When buying or selling houses, everyone wants to ideally get along during an often stressful ordeal. Vendors commonly agree to let a purchaser into a property before settlement to store items or complete repairs. But as well-intentioned as these arrangements are, there are some real risks you should protect yourself from.
The ADLS Agreement for sale and purchase of real estate is the standard agreement for property transactions in New Zealand. This agreement states that the risk of the property stays with the seller until after settlement. This means that if items stored on your property are stolen or cause damage, you could be liable for any costs incurred. Your lawyer can negotiate to have the agreement amended to provide that any items stored will be at the purchaser’s risk, with perhaps an added warranty not to move any dangerous material onsite (e.g., flammable substances).
Where the early access is given to carry out building work before settlement, we normally recommend amending the agreement to transfer the risk to the purchaser, at least regarding the repairs being carried out. After all, the works being carried out by the purchaser may invalidate the terms of a homeowners insurance. For serious repairs to a property (such as for an “as is where is” sale), the homeowner should also consider whether they should require the purchaser to organise contract works insurance.
Deposits and the cost of remedying works.
It goes without saying that no access should be allowed until the agreement has fully confirmed and the purchaser has paid the deposit. In a nightmare scenario where your agreement has confirmed but the purchaser defaults, you would look to use their deposit to remediate any damage or other costs. If a purchaser has either partially completed repairs or completed defective repairs, this could be quite a significant sum.
As a seller, when asked to grant early access to your property you should consider whether the deposit will be sufficient to recover your losses. Often with “as is where is” sales a nominal deposit of $10,000.00 or a sum that is less than 10% of the purchase price is provided.
In the case of a defaulting purchaser, the deposit may be the only expense that can be recovered if other creditors are also pursuing their assets. Remember that the point of the deposit is to protect yourself. Where a purchaser is completing extensive repairs, you should weigh these risks up against the value of the deposit, and again consider whether contract works insurance would be worthwhile.
For any queries about early access arrangements or other property matters speak to our team today!
Copyright © Cavell Leitch. All rights reserved. Redistribution is only permitted with express written permission. For enquiries please contact us. This article by its nature cannot be comprehensive and cannot be relied on by clients as advice. It is provided to assist clients to identify legal issues on which they should seek legal advice. Please consult the professional staff of Cavell Leitch for advice specific to your situation.