It has long been the practice that a buyer will insert in an offer to purchase a property, the following clause, or something similar:
| "This agreement is subject to the purchaser's solicitor's approval of all terms and conditions within two working days of the date of this agreement". |
Contrary to popular belief, the above does not provide the buyer with a "cooling off" period. During the stated period the bargain (agreement) may be objectively viewed with input from the purchaser's solicitor, who is rarely present for advice at the signing of the agreement.
What It Does Not Cover
There is almost a universal belief that a solicitor's approval clause entitles the buyer to reconsider and re-write a signed and binding agreement at will. This is not the case.
This clause must never be used if you expect it to automatically provide you with an unquestioned right to extricate yourself from a signed agreement, for whatever reason.
The courts have made it patently clear that the solicitor's approval clause may entitle a purchaser, or the purchaser's solicitor, to disapprove of an agreement, but on strictly legal grounds only. Matters relating to the property's title and to the conveyancing transaction itself will qualify.
The current legal position however, is that when two parties enter into a contractual agreement, their signature on that agreement (which for land in New Zealand must be at least partially in writing) transforms an intention or promise into a firm bargain that is then contractually binding on those parties. The courts will not allow this bargain to be altered or tampered with by the purchaser, through their solicitor not approving of the agreement's conditions for any of the following reasons:
- The solicitor trying to protect their client by insisting on a new or different condition being inserted in the agreement, relating perhaps to finance or a builder's report, which may have been inadvertently omitted when the agreement was signed.
- The client having decided they no longer desire the property.
- The client having decided they have agreed to pay too high a price for the property and are able to secure a better bargain elsewhere.
Due Diligence Clause
To ensure you have the luxury of withdrawing from a binding agreement, the appropriate "Due Diligence" condition to be inserted in the agreement must be clear and unambiguous in its meaning and scope. We can assist you in drafting such a condition before you sign, which if successfully relied on, will have been a very useful addition to your agreement!
The Consumer Guarantees Act 1993 ("CGA") applies to the supply of goods or services to consumers, and offers considerable rights and remedies in the case of faulty goods and/or inadequate services.
Who Does it Protect?
The CGA applies to any supply of goods or services to a consumer. A consumer is anyone acquiring goods or services of a kind ordinarily acquired for personal, domestic or household use or consumption (except where goods are purchased for re-supplying in trade, using to manufacture or process goods or to repair in trade other goods or fixtures on land).
If you acquire goods or services of a type ordinarily acquired for personal, domestic or household use, you are a consumer (even if you purchased the goods or services for business purposes), the CGA applies.
Contracting Out?
You can contract out of the CGA only when supplying to a business. If you have not contracted out, the CGA will apply to the purchase of the office computer, work vehicle or tearoom microwave.
What Rights Do You Have?
The CGA implies a number of guarantees into the provision of goods or services, including:
- The seller has the right to sell the goods.
- The goods are of an acceptable quality.
- The services are provided with reasonable care and skill.
- The goods or services are fit for the consumer's purpose for acquiring them, (where the consumer has expressly or impliedly made the purpose known) or any purpose represented by the seller.
- The goods comply with any description and/or sample supplied.
- The goods or services are supplied at a reasonable price, and services provided in reasonable time (if not already agreed).
- The repairs and spare parts are available.
Is the Price Right?
Where a price has not been previously agreed for goods or services, a consumer does not need to pay more than a reasonable price. If the price has not been discussed, a consumer can order goods from a supplier, without the fear that the supplier will charge more than what is reasonable for those goods.
How Long Should You Wait?
A common complaint is that the time of delivery of goods or services does not meet a customer's expectations. Under the CGA, goods must be provided, and services completed, within a reasonable period of time.
Repercussions
Where there has been a minor breach or defect, the supplier may elect to either repair, replace or refund the goods, or rectify the services. If this remedy is not completed within a reasonable period of time, the consumer can reject the goods, and in the case of services, either cancel the contract, or have the failure remedied elsewhere and recover all reasonable costs involved.
Where there is a substantial defect, the consumer can either have the goods replaced, or demand a refund. In the case of services, the consumer can cancel the contract or obtain damages for any reduction in value.
A consumer can also obtain damages for any reasonably foreseeable losses. These can include the cost of reinstalling goods, restoration of premises, loss of use of goods, emotional stress, loss of wages, and business losses (where the supplier has not contracted out of the CGA). If you are a business, the cost of non-compliance under the CGA can be very high - make sure you comply! Talk to us if you need assistance.
In the aftermath of the "leaky buildings" fiasco, a revamped Building Bill ("Bill") was introduced to Parliament.
Submissions for proposed changes to the Bill closed on 15 October 2003. The Select Committees' response to submissions will be looked at with great interest. In particular, the Committee's response to aspects of the Bill that purportedly increase consumer protection will be scrutinised carefully especially in light of inadequacies of existing options available to consumers involved in building disputes.
The Bill Provides Some Protection
The Bill aims to encourage better building practices and improve the control of building design and construction. It aims to ensure buildings are designed and built correctly and that buildings meet the standards in the Building Code. Changes include further empowerment and increased involvement of the Building Industry Authority, greater regulation of building professionals and materials used in the construction process, and the introduction of implied statutory warranties into all building contracts.
The implied statutory warranties contained in the Bill provide an expansion of legal rights for consumers. However, the Bill does not provide a process by which consumers can easily enforce these rights.
Current Options - Less Than Satisfactory
The following options are presently available for resolution of building disputes:
- Voluntary and private negotiation, facilitated mediation and/or arbitration;
- The Disputes Tribunal for disputes involving amounts up to $7,500 or up to $12,000 with the agreement of both parties;
- Construction Contracts Act (CCA) adjudication process for payment disputes between parties;
- Weathertight Home Resolution Service for disputes concerning leaky buildings;
- The Courts for all disputes.
Each of these options has unsatisfactory points from a consumers' perspective.
The average consumer (especially when participating in negotiation or mediation) will have limited knowledge or experience as to how matters can or should be resolved. Conversely, the other party may be very experienced, highly motivated to defend their position and in a more powerful position with respect to resources.
The effectiveness of the Disputes Tribunal is limited because:
- its jurisdiction is capped at a specific amount;
- the matters involved in building disputes are often of a complex, technical nature requiring expert opinion, and
- there is a potential multiplicity of parties.
The primary focus of the CCA adjudication process is to provide a quick means of dispute resolution between consumers, building contractors and sub-contractors over contract payments. The CCA process is only useful prior to payment being made, yet for most consumers the problems arise after payment has been made.
Court resolution can also be unsatisfactory as a building dispute generally involves the consumers' largest asset and the dispute is likely to arise at a time when cash reserves are limited. Pursuing disputes in court over matters involving less than $50,000 is of little benefit. As with the disputes tribunal the court's effectiveness is limited by the potential multiplicity of parties and the need for technical specialists.
On This Point, Consumers Are No Better Off
Without a specific provision for a process for enforcement of the implied statutory warranties, consumers must still rely on existing options for dispute resolution. While the Bill may encourage better building practices, its lack of an effective adjudication process may restrict consumers' ability to enforce the new rights.
What happens when you are Bankrupt?
There are two routes to bankruptcy. A creditor pursuing you for payment of a debt for which judgment in Court has been obtained may "petition" the Court for your bankruptcy, or you may decide that you can no longer cope with the pressures of owing money so you may voluntarily file your own "petition". Either way the consequences are similar.
The Official Assignee
The Official Assignee is appointed as supervisor and controller of your affairs. The first thing that happens is that the Assignee advertises the fact of your bankruptcy. All of your property passes to the Assignee who becomes responsible for collating and assessing your debts which are crystallised, collecting in and realising any assets and managing your income with a view to creating a pool of funds to be made available to repay your creditors.
To assist with that process you must complete a statement of affairs. From that the Assignee will determine what steps he or she is going to take. The Assignee may decide to examine you as to your means, and has the power to do so on oath and/or publicly. The Assignee may also call a meeting of your creditors.
The Assignee has the power to sell any of your assets, subject to a statutory limit of leaving you with tools of trade to the value of $500, and furniture and personal effects to the value of $2,000. These limits are subject to some discretion to increase those amounts. The Assignee also has the power to require you to contribute an amount to that pool. If you are employed, the Assignee will leave you an allowance from your salary to live on.
Restrictions on Bankrupt Persons
During the three years of bankruptcy there are a number of restrictions on you as a bankrupt. These include prohibitions on incurring any credit, on acting as a company director, on overseas travel (unless the Assignee consents) and a prohibition (without consent) to operating your own business. Consent can be obtained to enter or continue business after making an application to the Assignee. In that application it must be shown that the business is profitable, that there is ongoing work, that there is good cash flow and that someone else will monitor and supervise the business.
Transactions with others and gifts made by you within a certain period prior to your bankruptcy can be set aside and the property reclaimed by the Assignee.
There are a number of consequences if you do not assist the Assignee, including the Assignee's power to have you arrested and examined. Generally at the end of a 3 year period all debt remaining is wiped and you are free to start again.
Some people (who have been there) say that going bankrupt was the first step on their way to making their fortunes?
If you are contemplating or are facing bankruptcy then you should seek professional advice.
There has been much publicity in recent months over the interest shown by overseas investors in buying New Zealand farmland, particularly in coastal areas.
Guidelines
New Zealanders opposed to the sales of farm land to overseas investors may be heartened to know the Overseas Investment Commission monitors recently introduced strict guidelines which cover, among other things, the sale of farm land to foreigners.
Detailed in the Overseas Investment Amendment Act 1998, which came into effect on February 1 2002, is the procedure for offering farm land for sale. Farm land must be offered on the open market in NZ before it can be sold to an overseas person. The sale must be widely advertised.
Advertising Procedures
An advertisement must contain a general description of the land, include a statement that the farm land or related securities are for sale or acquisition and that offers are sought from potential purchasers. Contact details of the owner/person to whom offers may be made must also be shown.
As a minimum, farm land or farm land securities must be available on the open market for at least 20 working days after an ad is first placed and this must have been published within the 12 months before the overseas buyer applies to the Overseas Investment Commission for consent, or enters into the transaction, whichever is the earlier.
Various advertising media generally used for advertising the sale of land to people in the local district are acceptable. Minimum requirements apply. An advertisement on an internet site typically used for land sales, a notice or sign displayed in a Real Estate Agent's office or a sign placed on the land in question are all acceptable provided they are shown prominently for 20 working days. An ad in one edition of the property section of a newspaper, and in one edition of a Real Estate sales publication both meet the requirements.
Of course, as with most things, there are exceptions to the rule of having to offer land for sale on the open market. An example is the selling of land to an overseas family member. The relevant Minister can also waive the advertising provisions in certain circumstances.
Protection For NZ Interests
Overall, the selling of farm land to an overseas buyer (done correctly) involves rigorous but generally well-thought out procedures to protect the interests of New Zealanders.
There is a certain irony which results from the new changes as, with sales to overseas persons, the complicated approval procedure does allow the Government to impose conditions it could never impose on NZ residents purchasing land. The farm land may be better protected for future generations of New Zealanders as a result of an overseas buyer being approved!
Purchase Money Security Interests
The first taste of the Personal Property Securities Act 1999 (PPSA) has been predominantly with registration (and re-registration) of security interests on the Personal Property Securities (PPS) Register. However, many businesses are now 'fine-tuning' their terms of trade. Particular attention is being paid to Purchase Money Security Interests (PMSI) and their application to their particular businesses.
General
A PMSI is a security interest taken by a supplier of goods when the buyer does not pay the entire purchase price when they receive the goods. If all the requirements for a PMSI are satisfied, including registration on the Register, the holder of a PMSI gains priority higher than any other security interest in regard to the particular goods.
Life Before The PPSA
Before the PPSA, a "Romalpa" clause might be used to protect the supplier. This allowed the supplier to reclaim the goods unpaid for and they might not then be available to a liquidator appointed under, for example, a bank debenture if the buyer defaulted.
The Position Under The PPSA
If the goods supplied are only subject to a Romalpa clause and the buyer has not given a General Security Interest (registered on the PPSR) to someone else e.g. a bank debenture, then the clause should still have strength. If the buyer has given a general security interest to a third party, any goods the buyer receives become available to satisfy the third party's security interest. This is so even if the goods have not been paid for and despite the inclusion of a Romalpa clause in the terms of trade.
If, however, the supplier has a registered PMSI in the goods, the supplier should have priority ahead of the bank and should be able to reclaim the goods.
Registration On The PPS Register
There are, of course, rules relating to the registration of a PMSI. For example, if the goods supplied are not to be on-sold (and are therefore not part of the buyer's inventory), the PMSI must be registered within 10 days of the buyer taking possession of the goods.
Summary
The PPSA allows a supplier to register a statutory security interest in goods the supplier sells to a buyer before full payment of the purchase price has been received. If the PMSI is registered within the required timeframes, the priority under that security interest will override any other priority which the buyer may have given to a third party.
A supplier, who relies only on the traditional Romalpa clause in its terms of trade, will not have the advantage of the Act. In particular, the Romalpa clause will not be effective if the buyer has given a general security interest in all its present and after acquired property (e.g. a debenture given by a company) to a third party. Before the PPSA the supplier might have been able to claim goods from the buyer even if the buyer had given a debenture to a bank. This is no longer the case.
If you think you need to review your terms of trade and, in particular, your rights to claim back goods not yet paid for, you should contact us.
All information in this newsletter is to the best of the authors' knowledge true and accurate. No liability is assumed by the authors, or publishers, for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information 
