The New Zealand Law Society has issued directives to property lawyers over what happens to property settlements during the Level 4 isolation period. While the society is still seeking clarification from the Government and the Registrar-General of Land as to whether property lawyers are providing an essential service, they expect that the vast majority of transactions due to settle over the next four weeks will most likely have barriers.
Most sellers will not be able to give vacant possession as moving companies are not essential services, clients may not have access to technology and lawyers are in self-isolation.
"In light of the newly declared national State of Emergency it seems clear that any property settlement that involves the physical movement of people is no longer an option," says Duncan Terris, chair of the PLS
The society's body that covers property law - the Property Law Section (PLS) - has recommended that Sale and Purchase or Auction Agreements are amended to defer settlement “to the 10th working day after the Government reduces the Covid-19 Level to Level 2 or below, or to such other date as may be mutually agreed".
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Importantly, the new clause clarifies that neither party shall have any claim against the other in relation to this deferral to avoid lengthy arguments and potential litigation - and that lawyers "be kind" in the spirit asked for by Prime Minister Jacinda Adern.
“And the same applies in our professional dealings during this unprecedented time,” says Terris.
OneRoof asked Terris and barrister Tim Jones to answer some of the most pressing concerns:
Q: What sort of penalties could there be if settlement is delayed?
Theoretically, any delay will lead to penalty on the buyer. But we’re hoping for tolerance if the settlement is put on hold, without a penalty. Back to back settlement may cause issues for both buyers and sellers as there's not only the exchange of title for money but also the property must be handed over to grant possession. For vacant or tenanted homes or commercial property, that won’t be an issue but if the vendor can’t move out nor the purchaser move in, the parties must agree that settlement can’t occur and must be delayed.
Q: Is there standard wording on the sale and purchase agreement?
The Real Estate Institute of New Zealand are recommending that the NZLS suggested clause be adopted for the settlement date in any Agreement signed during Level 4. A similar thing was done for the Christchurch earthquake, and collegiality and goodwill between parties led to the best outcomes for all concerned until normal business was able to resume.
Q: What will happen if there are delays to settling finances through banks?
Banking is still one of the essential services still operating, so lawyers acting for clients to draw down funds need to anticipate delays due to reduced staff and plan ahead. Otherwise there is no problem with payment of funds electronically between lawyers. But there could be issues getting documents back from clients in isolation with no access to printers and/or scanners.
If people can’t use emails or have access to witnesses for signatures, there are various ways to deal with this that the Law Society worked out with Registrar General of Land so the legal signing and witnessing can still take place.
Q: What happens when vendors and their agents are obliged to give full disclosure on a property but there are no building inspections and maybe limited access to council property reports/LIMs then who can find out what? Who carries liability?
Many things won’t be available in the lock down - building inspections, toxicology testing and most councils won’t be able to provide a LIM report. However, title searches are still available. The agent must tell the buyers what they can and can’t get and the buyer may choose to enter into the agreement without getting those sorts of reports, that’s the buyer’s decision.
But if agents fail to tell buyers about the limitations on LIMs or that they will be available “shortly” they mislead the buyer. Putting long condition dates for such due diligence provisions may be the best for the parties who want to hold the property. REINZ is encouraging agents to include a deferred settlement clause from now on in any new agreements.
Q: What happens if conditions include getting final council certificate of completion (CCC)?
It may be either cancelled by the buyer because the seller can’t get the CCC or the parties may come to a delaying compromise. A very confident buyer may want to settle without, but most lenders won’t advance the mortgage funds if there is no CCC and they won’t get insurance. It is also illegal to occupy a residential property that does not have its new CCC issued.
Q: If people want to pull out of existing contracts because they have now lost jobs or can't move cities or countries, what happens then?
If the buyer is refused the loan because of Covid – 19 issues and the contract was conditional on finance, they must be able to prove to the seller that they have genuinely had the loan declined. If they have had the loan approved but then the lender withdraws, the buyer may be able to argue that the failure is not of their making and argue a frustrated agreement. It all becomes pretty technical, a penalty may be threatened or even charged. But collecting a penalty will depend on the terms of the agreement and the circumstances of each case.
