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COVID CONTRACT PEACE OF MIND

What’s in your sale and purchase contract if we get another lockdown? Whether you’re a property buyer or seller, some Covid clauses are better than others, writes Mikaela Wilkes.

As if finding property in the current market wasn’t stressful enough, nationwide and regional lockdowns are now a fact of life that could instantly upend months of careful planning.

Back in the first lockdowns, some buyers and sellers found themselves stuck in limbo and unable to settle on their home. The workaround for this sticky question is ‘‘Covid clauses’’, which are now included in most – but not all – sale and purchase agreements.

‘‘Some Covid clauses are definitely better than others,’’ warns property lawyer Kristine King, of DK Law.

Here’s what to know about them if you are buying or selling. What is a Covid clause? Timelines in contracts are often defined by working days. Contracts routinely refer to fiveor 10-working-day periods for conditions and settlements, otherwise penalties can kick in.

But can lockdown days be classed as ‘‘working days’’? Under alert level 4 conditions, many parts of the usual buying and selling process have to go on hold, and it’s usually not possible to move house.

A Covid clause pushes out the date that sellers and buyers have to settle and meet conditions by, until an agreed number of days after Covid restrictions ease.

The clause recommended by the Real Estate Institute of New Zealand (REINZ) doesn’t refer to specific alert levels because the definitions of those can, and have, changed. Instead, it is triggered if ‘‘personal movement’’ is prohibited in the region where the property is, or where the buyer is.

Chief executive Jen Baird said REINZ ‘‘recommends all agents insert our recommended Covid-19 clause into every agreement under the ‘Further Terms of Sale’ section, regardless of the government alert level that New Zealand or a particular region may be in.

‘‘REINZ recommends the date for satisfaction of conditions is deferred to five working days after New Zealand (or the region) enters an alert level where personal movement needed to satisfy the condition is permitted, and 10 working days afterwards for settlement.’’

They’re not all the same

Covid clauses aren’t mandatory, and there is no industry-wide standard (though work is under way to try to improve this).

That means if you’re selling one house and buying another, the clauses may not always match. King said she has been seeing ‘‘heaps’’ of different versions circulating.

‘‘When people first started doing them, they were super focused on settlement. But Covid also upsets the ability to satisfy conditions [such as getting in builders for reports, or doing valuations], so now we’re seeing a second generation.’’

It can particularly become a problem if you are selling your house with a Covid clause in your contract for sale, but you don’t have one in the contract for the property you’re planning on buying and moving into.

Mark Sherry, chairman of the New Zealand Law Society property section, said: ‘‘There are myriad clauses out there at the moment. Some of them leave a wee bit to be desired because they only deal with settlement.’’

If you are buying and selling

‘‘I have seen developers pushing for settlement when purchasers wouldn’t be in a position to move in or to make pre-settlement inspections. People need to be super careful about that.’’ Joanna Pidgeon Auckland property lawyer

in different regions, he strongly suggests you chat to your lawyer about tailoring your contract(s) so that you are covered in case of another alert level split in the future. What if I don’t have one? Sherry said Covid clauses had been left out of sale and purchase agreements ‘‘fairly often’’, especially during the period when New Zealand was considered Covid-free.

‘‘There was a degree of, why should we put this thing in when we haven’t been in lockdown for so long?’’ he said. King echoed this. ‘‘We got lulled into a false sense of security. But broadly, I’d say 90 per cent of contracts have Covid clauses that defer settlement to alert level 3.’’

If you don’t have an agreement in your sale and purchase agreement and then alert levels change, it will often still be possible to reach a goodwill agreement with the other party on deferring settlement, Real Estate Authority chief executive Belinda Moffat said.

‘‘However, both parties should ensure they understand any agreement and seek independent legal advice before they sign. If a sale and purchase agreement was agreed before lockdown, parties should seek advice from their lawyers as to how best to proceed.’’

If needs be, there are also some options that allow settlement to happen during alert level 4 – for example if the vendor stays at the property on a rental basis, both parties agree to share any late settlement interest penalty, or the vendor leaves money in the sale for later payment. Again, talk to your lawyer. Help – I’m buying off-plan People who are buying off the plans should be especially wary, said Auckland property lawyer Joanna Pidgeon, because off-theplan contracts are already heavily weighted in favour of the developer, ‘‘without the baseline protections’’ in other types of agreements.

A sunset clause is a stipulation in a contract that allows either the buyer or the vendor, or both, to terminate the contract, without consequence, if certain requirements of the contract have not been met.

‘‘Most developers are putting in Covid clauses to protect their own position. Sunset dates can be pushed out by periods in which we’re disrupted by Covid, but I’m not seeing reciprocal protection for purchasers,’’ Pidgeon said.

‘‘I have seen developers pushing for settlement when purchasers wouldn’t be in a position to move in or to make pre-settlement inspections. People need to be super careful about that.’’

Most off-the-plans contracts require the certificate of title and code of compliance certificate (CCC) to be issued by the sunset date.

The advice from REINZ is to check whether local councils are performing services to allow the issue of CCCs under lockdown.

‘‘Various phases in the process involved in obtaining titles and CCCs may not involve in-person movement, and therefore, may be satisfied despite the alert levels,’’ Baird said.

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