Setting sale & purchase conditions

Time for a new home

Setting Sale and Purchase Agreement conditions

Buying a home means signing a lot of paperwork. One of the most important pieces is the Sale and Purchase Agreement. It’s a legally-binding contract between the seller (vendor) of a property and the purchaser (buyer).

A Sale and Purchase Agreement outlines the details, terms and conditions of your offer on a property. These include the obvious ones such as the property address, deposit and purchase price and the settlement date, but there is scope for you or the seller to add other conditions (also known as contingencies) to the agreement.

Below, we’ll look at some of the common conditions you can expect to find in a Sale and Purchase Agreement (or may want to include yourself), but before we do that, here are some important things to note:

Always get legal advice throughout the buying process and check the Sale and Purchase Agreement with a lawyer or conveyancer before you sign it. You need to understand exactly what you’re agreeing to and be comfortable with it.
A sale and purchase agreement becomes unconditional when all the conditions are met.
Critical contingencies to include are financing, home inspections, and the closing date and expenses.
The real estate agent helps you and the seller to include the conditions you both want. Although the agent works for the seller, they also have to deal fairly and honestly with the buyer. They can’t withhold information, and they must tell you about any known defects with the property.
Before you sign a Sale and Purchase Agreement, the real estate agent must give you a copy of the REA New Zealand Residential Property Sale and Purchase Agreement Guide.
If you make any changes to the Sale and Purchase Agreement, such as the price, all parties must agree to the change and the new final price must be stated.

Common conditions

1. Conditional on sale of purchaser’s property

Buyers who already own a property and want to sell it before completing on the purchase of a new one often add a contingency to the Sale and Purchase Agreement known stipulating that the offer is "conditional on the sale of the purchaser's property".

Your lawyer can help you with this, but be aware that the vendor is unlikely to let that extension stretch too far. They will want a set date for completion of the sale and if your property hasn’t yet sold by that date, they can cancel the agreement to sell their property to you.

2. Settlement periods

If you're selling and buying at the same time, try and arrange settlement dates to suit your timings.

A seller may ask for an extension rather than the standard 30-day extension to give them enough time to find and purchase a new home without having to find temporary housing.

As a buyer you might be able to negotiate with the seller that although you won’t settle the property until a certain date, you may be allowed access to it beforehand. This can be especially useful if you want to do renovations to the property. It will allow you to obtain quotes for the work before you take ownership so you can hit the ground running after settlement.

While negotiating settlement dates on listed properties is easier, you can still request a change in settlement terms before an auction. If the owner agrees to this variation, you must obtain it in writing prior to the auction.

3. The ‘’sunset’’ clause

If you're considering buying an off-the-plan property, make sure your pre-sale agreement has a "sunset" clause. This clause allows contracts to be invalidated if a property development is not completed by a specific date and will prevent you being trapped in a contract.

Unfortunately, increased material and building expenses has led some developers to use the sunset clause for their own benefit. There are instances of developers who‘ve missed their completion deadlines invoking the sunset clause to reprioritise properties to absorb these additional costs, then asking off-the-plan buyers to make up the difference.

In those instances, buyers have been offered the option of either accepting the increased price of the property or having their contracts annulled.

Note: Under a sunset clause, most (but not all) pre-sale agreements will mention if the buyer's deposit is refundable.
Always seek legal advice. Before you buy an off-the-plan property, talk to your lawyer about the risks, get their approval of your pre-sale agreement, and do your homework on the development business.

4. The Cash Out Clause

The cash out clause, often known as the ‘escape clause’, allows a seller to cancel a Sale and Purchase Agreement if they get a better offer. This doesn’t apply to auctions, only listed properties.

A better offer may not always be a higher sale price. A seller could use it to switch to a buyer who can offer a quicker settlement if they’re tired of waiting for a buyer to sell their home.

After the cash out clause is activated, the buyer has a few days to declare their offer is unconditional or the contract will be terminated. The seller is then free to complete a Sale and Purchase Agreement with their backup buyer.

Points to note:

As a buyer:

If a cash out clause is invoked, don’t panic and change your offer to unconditional before you’re ready to. Try and speed up the due diligence process, but don’t be pressured into forgoing it.

As a seller:

In a slow market, this clause can make your property less appealing to buyers.
Be careful not to sell your house twice.