Drafters of Agreements for Sale & Purchase Beware!

The decision of Justice Venning in the case  Y V Properties Limited v Doh Young Choi & Ors  highlights the need to ensure that when solicitors and real estate agents draft special clauses in agreements for sale and purchase of property, that those clauses do not conflict with general conditions.

Most real estate agents and lawyers use the Auckland District Law Society standard form of Agreement for Sale and Purchase.

Clause 9.3 of the current Auckland District Law Society form of agreement provides that if the agreement is conditional upon the purchaser obtaining a building report, the date for satisfaction of the condition is 10 working days after the date of the agreement.

In the  Y V Properties  decision a special clause had been inserted by way of the agreement being conditional on the purchaser carrying out a due diligence investigation of the property. The date for satisfaction of the due diligence condition in the special terms of sale was 20 working days from the date of the agreement.

The learned Judge held that because both the building condition clause and the due diligence clause required essentially the same considerations – a report on the condition on the building on the one hand and an investigation into the soundness and structural quality on the other – that the clauses were in conflict because both clauses provided for the same enquiry.

Accordingly, clause 1.4(3) of the general conditions applied. The effect of this clause is that if there is a conflict between the general conditions of sale and the special conditions of sale, then the special conditions must apply.

Justice Venning found that the vendor could not cancel the agreement 10 workings days after signing the agreement for want of satisfaction of the builder’s report clause. Instead the vendor had to wait until the expiry of the 20 working days in the special conditions of sale. In the intervening period, the defendant had made the contract unconditional.

The lesson to be learnt from the judgment in  Y V Properties Limited  is that if the agreement is going to contain a special due diligence clause, then that clause will prevail over the standard builder’s report clause to the extent that both clauses cover the same investigation and the builder’s report option on the front page of the agreement should be deleted. The same may also be said of the LIM report condition.

If the requirement of a LIM is going to be included in a special due diligence clause then the LIM report option on the front page of the agreement should also be deleted.