Munted – Do you still have to settle?

So you’ve signed up to buy a property and are very excited. You pay the deposit and

can’t wait until settlement so you can get in there and call it home.

Then the unthinkable happens.

Whether it’s a flood or an earthquake or a landslip or some other extreme weather

event the likes of which we see more and more these days. Whatever it is the

property has suffered severe damage. Its just not the same to you anymore. You

want out.

The question is: can you get out?

As you can imagine, this question has been asked a few times in recent years given

the number of natural disasters that have occurred.

To answer the question we need to know the law and we need to know the facts.

How the law is applied will depend on the facts. It’s a question of interpretation.

Because of this what we know from dealing with settlement issues for a while now is

that, firstly, the law is not “black and white” like some people think it should be. And

secondly the vendor always thinks he is right and the purchaser always thinks he is.

Same facts. Different interpretation.

A good example came up earlier this year in the High Court. What happened was the

purchaser signed an agreement to buy a property which was located at the top of a

cliff. Great views apparently. They paid a deposit and were getting ready to settle

when the deluge of all deluges occurred and triggered a landslip which exposed the

foundations, took out a retaining wall and a lot of the earth under the deck. Those

great views were now completely uninhibited!

Anyway, Council “red stickered” the property meaning access was prohibited. The

vendor still pressed for settlement. Various Geotech reports followed, the red sticker

was downgraded to yellow and the vendor proposed settlement again on the basis of

a credit for the diminution in value as calculated by the vendor!

The purchaser was obviously not keen and faied to respond so the vendor issued a

settlement notice. What that means is that the vendor was going to charge penalty

interest and the purchaser would have 12 working days to settle.

If the settlement notice is valid things would be dire for the purchaser. If you do not

settle 12 working days after the notice is issued the vendor can cancel the contract,

keep your deposit, sell the property again and claim against you for not just penalty

interest and costs but also the shortfall if the property is sold for less. So yes, the

purchaser would be having some very sleepless nights!

Anyway the purchaser’s response was to cancel the contract on the basis that the

property was “untenantable”.

Off to court they go.

What the court found was that the settlement date in the agreement was three days

after the property had been red stickered.

So they found that neither party was “ready, willing and able” to settle and there had

been no agreement to delay the settlement date. The vendor could not enable a pre-

settlement inspection or grant possession on the settlement date because of the red

sticker. The purchaser had made it clear through correspondence from his lawyer to

the vendor’s lawyer that he was not ready, willing and able to settle.

The court concluded that the property was in fact untenantable because the

purchaser would not have been able to occupy it on the settlement date. So the

purchaser was within his rights to cancel and obtain a refund of the deposit. And

breathe a sigh of relief.

That is a good example of how the law was applied to the particular facts of that

case.

What if the facts had been different? The facts of this case were severe and quite

scary. What if the landslip had “only” tipped over some trees but the house was fine,

or if some water had got into the garage downstairs? Chances are the property

would not be “untenantable”.

That sort of situation might be dealt with by way of some sort of price adjustment to

compensate the purchaser, or maybe a deferral of settlement to allow for

remediation. But maybe not cancellation because the purchaser would still be able to

occupy the property for its intended use.

So the facts in each case are important. And like it or not there is a lot of grey there,

its not always black and white.

If you have any questions about a property dispute (not just ones caused by extreme

weather events) Please contact Queenstown Law on 03-4500000 or

russell@queenstownlaw.co.nz or claire@queenstownlaw.co.nz