Every now and again following pre-settlement inspection, issues arise as to the state of the property and its appliances and chattels. Common issues we see are leaky buildings, faulty appliances, or even dirty carpets. In any event, a purchaser will typically seek to have these defects remedied before they take possession.

This begs the question, what is the responsibility of the vendor in this situation?

What is a warranty?

In the property world, a warranty is a guarantee or promise made by the vendor as to the state or condition of the property.

Ordinarily, warranties are included by default within standard sale and purchase agreements. This provides the purchaser with comfort as to the condition of the property and its chattels.

Vendor warranties ensure that if circumstances differ to what is guaranteed by the vendor, the purchaser has a right to compensation or equitable set off for an amount equal to the cost of remedying the breach.

Example Please…

The 10th edition of the Auckland District Law Society (ADLS) Sale and Purchase Agreement used in majority of property transactions includes some standard warranties given by the vendor to the seller.

Here are some that we encourage purchasers and vendors pay close attention to:

• The vendor warrants that all chattels listed in the agreement are to be delivered to the purchaser on settlement in “reasonable working order, where applicable”. Items with no operational function (carpet, curtains etc) are delivered to the purchaser in their state of repair at the date of the Agreement (excludes fair wear and tear). So, should you find out the oven is broken there is no obligation for a vendor to purchase a brand new oven, instead one that is in reasonable working order.

• The vendor warrants that all electric installations are free of any charge. Additionally, that there are no arrears of rates, water rates or similar charges outstanding on the property. Vendors are required to pay rates up to and including the settlement date.

• At the date of agreement, the vendor warrants that there are no outstanding notices or demands from any local or government authority, statutory body, tenant or other party. If there is, the purchaser must be made aware of these.

• If the vendor has done or permitted work to be done, they will need to confirm these works are completed in compliance with requisite consents and all building work is warranted as compliant under the Building Act 2004. For further information on this please read through our piece on Unconsented Works.

Rights of recovery

If it transpires the vendor has breached a warranty in the agreement, the purchaser has a right to receive compensation for that breach. Imperative to the successful recovery from the vendor is the contractual requirement for a purchaser (or their lawyer) to serve notice of the claim on the vendor on or before the last working day prior to settlement.

It is therefore important to ensure the pre-settlement inspection takes place no later than the morning of the last working day prior to the settlement date.

What should prospective sellers do?

As a vendor who wishes to avoid compensating the purchaser, we encourage you to disclose any defective or faulty chattels, appliance or works to the property.

If you have any doubt, we encourage you to contact your legal representative before putting your property on the market or finalising your sale. The consequences of failing to understand your obligations under a sale and purchase agreement can be costly. 

Should you have any questions in relation to the content of this blog, let us know. We are happy to help and also offer free upfront consultations and advertised fees.