Key Clauses in the ADLS/REINZ Agreement for Sale & Purchase of Real Estate

It is best for you to use this form when making an offer by negotiation or, if the sale is by way of an auction, ADLS/REINZ have produced a separate agreement for auctions (the Sixth Edition 2022 (2)). If you are attending an auction then we recommend that you refer to our article on purchasing a property at auction.

What is a Sale and Purchase Agreement?

A sale and purchase agreement is a legally binding agreement between you and the vendor (seller). It sets out all the details, terms and conditions of this offer/agreement, including the price, any chattels to be included or excluded, GST status (whether inclusive of GST or plus GST), interest rate for late settlement, settlement date, and any seller or purchaser conditions such as the agreement being conditional on the vendor's own purchase going unconditional.

Important Things to Know

Regardless of whether you purchase by price by negotiation or via auction, there are several important things you need to know. It is in your best interests to use the appropriate agreement and all parties need to sign and date the agreement once all terms have been agreed to. While it is best to use the latest version of the ADLS/REINZ Agreement for Sale and Purchase, an agreement to sell can still be binding if it is "evidenced" in writing even when this particular form isn't used.

You should always get legal advice before you sign the agreement and throughout the buying process. You can negotiate any of the conditions in a sale and purchase agreement, and the agreement becomes unconditional when all the conditions have been met. Before you sign, the agent must give you a copy of the Real Estate Authority of New Zealand Residential Property Sale and Purchase Agreement Guide. If it is a private sale and you are unsure how the negotiation process works, speak to your Legal Advisor.

Changes to the Front Page

The standard conditions at clause 9.0 now require you to record an exact date for the conditions to be satisfied. It is best to record an exact date rather than working days and ensure you consider any upcoming public holidays. We recommend that you consult your mortgage broker about how much time is required to have your finance application approved (usually 10-15 working days).

There is now the option for a toxicology report to be included as a condition and clause 9.5 applies to the operation of that condition.

Key Clauses Explained

Clause 1: Definitions of Wording

This clause is essentially definitions and explains the basic wording used in the agreement. For example item (4) clarifies what a working day is and includes clarification about the excluded days during the Christmas period when law firms close.

Clause 2: Payment of Deposit

Most people are unaware that it is not a legal requirement for a deposit to be paid on a property purchase. However, no sensible vendor would usually enter into an agreement without some sort of commitment from a purchaser. The vendor is usually unable to cancel the agreement for non-payment of the deposit unless they have first given at least three working days' notice to the purchaser of their intention to cancel the agreement.

Clause 3: Possession and Settlement

This clause addresses several important matters including the right for vacant possession if the property is not sold subject to a tenancy, and the right to a pre-settlement inspection which should occur a few working days prior to settlement. It also covers a further right to re-enter the property to check compliance by a vendor if valid issues were raised during the pre-settlement inspection, how expenses will be apportioned in the settlement statement, and the process if there are settlement delays where penalty interest can be charged.

Clause 5: Risk and Insurance

The property and chattels are at the risk of the vendor until possession is given and taken. The legal definition of possession is different than settlement. This clause also details what would happen if substantial damage occurred before possession was given and what your options would be.

Clause 6: Title, Boundaries and Requisitions

This clause allows the Legal Advisor acting for the purchaser to check the title within 10 working days (unless an amendment is made in the agreement) and provides them with a right to object to certain defects. For a valid claim, the interest registered on the title has to be defective and not simply "unfair or adverse".

Clauses 7 & 8: Vendor Warranties and Undertakings

Vendor warranties and undertakings are promises made by the vendor relating to the property. Generally, if any vendor undertakings or warranties are breached by the vendor, the purchaser is still obliged to settle the transaction.

Clause 9: Conditions and Mortgage Terms

This clause relates to the conditions on the front page of the agreement and sets out what happens when a purchaser wants to cancel the agreement. If you can't lawfully cancel a contract and you walk away, you risk losing any deposit that has been paid or being sued by the vendor. Conditions used from the front page of the agreement must be satisfied by 5pm on the due date.

Clause 11: Dealing with Defaults

This clause deals with defaults and some general provisions dealing with the agents' responsibilities, GST, sales information, Pandemic provisions etc. For most residential transactions, GST does not apply because residential property transactions are exempt for GST purposes.

Further Terms and Schedules

Signing the Agreement

The last party to sign the agreement (once any changes in the offer have been accepted by both parties) needs to also date the front page of the agreement. During the negotiation process, if conditions or terms are added or amended by agreement between all the parties, the acceptance should be shown by all parties initialing beside the addition/amendment. An agent or your legal adviser can guide you in this process.