of the agreement

- Your rights as the purchaser before settlement

- The process in the event that settlement doesn't take place on time

To get an idea of what a SAPA should look like, check out this template from the Auckland District Law Society - most law firms use this template when conducting residential property transactions as it has been approved by the Real Estate Institute of New Zealand (REINZ).

Who draws up the sale and purchase agreement?

SAPAs are drawn up by lawyers or conveyancers, as the agreement is a legally binding document between all parties. Most law firms will use the standard template that has been approved by REINZ, but there are custom agreements out there that have been created in-house. It is important to ensure that your SAPA is approved and reviewed by the legal professional assisting you with your first home purchase, as they are best poised to advise you on whether or not the agreement appropriately protects your legal rights and interests as a purchaser.

Common conditions in the SAPA

Even though there can be variation amongst the specific wording that gets used in SAPAs across the country, there are conditions that appear in pretty much every iteration of these agreements except in unusual circumstances.

Here are some common terms and conditions in a SAPA that can give you additional protections as a purchaser:

- Sunset clause - sets a date that your offer for the property expires, allowing you to make offers on other properties if this one isn't accepted by the vendor

- Building report - makes the SAPA conditional on a satisfactory report about its condition being prepared by a property inspector

- Toxicology report - if you're concerned about the house being contaminated by something like meth, you could have a condition in it allowing you to back out if toxic substances are detected

- Finance condition - unsure about whether you'll be able to get a loan from your bank? It's sensible to make the purchase conditional on you being able to arrange payment

- LIM report - makes the SAPA conditional on you obtaining a Land Information Memorandum report from the local council about the property’s rates, permits, and more

With Covid-19 still affecting the country, it may also be prudent to include a condition in the agreement which lets you vary the settlement process in the event that you are unable to complete the purchase of your home on settlement day because of a change in alert levels or similar.

If you have specific concerns around home loans, alternative financing, moving-in dates or even the chattels that may be included with the property then please advise your lawyer or conveyancer. They will be able to amend the base SAPA template that they use at their firm to better address those concerns. No two SAPAs are alike - you need to make sure that yours adequately protects your rights as a buyer looking for their first home.

What happens after you sign the SAPA?

After you sign the agreement and the vendor has signed it as well, it starts the clock on your purchase of the property.

Once the SAPA has been signed by both parties, the next step is usually to pay the deposit according to the conditions in the agreement. These conditions could include things like a property inspection, repairs having to be completed, or even the provision of chattels like whiteware. It is the vendor's job and your job to ensure that all other conditions are met in order for settlement to go ahead.

After all the conditions in the SAPA have been met and ticked off the list, the agreement becomes unconditional and you're both locked into completing the transaction. Congratulations - you have the go-ahead to look forward to a settlement date.

Before you sign the agreement, we recommend that you have it reviewed by a legal professional and that you obtain adequate legal advice. As a purchaser, it is in your best interests to give yourself ample time to go over the agreement for any property that you are wanting to buy. While you can review a SAPA yourself, you don't want to miss anything important, especially when you're purchasing your first home.

Have other burning questions about the process of acquiring your first home or about the basics of home ownership? Check out our first home buyers hub, with advice on everything from LIM reports to mortgages.