COVID Considerations for Sale & Purchase Agreements

19 August 2020

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COVID Considerations for Sale & Purchase Agreements

With the move back to Level 2 announced, we have already been fielding calls from anxious clients.

While we are now seasoned pros at renegotiating settlement dates, to avoid the uncertainty and stress we all experienced when we last moved to Level 4, we are suggesting buyers and sellers consider pre-empting any issues by making changes to the standard Agreement for Sale and Purchase.

Working days
By default, weekdays at Level 4 are still ‘working days’. Some people have been amending the definition of ‘working days’ in the ADLS/REINZ Agreement to exclude days where we are in Level 3 or 4. This is fine, but it should be specifically pointed out to clients. We suggest it should be added into the Further Terms of Sale, rather than being edited in the clause 1.1 definition, as this type of edit can easily be overlooked by clients (and can also raise copyright issues with ADLS/REINZ).

Conditions
Some conditions, like due diligence, LIM report, builder’s report or valuer’s report can be harder to satisfy under Level 3 and 4, due to limits on travel and access. A purchaser could ask to amend the definition of working days, as above, or may wish to use an alternative timeframe for their condition (e.g. 5 workings days from returning to COVID-19 Level 2). Agents and solicitors should also encourage vendors to be more flexible with extensions.

Conditions such as solicitor’s approval, finance and insurance are less likely to be affected, as these can generally be completed by email or over the phone. However, banks and insurers seem to be moving a little slower recently, especially where staff are working from home, so those timeframes might need to be slightly longer.

Pre-Settlement Inspection
Some lawyers have argued that settlement cannot occur until a pre-settlement inspection has been completed. We disagree with this view. However, an additional clause could be added to clarify that settlement will not be deferred just because an inspection cannot take place due to COVID-19. A purchaser will still be able to raise any issues with the property, post settlement, under the breach of warranty clauses.

Settlement
During Level 4, moving to a new house was prohibited, while at Level 3 it was allowed but not recommended (especially if moving between regions).
We recommend removing the uncertainty by adding a clause that defers settlement if the level prevents either party from moving to a new house. We suggest using the following wording:

Settlement Date (COVID-19 Alert Level)

As at the date of this agreement, New Zealand is at Alert Level [2] of the COVID-19 Alert System (the Alert Level) as a result of the COVID-19 pandemic. Under Alert Level [2], personal movement associated with the settlement of property transactions is permitted to occur.
The parties acknowledge that the Government may change the Alert Level if there is a change to the public health risks in New Zealand as a result of the pandemic. Any change to the Alert Level may apply nationally or in specified regions.

The parties agree that in circumstances where:
a.     The Alert Level is increased, either nationally or in the region in which the property is located; and
b.     The relevant order made under the COVID-19 Public Health Response Act 2020 (or other legislative instrument, if applicable) which gives effect to the Alert Level provides that it would be unlawful for the personal movement associated with settlement to occur;
then the settlement date under this agreement will be deferred to a date 5 working days after New Zealand (or, in the case of a regional Alert Level change, the region in which the property is located) enters into an Alert Level where the personal movement associated with settlement is permitted, or to such other date as may be agreed between the parties in writing.
The parties agree that neither party will have a claim against the other in relation to the deferral of settlement in accordance with this clause.

If you have any questions or suggestions about how to have as stress-free a sale as possible during these challenging times, please feel free to get in touch with us.

Sam

for more help feel free to reach out. Get in touch with Sam French