A property purchase is, for many people, the most expensive purchase they will make in their lifetime. It is common therefore, when entering into an Agreement to purchase a property, to include certain conditions in the Agreement to protect your interests. However, it is important to include the right conditions in the Agreement and ensure they are drafted in such a way that means you can cancel the Agreement, without penalty, if your due diligence is unsatisfactory.
Finance Condition
One of the most common conditions that we see in Agreements is the finance clause. This condition provides that the Agreement is subject to the Purchaser obtaining satisfactory finance. In the event a Purchaser cannot obtain finance, then the Agreement is able to be cancelled without penalty. As part of obtaining finance, it is also important to confirm that you are able to obtain adequate insurance cover for the property. In the event you are unable to insure the property then a Bank will not be willing to provide finance to you to complete settlement. If you need to sell your current property in order to obtain satisfactory finance, then we also recommend that a specific clause is included which provides that the Agreement is subject to obtaining a successful sale of your existing property.
LIM Report and Council File
Often Agreements are subject to the Purchaser obtaining a satisfactory LIM Report or viewing the Council Records for the Property. A LIM Report provides key details about the property which are known to the Council, including the current zoning, any resource consents relating to the property and the surrounding vicinity and any special characteristics of the land, such as whether it is susceptible to erosion or contamination. The Property file on the other hand includes all information the Council holds about any building work carried out on the property and whether the building work has had the appropriate building consent and Code Compliance Certificate issued by the Council.
Building Inspection Condition
A Builders Report enables a Purchaser to have the property professionally inspected prior to declaring the Agreement unconditional. A thorough Building Inspection delves into all aspects of the property and ensures a prospective Purchaser is aware of any issues which may not be visible to the untrained eye. If an inspection identifies any significant issues, a Builders Report condition enables a Purchaser to either withdraw from the Agreement or potentially negotiate a reduction in the purchase price as part of satisfying the condition.
Conclusion
Each property purchase is unique and every Purchaser will have their own requirements when undertaking their due diligence. Having robust conditions in your Agreement can protect you if things do not work out as planned. It is always important that you seek legal advice before you put pen to paper to make sure that the Agreement, and any conditions, are tailored to your specific requirements. Once the Agreement has been signed, it is often too late.
