Are you selling a property? Beware of vendor warranties!

If you are selling a property (residential, commercial, or rural) it is likely that your sale contract will contain "standard" warranties given by the seller to the buyer.

In New Zealand, most property sales are on the "ADLS" (Auckland District Law Society) agreement, a well-known form of contract which can be modified to reflect your particular circumstances. Given that for most New Zealanders, their properties are their most significant assets, it makes sense to be careful when signing contracts to buy or sell property.

The warranties contained in the ADLS agreement are often overlooked, but this will prove costly for a seller if it later transpires that any of the warranties have been breached.

There are a number of warranties contained in the agreement to be given by a seller, such warranties to be given as at the date of the agreement, the date of possession, and the date of settlement.

For example, in the ADLS agreement the seller warrants that as at the date of the agreement the seller has not received any notice or demand or requisition from any local or government authority or other statutory body which directly or indirectly affects the property and which has not been disclosed in writing to the buyer. This is potentially quite broad, and covers things like notices from the local or regional council, which must be disclosed to the buyer in writing.

Further, the seller warrants that at settlement the chattels, and any plant which services the property (stove, fridge, dishwasher, heat pumps, air-conditioning, alarm systems etc) are owned by the seller and are delivered to the buyer in reasonable working order, but in all other respects in their state of repair as at the date of the agreement. The seller also warrants that no electrical installations are subject to finance charges. From a practical perspective, if you are planning to sell your property, these matters should be fairly simple to put in order before you list the property.

Significantly, the seller warrants that where the seller has carried out any work to the property requiring a permit, resource consent or building consent then such a permit or consent was indeed obtained, and where appropriate a code compliance certificate was obtained. This warranty has proved somewhat problematic over recent years for some sellers in Canterbury, where earthquake repairs (and upgrades to properties) have been carried out without proper consents having been obtained.

If your property is a cross lease or unit title property, there may also have been additional consents needed - we suggest you talk to us as each situation is different and it is usually best to deal with any issues early on, before they come up during the buyer's due diligence period (or, possibly worse, at or after settlement).

The seller warrants that all rates and water rates are up to date, and that (where applicable) all buildings on the property have a current warrant of fitness.

The agreement also contains further warranties (in addition to those set out above) and our advice is that you read through all of the warranties very carefully before finalising your sale agreement. If any warranties are breached, the buyer can seek compensation or equitable set off in an amount equal to the cost of remedying the breach of warranty. Depending on the nature of the warranty that has been breached, this may be a significant sum of money.

We always advise our clients (whether buying or selling property) to speak with us before signing any agreement - we have significant experience in this area and we can advise you on strategy and also draft appropriate wording to protect you (and ultimately save you time, stress and money).

If you are selling a property, please do not hesitate to contact Sarah Manning, Principal (DDI 03 343 8456 / sarahm@mmlaw.co.nz).