You’ve decided to sell your property. It’s been listed for some time now, and you’ve finally found a buyer. All the conditions have been met and the agreement went unconditional last week. What could go wrong? It’s guaranteed to settle on time right? Wrong.
With the emergence of COVID-19 and the corresponding restrictions on travel imposed by the New Zealand governments, a novel issue has thrown itself into the mix. Both parties are ready to settle, where the purchaser has the money, the vendor has the property, but neither are able to leave their homes. This leads to various complications, including the vendor not being able to hand over the keys, not being able to move out of the house, and therefore not being able to take possession. Even if the vendor has already moved out, the purchaser can’t take possession of the property.
To its credit, the government has somewhat been innovative, by passing legislation that allows for the signing of Authority and Instruction documents by electronic means. This means that your lawyer can get the authorisation to register the transfer (and other instruments that might be required), as long as both the lawyer and client have access to ZOOM (or another similar program) and a computer with a camera.
Unfortunately, the government can’t do anything about penalty interest clauses, which kick in where a party is unable to settle. Trust us when we say that being charged between 8 – 20 % interest on a purchase price per annum, accrued daily, is not a conversation that any lawyer wants to have with their client.
What can we do to avoid this? The answer is quite simple. Lawyers have adapted to the situation and started including COVID-19 settlement clauses into the sale and purchase agreements. These clauses generally stipulate several things, but importantly:
- Neither party is liable for penalty interest in the event of settlement occurring due to a COVID-19 restriction level which impacts settlement; and
- The settlement date is automatically deferred until a period after the COVID-19 restriction level has returned to a level where settlement is possible.
These clauses were prevalent in the majority of agreements that were entered into after the first lockdown in New Zealand. Real estate agents caught up to the trend and started including them by default.
Unfortunately, however, that practice has somewhat subsided. The clause isn’t included in the most common form of sale and purchase agreements by default, meaning it is up to the lawyers or real estate agents to take the initiative of putting it in. The reduction in popularity of these clauses isn’t surprising. We all thought we had beaten the pandemic in New Zealand and that there was no way that it could get back in.
But it did. We’ve now been through our second lockdown (sorry Aucklanders who are still in it), and several agreements that have been signed prior to reaching us as the client’s lawyers were affected by the latest lockdown. We recommend, and so does the New Zealand Property Law Section, that all agreements moving forward have a COVID-19 settlement clause included. This is the best way to protect yourself against owing hundreds if not potentially thousands of dollars a day in penalty interest due to something you can’t control.
If you’re thinking about selling or buying a property, please get in touch with us before signing anything. As always, it is incredibly important that you have the agreement checked by a lawyer to make sure it is beneficial to you. We are always willing to give legal advice on agreements and to act for you in negotiations with the other party.
If you have any conveyancing enquiries, please contact us at [email protected] or on (09) 430 0520 so we can discuss how to best help you today.