Lost in translation differences in terminology

Lost in translation – differences in terminology
Many of our clients are buying properties in New Zealand for the first time. You may have seen relocation TV shows and assume that things are the same in New Zealand as in Australia, Europe or the US. But sometimes the terms that we use are a bit different. It can get confusing. Under most circumstances, everyone copes fine with things getting a little lost in translation. We can sort it out eventually and have a laugh. However, when it comes to buying a house, mistaken interpretations can lead to real legal consequences. So we thought it might be helpful to point out the meaning of some common terms. Sale “by tender” or “deadline sale” The most common way of selling houses in Wellington at the moment is “by tender”, or “deadline sale”. This is where the vendor sets a date for prospective buyers to send in their offers. There’s no negotiation before the deadline. Once that deadline arrives, the vendor will consider all the offers at once and decide which (if any) to choose. In a competitive market, tenders are obviously a great way for vendors to maximise their chances of getting top dollar. Buyers have to make their best possible offer, to increase the chance that the vendor will choose it from the pile. This means that tenders are stressful and uncertain for buyers. It can be difficult to figure out how to frame your offer. The thing to remember though is that if you tender for a property, you’re making an offer that’s binding if it gets accepted (subject only to any conditions). So you’d better make sure it accurately reflects terms that you’re sure you can meet. “Conditions” and “Unconditional” “Conditions” are clauses that buyers can insert into their offer (including a tender). Usually, conditions make it clear that the offer is subject to certain things being confirmed or approved. It’s good to get a lawyer’s advice on your conditions. Common conditions relate to approval of finance, insurance, title check, builder’s report and LIM report (a Land Information Memorandum report, which gives details about the property). All conditions have time limits (for instance that finance needs to be confirmed by a certain date). An offer with no conditions is “unconditional”. If you put in an unconditional offer you are legally bound to purchase the property as soon as the vendor accepts it. There’s virtually no way out – you certainly can’t just change your mind because you found a nicer place in the meantime, or your boss decides to relocate you to Auckland. Contracts with conditions become unconditional once all the conditions are satisfied. So make sure you include all the conditions you need and that they are effectively worded. Savvy purchasers try to minimise the amount of conditions to make their offer more attractive to vendors. But it’s a balancing act. Don’t be talked into putting in an unconditional offer just to win a tender. You need to be sure you can live with the consequences. For example, if you don’t have a finance condition, you’d better be sure that you have the money sorted out already. Also if you decide not to do certain checks before you buy, you could be stuck with a dodgy and expensive house (see our earlier blog post here for some details https://haymanlawyers.co.nz/why-its-worth-doing-a-check-before-buying-that-house/). In the past people tried to make their offer more attractive by saying they were “cash buyers” or by pointing out they are not in a chain of sales. That may still work in other places, but in Wellington it’s not really relevant any more. In our experience, vendors expect tenderers to be ready to settle, with cash, on settlement day. “Cancelling the contract” If conditions are not satisfied by the stated date, the contract can be cancelled. This stage is all done through the lawyers, not the real estate agents. This doesn’t always mean that you miss out on the house. Sometimes, the contract’s terms can be re-negotiated (for example lowering the price if the builder’s report shows that there’s a problem with the house that needs to be fixed). This is not simple, though, and has to be carefully handled by your lawyer. The contract binds the vendor too Once the vendor agrees to your offer, they’re bound by the contract too. We don’t have the concept of “gazumping” in New Zealand – unlike in some other countries (such as England), where the vendor can unilaterally pull out or choose to accept a higher offer from another purchaser. Instead, the vendor has to wait for the time specified in the condition to expire. This gives the purchaser certainty that they will be the only purchaser during the conditional period. Some contracts do have a “better offer” clause, though, which gives the vendor more leeway. That something we check for and we would give clients specific advice about if it was relevant. If it’s not in writing, it doesn’t exist On TV relocation shows, we see prices for land being agreed by a phone call. This doesn’t happen in New Zealand – or at least it’s not binding. Any agreement to buy or sell land must be in writing and signed. These won’t be all the things you need to know, or terms that might be different from what you expect. Remember, if in doubt always check with a lawyer before signing anything.
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