The Agreement for Sale and Purchase of Real Estate published by The Law Association (formerly ADLS/REINZ) (the Agreement) remains the standard contractual framework for property transactions in New Zealand.

One of the key features of the Agreement is the vendor warranties—contractual promises given by the vendor to the purchaser about the state of the property, both at the date of the Agreement and (in some cases) at settlement of the sale.

The principle of caveat emptor (buyer beware) is a basic rule which applies to Agreements for Sale and Purchase. This means that a purchaser is generally responsible for undertaking their own due diligence investigations into the property.

However, the vendor warranties within the Agreement significantly qualify the traditional “buyer beware” principle by shifting risk to the vendor for specific matters covered by the warranties.  It is therefore that vendors are aware of their disclosure obligations under the vendor warranty clauses.

The nature and timing of vendor warranties 

Vendor warranties operate as statements of fact or assurances about the property. They typically apply at the date of the Agreement and at settlement (or immediately before).

If a warranty is incorrect, the purchaser may seek compensation or sue in damages, even after settlement. Warranties are not limited to matters within the vendor’s actual intention to mislead— even inadvertent non-disclosure can amount to breach.

Core vendor warranties in the ADLS Agreement 

1. No undisclosed notices or requisitions
   Vendors are required to disclose, in writing, any notice, demand, requisition or outstanding requirement from a council, tenant or other party affecting the property, plus any consent or waiver the vendor has given. The courts have read “notice” relatively narrowly to date, stating that the notice must be directive — something requiring action to be taken or avoided.

However, the safest course of action for vendors is to disclose any notices that have been received from authorities, neighbours, tenants or other parties that relate to the property so that the purchaser has a full picture at the outset.

2. No knowledge of potential proceedings
   The vendor warrants that at the date of the Agreement, the vendor has no knowledge of any fact that might give rise to legal proceedings relating to the property. This warranty can be viewed as a real exception to “buyer beware” as this warranty is focused on the vendor’s knowledge of any fact relating to the property which could give rise to a dispute or legal proceedings in the future.

In practice this places a significant onus on the vendor. The safe course is for vendors to disclose anything that they are aware of, including known building defects, that could spark a dispute or a claim to reduce the risk of a claim being made against the vendor by the purchaser for breach of this warranty.

3. Building work compliance
   The vendor warrants that where the vendor has carried out any works to the property which required building or resource consents, such consents were obtained, the works comply with those consents and Code Compliance Certificates have been issued, where required. This warranty only extends to work carried out by the vendor. If a vendor has undertaken any works without consent or where it is unclear whether consents were necessary, the best course of action is to disclose this to purchasers at the outset.
4. Chattels – ownership, condition and encumbrances
   The vendor warrants that the chattels listed in the Agreement are owned by the vendor, free of charge and will be delivered to the purchaser in reasonable working order at settlement. This includes the requirement for all equipment, systems and devices, such as security, heating and air conditioning to be delivered to the purchaser in their state of repair as at the date the contract was signed (except for fair wear & tear).
5. No undisclosed encumbrances or third-party rights 
   The vendor warrants that the property will pass unencumbered and is not subject to undisclosed third-party rights. If there are any unregistered leases, informal occupation rights, or undisclosed interests, these should be disclosed.
6. 6. Rates, charges and outgoings
   The vendor warrants that all rates and charges will be paid up to settlement. Your solicitor will be required to provide an undertaking that rates are paid to settlement and will have to use sale proceeds to ensure that all outstanding rates or charges are met on settlement.
7. Unit Titles

There are additional warranties and legal obligations on vendors when selling unit title properties and so extra caution is required.

Practical disclosure principles 

The safest approach is full and frank disclosure of any matter that could fall within a warranty. Vendors should disclose anything affecting the property, ensure disclosure is recorded in writing, and amend warranties where necessary. A purchaser’s due diligence does not automatically relieve a vendor from liability for breach unless the purchaser has actual knowledge of the issue.

When selling your property, it is important to take legal advice before you sign, particularly if you are unsure about what you should be disclosing about your property. If you have any questions or concerns, contact Emma Jackson, Principal ([email protected]/03 925 7952), or any member of our property team.