Updates to the ADLS Agreement – important for buyers and sellers
On 8 February 2022 the Auckland District Law Society (ADLS) released an updated version of the Agreement for Sale and Purchase of Real Estate. This is the most- used agreement when buying or selling property. The new version incorporates several changes that are important for people buying and selling property, along with some superficial amendments to accommodate the nuts and bolts for lawyers handling the transaction.
The process for claiming compensation for a breach of the contract by one party or for a defect in the property has been clarified in clauses 10 and 11 of the agreement. One fundamental difference is that the new agreement limits parties to only one claim for compensation under clause 10. A party might use this clause to claim compensation for services in the property that don’t work or for loss suffered by that party as a result of a misrepresentation by the other party or their real estate agent. Despite parties being limited to one claim, the claim can include more than one element set out in clause 10.2 so vendors and purchasers can still be fully compensated where multiple breaches occur.
Another change to note is where parties are transferring residential property for a purchase price exceeding $7.5 million or commercial property for a purchase price of more than $1 million. In each of these two situations, for tax purposes, parties will need to agree on the value of land and buildings that make up the purchase price as well as the value of any other assets, fixtures, fittings or chattels sold with the property. These should be included as an addendum to the agreement.
Getting legal advice regarding the full terms and conditions of the agreement is always essential, particularly in light of these changes to the ADLS agreement. If you’re buying and/or selling property, talking with us early on should be your first step.
Building in the Covid landscape
The steady rise of house prices in recent years has prompted many people to consider building a house as a much more viable and affordable option than it has been in the past. Covid and its pervasive disruption of everyday life, however, has brought up a range of new issues that prospective home builders should be aware of before considering a build.
Fixed-price contracts have become a thing of the past with builders now being unable to guarantee the price of materials due to their scarcity and long delivery times. Buyers should look out for clauses in building contracts that allow the builder to increase the price where materials, labour or services become more expensive than at the time the contract was signed.
Similarly, due to the difficulty builders have getting materials and labour, completion dates are often much further out than people have come to expect. Like the price escalation-type clauses referred to above, builders will often now include an ability to extend the contract completion date due to delays in obtaining materials or labour to complete the build in the time prescribed in the contract.
With these issues in mind, it is important that you get advice regarding your building contract before you sign it. Make sure you have a good handle on your budget and there is room for a potential increase in the contract price.
Harsh CCCFA provisions relaxed
The amendments to the Credit Contracts and Consumer Finance Act 2003 (CCCFA) that were introduced on 1 December 2021 have resulted in many borrowers struggling to gain lending approval for a property purchase.
The amendments include regulations requiring lenders to look more closely at the affordability of loans for lending applicants and the suitability of particular loan structures based on the financial position of their customers. This has prompted banks to delve into applicants’ spending habits and has resulted in an increase in rejected applications.
Other restrictions imposed on lenders include regulating the way banks and other lenders can advertise their products. Lenders are required to adhere to minimum standards that require lending advertisements to be clear to customers and not confusing. This places a higher threshold on lenders than the requirements not to mislead or deceive customers as required under the Fair Trading Act 1986.
Finally, greater restrictions have been placed on low equity lending meaning that banks are more limited in approving applications from borrowers with less than a 20% deposit.
The effect of these legislative changes has been detrimental to the ability of first home buyers to obtain lending to enter the property market; mortgage and business advisors have openly opposed or criticised these changes since their introduction.
This opposition, combined with the perhaps unintended difficulties that the changes have created for first home buyers, has prompted the government to review the changes on the basis that lenders’ enquiries under the legislation were too intrusive for customers.
The proposed amendments will no longer require lenders to take a deep dive into the spending habits of potential borrowers in order to assess future spending for applicants. A more comprehensive list of the changes to ease the December amendments can be read here.
Despite the challenges caused by the December amendments to the CCCFA, it appears that they are only temporary and that following the finalisation and enactment of the proposed easing measures, potential borrowers will be able to proceed without the invasive or unreasonable inquest that many have recently experienced.