Significance of approval of title conditions in further terms of sale - Legalwise Seminars

Cavell Leitch Registered Legal Executive Courtney McHugh discusses a recent trend her Property team has noticed, whereby they are receiving agreements without the purchaser’s solicitor’s approval of title conditions in the further terms of sale. An issue might arise, for example, because many newer subdivisions have restrictive covenants registered on the title that a purchaser might not know of until their lawyer reviews them and advises them of what they contain, she writes. 

We have noticed recently a trend whereby agreements are coming to us without purchaser’s solicitor’s approval of title conditions in the further terms of sale. We suspect that this is because it is felt that general term of sale 6.2(1) provides the purchaser adequate ‘cover’ in relation to title matters.

Clause 6.2(1), commonly referred to as the title requisition clause, states that “the purchaser is deemed to have accepted the title except as to such objections or requisitions which the purchaser is entitled to make …”.

Clause 6.2(1) allows a purchaser to requisition the title up to the earlier of 10 working days after the date of the agreement or the settlement date. However the title requisition clause is limited in its scope:

• Clause 6.2(1) allows a purchaser to request that a vendor removes prior to settlement an easement, encumbrance or another restriction which the purchaser had been unaware of when they signed the contract. For example, a purchaser may be buying a new lot in a subdivision. The purchaser could use clause 6.2(1) to requisition the title if the vendor registered a restrictive covenant after the contract was signed without first warning the purchaser that it intended to do so. If vendor then refused to remove the covenant the purchaser could cancel the sale.
• Clause 6.2(1) also allows a right of requisition if the title contains a defect. For example a purchaser of a cross lease or unit title property could use clause 6.2(1) to requisition the title if there have been alterations to the external dimensions of the flat or unit that are not on the flat plan or unit plan respectively. The purchaser could cancel the agreement if the vendor refused to obtain a corrected plan before settlement.

Clause 6.2(1) does not cover scenarios where the title is merely not appropriate for the needs of a purchaser.

• As an example, a purchaser may wish to add a structure (eg a pool, garage or other outbuilding) to the property, but a review of the title may show an easement running through the part of the land where the purchaser wants to build that structure. This does not make the title defective and without a suitable approval of title condition, or other another condition (such as a broad due diligence condition) that they can draw on, this could leave the purchaser in a position of having to purchase a property that does not suit their needs.
• Similarly, many newer subdivisions have restrictive covenants registered on the title that a purchaser may not know of until their lawyer reviews them and advises them on what they contain. A common restrictive covenant that we encounter is one that expressly prohibits certain breeds of dog. A purchaser may have a beloved family dog that is forbidden under the covenants, meaning that they need to rehome their dog if they are to continue with the purchase of this particular property.

If we are acting for a purchaser our preference would be that the contract contains a specific approval of title clause in its further terms. An example clause is below:

“This agreement is subject to and conditional upon the purchaser and purchaser’s solicitor’s approval of the title to the property within xx working days of the date of this agreement. This clause is inserted for the sole benefit of the purchaser”.

There are benefits to a vendor if a specific title clause is included in the further terms. For example a vendor may wish for the confirmation period to be short – say 3 working days. The vendor could introduce a specific title clause in the further terms requiring the purchaser to approve the title within this timeframe. If the vendor did not include a specific title clause with a 3 working day deadline (and did not amend clause 6.2(1)) then the agreement could remain conditional for the full 10 working day requisition period under clause 6.2.

This could be dangerous if the vendor had committed themselves to another transaction because they were under the false impression that their contract was unconditional once the further terms were confirmed, and hadn’t been made aware that the requisition period under clause 6.2(1) had not yet expired.

Courtney McHugh is a Registered Legal Executive in the Cavell Leitch Property team, specialising in residential property.  Courtney thrives in this fast paced environment and when it comes to buying and selling property (conveyancing), Courtney ensures her clients are supported and guided throughout the entire process. She prides herself on her communication and organisational skills which lead her to provide great outcomes for her clients. Contact Courtney at courtney.mchugh@cavell.co.nz or connect via LinkedIn 

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