KEY POINTS:
A major court decision against two lawn-mowing contractors saw the couple ordered to pay $300,000, after failing to fulfil the terms of a real estate contract. Property editor Anne Gibson says people can learn from this
What happened?
The court has ruled that a Beachlands couple must pay $300,000 to people they planned to buy a property from after not trying hard enough to sell their home. Carol and Bill Fleming failed to sell so they were unable to go ahead with buying a lifestyle block near Whangarei. The owners of that block took legal action but the couple say they are devastated by the decision.
How common is this type of litigation?
Lawyers say comparatively few deals go to court because litigation is so expensive and time-consuming. Clients are up for an initial fee of about $10,000 to take a case, which usually starts with a plaintiff (the vendor) seeking an order for summary judgment - payment - for the amount lost against the defendant (the buyer who reneged). In a rising market, vendors can find another buyer if the first pulls out. The second or back-up deal might be better than the first offer so not all vendors are disadvantaged by the first deal collapsing.
What's at stake?
Deals worth $35 billion; around 100,000 houses selling annually for a national median of just under $350,000. A house sale is many people's single largest financial transaction. Some vendors sell conditionally and immediately sign up to buy another place. But if their buyer pulls out, they could be left hugely out of pocket, unable to settle the second deal.
What is the contract used?
Lawyers say about 95 per cent of all house and section sales are drawn up on the Auckland District Law Society's document "Agreement for Sale and Purchase of Real Estate", now in its eighth edition. This is the document approved by the Real Estate Institute and 20,000 agents use it as a standard national agreement. Only large commercial property transactions use a different document, drafted by lawyers involved, but even many large commercial deals are drawn up on the ADLS contract.
What does that contract say?
The 100,000 people signing this contract annually agree to hundreds of terms and conditions, all contained in the small print which runs a full seven pages. The larger print warns people that before either party signs, they "seek professional advice", especially if there are any doubts, questions about boundaries, subdivision or leaky building concerns.
How important is the small print?
The six pages headed "General terms of sale" are in that contract after decades of litigation, arguments and battles between real estate agents, buyers and sellers over deals. The aim in the fine print is to protect all parties involved in a sale.
Can't I just make my offer conditional on finance or a building report and pull out later?
The short answer is a definite no. You might be asked to present the building report stipulating reasons for not going ahead with the purchase. Making a purchase conditional on due diligence or finance does not allow an automatic escape. You must fulfil your contractual obligations. If the contract is conditional on due diligence, you must be able to demonstrate that you cautiously considered the property and made appropriate inquiries. If finance was declined, you could be required to present the funder's letter stating that.
