Sale and purchase agreement guidance
This section provides guidance that covers some of the most common topics surrounding sale and purchase agreements to assist you in meeting your obligations under the Act and the Rules.
Topics covered on this page
Writing up sale and purchase agreements
If you’re adding clauses to the sale and purchase agreement for either a vendor or buyer, make sure the clauses are clear and legible. If you are unsure how to write up a certain condition, refer the buyer or vendor to their lawyer, or seek advice from your manager or agency lawyer.
You should have clear instructions from the vendor about what is to be included in the list of chattels. If the vendor is planning to remove something that the buyer might consider a fixture (for example, the waste disposal unit or dishwasher), make sure this is clearly recorded in the sale and purchase agreement.
Section 132 of the Real Estate Agents Act 2008 requires you to make sure that when a party has signed the sale and purchase agreement, an accurate copy of the agreement is given to them as soon as practicable.
Making changes to the sale and purchase agreement
If any party makes changes to the agreement, for example, a change to the settlement date, this must be recorded on the sale and purchase agreement and initialled by all parties.
Initialling any change on a sale and purchase agreement is considered best practice. It indicates that each party has noted the change and accepted it.
You are not expected to be a GST or tax expert. We suggest you recommend that vendors and potential buyers seek their own expert taxation advice due to the complex tax issues which can arise with the sale and purchase of a property or business. This should be done before the parties sign the sale and purchase agreement.
Problems can arise when either party is not GST registered, when the parties have different GST registration status, or when there is an extended settlement date. Parties should seek their own specialist advice if they are unsure about whether GST is payable. You may wish to document that you have recommended the parties seek their own expert advice.
Some of the standard Agreement for Sale and Purchase templates contain specific warranties with regards to GST, zero-rating and the supply of a going concern. You must allow the parties a reasonable opportunity to obtain such advice.
For more information on GST visit the IRD website.
Signing the agreement
It is important to make sure the agreement is signed by all the parties who need to sign it. If a party is a trust or company, make sure that all the trustees or directors of the company have signed the agreement, or they have the authority to sign on behalf of another.
You will need to have the relevant legal document of authority, for example, a power of attorney. If it is marital property, ensure all parties on the title have signed.
Under the AML/CFT Act 2018, you must make sure that the parties signing the agreement are in fact who they say they are.
Read more about AML on the Department of Internal Affairs website.
Using electronic signatures
REA’s view is that it is acceptable for you to obtain a person’s signature to a contract and other documentation electronically. The legislation that governs the use of electronic signatures in New Zealand is the Electronic Transactions Act 2002 (the ETA).
Section 22 of the ETA says that a legal requirement for a signature, other than a witness signature, is met by means of an electronic signature.
Section 24 of the ETA says that an electronic signature is presumed to be reliable if certain factors are present. These factors are specified in subsection 24(1):
a) the means of creating the electronic signature is linked to the signatory and to no other person;
b) the means of creating the electronic signature was under the control of the signatory and of no other person;
c) any alteration to the electronic signature made after the time of signing is detectable; and
d) where the purpose of the legal requirement for a signature is to provide assurance as to the integrity of the information to which it relates, any alteration made to that information after the time of signing is detectable.
The above list is not exhaustive, and a person can prove an electronic signature is reliable or otherwise on other grounds (section 24(2)).
It is your responsibility to have IT solutions in place to ensure that the reliability of the electronic signatures can be demonstrated. If these aren’t in place, any contracts signed electronically could be challenged. REA recommends your legal advisor reviews your IT solutions for compliance.
Contracts that are signed electronically must still meet all other relevant requirements. You must, for example, provide the approved guides as required and recommend that advice is taken before signing any contractual documents (and give the opportunity for that to occur), as required by the Real Estate Agents Act 2008 and the Regulations and Rules made under the ETA.
Cash-out (or 'escape') clauses
A cash-out clause — also known as an 'escape clause', is generally inserted at the request of the vendor. The clause allows them the opportunity to consider other offers which may be more favourable while they wait for a condition to be met on an existing offer.
It is important for vendors to understand what a cash-out clause means. It does not provide them with the opportunity to cancel the first sale and purchase agreement immediately if they get a better offer or if the back-up offer is cash unconditional. You should make sure the new buyer and the vendor understand that the original purchaser still has the chance to declare their agreement unconditional. If that happens, the first (existing) agreement will be moved to settlement and the second buyer misses out.
REA does not prescribe how cash-out clauses should be drafted but care must be taken to ensure that the vendor is not placed at risk of being in a binding agreement with two sets of buyers. The back-up offer should reflect that it is a back-up offer and is dependent on the existing offer coming to an end.
If the vendors obtain a backup offer, you must consider your duty to act in the best interests of the client. This means you are not obligated to tell the buyer with an existing offer in place about the backup offer. This is because it could disadvantage the client.
Holding and releasing deposits
Section 123 of the Real Estate Agents Act requires all licensees who receive any money in respect of a transaction to hold that money for 10-working days after the day on which they receive it. This applies for all transactions, including the grant, renegotiation, or renewal of a commercial lease. It also applies if the sale falls over between the time the deposit is paid, and the 10-working days is up.
The only exceptions to holding money for this are if:
(1) there is a court order requiring the agent to pay the money before the 10-working days expires; or
(2) there is an authority signed by all the parties to the transaction requiring the agent to pay the money before the 10-working days expires
If a notice of requisition (where someone lays a claim on the property) or notice of objection to the title is made while you are holding the deposit, you must not pay the deposit to anyone, except in accordance with a court order or an authority signed by all the parties to the transaction.
The agreement being unconditional is just one element that must be satisfied before you can release the deposit. The requisition period must also have expired without a claim being made.
If the property is a unit title, the Unit Titles Act disclosure requirements must also have been met.
Read more about unit titles here.
Releasing the deposit early
If the parties are seeking the early release of a deposit for a transaction in accordance with section 123(2), you should recommend that the parties seek legal advice. They should be aware of the implications of releasing the deposit early if something goes wrong with later in the transaction.
You cant contract out of section 123
You cannot contract out of the requirements in section 123 of the Act regarding holding of deposit monies for 10-working days.
If you release the deposit early under any other circumstances you risk breaching your obligations under the Act and may be found guilty of unsatisfactory conduct.
Definition of a ‘working day’
The Real Estate Agents Act 2008 does not set out the definition of a working day, but it is defined in the Interpretation Act 1999 and you should refer to this legislation whenever you see ‘working day’ mentioned in the Real Estate Agents Act.
Part 5, section 29 of the Interpretation Act 1999 defines a ‘working day’ as:
Working day means a day of the week other than—
(a) a Saturday, a Sunday, Waitangi Day, Good Friday, Easter Monday, Anzac Day, the Sovereign's birthday, and Labour Day; and
(b) a day in the period commencing with 25 December in a year and ending with 2 January in the following year; and
(c) if 1 January falls on a Friday, the following Monday; and
(d) if 1 January falls on a Saturday or a Sunday, the following Monday and Tuesday; and
(e) if Waitangi Day or Anzac Day falls on a Saturday or a Sunday, the following Monday.
The definition of ‘working day’ in the Agreement for Sale and Purchase applies to the use of the term within that form only. It does not carry over to any other usage of the term. When the number of working days is being calculated for the release of funds from trust accounts the Interpretation Act should be used.
Read the Interpretation Act here.
Common sale and purchase complaints
- the meaning of the clauses and conditions in the sale and purchase agreement
- that the sale and purchase agreement is legally binding
- the chattels list (including what a chattel is)
- the right to seek legal advice before signing the sale and purchase agreement.
Most of the concerns we hear can be avoided if the parties seek legal advice before signing the agreement. Clear communication from you can help prevent problems.
One of the more serious issues we deal with is when a licensee fails to check the GST status of the buyer and/or seller is correctly recorded on the sale and purchase agreement and does not refer the parties to get independent expert advice about GST issues.
A lawyer’s approval condition gives very limited options for either party to get out of the sale and purchase agreement. Most parties think it is a way to cancel the agreement if they are not happy with it. Make sure the parties understand there may be limits on how their lawyer can use the clause and recommend they get legal advice before they sign the agreement.