The end of 2019 marked some interesting changes to the widely used sale and purchase agreement, with the new document minimising the opportunity for purchasers to back out of agreements by reason of ‘failure to obtain finance’.
The new sale and purchase agreement (“tenth edition”), which was drafted by the Real Estate Institute of New Zealand and the Auckland District Law Society, now requires purchasers to provide evidence showing that sufficient finance could not be obtained, if requested by the vendor.
At this stage, there remains uncertainty about the extent of evidence that must be provided to satisfy this provision. We fear that evidence requested by the vendor may go beyond documentation from the lender declining finance, and as far as providing bank account statements and/or proof of income. Due to this uncertainty, which could potentially be highly intrusive on the purchaser, we are currently advising that purchasers strike this provision from the agreement before signing.
While the new provision may be detrimental to a purchaser, it does provide a strong benefit to the vendor. The existence of the new clause prevents the purchaser from using the finance condition as a façade when choosing to back out of a sale, perhaps increasing the likelihood of a signed agreement becoming unconditional.
As time goes on, case law developed through the courts will no doubt shed light on how far the new provision reaches. In the meantime however, we strongly advise purchasers to ensure that clause 9.1(2) of the new agreement for sale and purchase is removed from the agreement before signing.
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