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Selling? Be wary of warranties

If you are thinking of selling your property you need to carefully consider the warranties in the agreement for sale and purchase.

Warranties are the promises you make to the purchaser about the property being sold. This article looks at some of the vendor warranties contained in the ADLS / REINZ agreement for sale and purchase of real estate (Sale Agreement) and considers when disclosures may need to be made.

As a vendor you warrant that (as at the date of the agreement) you have not received any notice or demand from any government authority, tenant or any other party, which affects the property. This warranty would extend to things like receiving a letter from your neighbour requiring you to contribute to the cost of a fence, or a notice from a tenant requiring you to undertake repairs, or a notice from Council to fix part of your property. If there is any doubt about whether a notice you have received affects the property, it is better to disclose it to the purchaser.

One warranty often overlooked by vendors is the warranty that the chattels included in the sale are in reasonable working order. This warranty is provided at settlement, so it means all chattels must be working on the settlement date. It is common now for purchasers to test all chattels on a final inspection of the property, and things like a broken heat pump or cooktop with only one burner working can be a breach of this warranty – allowing the purchaser to bring a claim for compensation. If any chattels included in the Sale Agreement do not work, or do not fully work, this should be expressly stated in the agreement and the warranties appropriately amended.

Another warranty that can come back to bite a vendor is the warranty that where any works have been undertaken, the appropriate permits or consents were obtained and the works were completed in accordance with those permits or consents (and a code compliance certificate has issued, if appropriate). If you have undertaken any works to the property without a consent this should be disclosed to the purchaser and recorded in the agreement so you are not in breach of the warranty. You should ensure that all works undertaken by you on the property have the appropriate code compliance certificate, if required.

There is a warranty that all chattels provided in the agreement are unencumbered – so not subject to finance or security of a third party. Consider whether there are solar panels, whiteware or other chattels on the property where you are paying a third party for the purchase  of the chattels or to rent the chattels – these chattels will likely be encumbered.

The Sale Agreement has numerous other warranties in it (for example in relation to unit titles and GST warranties) and we recommend you take specialist legal advice before signing a Sale Agreement to ensure you can comply with all of the standard warranties under the Sale Agreement, and if you can’t, to ensure the warranties are appropriately amended.

This article is current as at the date of publication and is only intended to provide general comments about the law. Harkness Henry accepts no responsibility for reliance by any person or organisation on the content of the article. Please contact the author of the article if you require specific advice about how the law applies to you.

For further information

Erica Quilter - Harkness Henry Associate

Erica Quilter

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