Know your obligations before signing up to a conditional house purchase

An example of the critical importance of purchasers understanding their obligations under conditional sale and purchase agreements is the Strack v Grey case. (Strack v Grey [2019] NZCA 432)

What Happened

Essentially Grey, an Otago businessman who owned a property in Mosgiel, wanted to buy the Strack’s property in Dunedin.

Grey wanted to put in an unconditional offer, but his Westpac bank manager, Ross, told him he shouldn’t assume he would get a loan for the full amount he intended to offer ($1.2m – essentially bridging finance to be secured over both properties until Grey sold Mosgiel).

So, Grey made an offer conditional on obtaining a satisfactory building inspector’s report and finance. The Stracks accepted the offer.

Soon after, Grey became concerned about the property’s retrofitted insulation and through his own research, “went off” the property. Although Grey took his builder to the property, no written report was made at that time.

On Grey’s instructions, Grey’s solicitor then advised the Stracks lawyers that the agreement was at an end for failure of the builder’s report condition.

Grey also told Ross that the agreement was at an end, so there was no need for Ross to prepare a finance application as part of Westpac’s usual procedures.

The Stracks sought to convince Grey that the insulation wasn’t a problem but were unsuccessful and eventually re-sold the property at a figure $150,000 less that the conditional agreement with Grey.

Court Process

The Stracks sued Grey for the $150,000 claiming that Grey was not entitled to cancel the agreement.

The claim finished up in the Court of Appeal in a win for the Stracks on the basis that Grey had not fulfilled his obligations under the conditional agreement – failing to commission the building inspector’s report and not doing everything he reasonably could have to secure finance. The Court noted that lending criteria for financial institutions are capable of being known at any time, and that enquiry beyond just an existing banking arrangement should not be a barrier in seeking to fulfil a finance condition.

Conclusion

As in this case, the vast majority of agreements for residential property dealings are documented using the ADLS Agreement for Sale and Purchase of Real Estate. Strack v Grey and other cases establish that while a conditional purchaser will have comfort that if conditions are not fulfilled to their satisfaction and that then they can avoid going through with the agreement,

nevertheless purchasers need to understand that;

  • they are obliged to follow the terms of the conditions; and
  • in seeking finance, they may need to consider other channels than their own bank, including potentially seeing if vendors are prepared to leave some money in.

Here Grey didn’t obtain the report, nor did he push ahead with seeking the Westpac finance or other potential channels. Grey had not shown that he would have been unable to secure the finance necessary to complete the purchase.

Some readers may be surprised by this decision, especially the finance condition potentially extending beyond immediate finance sources to include other lenders and even the vendors. Although this case is a few years old we really think it’s important for purchasers to understand their obligations under conditions. Also this case has, to our knowledge, not been challenged as to its findings.

Accordingly, we strongly recommend to all our clients that they contact us before committing to a property purchase and to understand their obligations in respect of conditions attached to agreements.

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Know your obligations before signing up to a conditional house purchase

An example of the critical importance of purchasers understanding their obligations under conditional sale and purchase agreements is the Strack v Grey case. (Strack v Grey [2019] NZCA 432) What Happened Essentially Grey, an Otago businessman who owned a property in Mosgiel, wanted to buy the Strack’s property in Dunedin. Grey wanted to put in

Read More »
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