Understanding a New Zealand Property Purchase Agreement | NZ Legal

Whether you are buying your first home, investing in a rental property, or purchasing commercial real estate in New Zealand, every transaction is governed by a sale and purchase agreement. Understanding what that document says — and what it commits you to — is one of the most important steps any buyer can take.

This article explains the REINZ/ADLS standard form Agreement for Sale and Purchase of Real Estate (10th Edition), which is the agreement used in the vast majority of NZ property transactions. A real estate agent will typically present you with this form at the offer stage. It is legally binding from the moment both parties sign.

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What Is the REINZ/ADLS Agreement?

The Agreement for Sale and Purchase of Real Estate is a template document produced jointly by the Real Estate Institute of New Zealand (REINZ) and the Auckland District Law Society (ADLS). It is designed to provide a relatively balanced framework for property transactions.

The template can and regularly is amended by negotiation between the parties. A real estate agent acting for the vendor may present you with a version that already includes vendor-friendly amendments — these need to be scrutinised carefully by your lawyer before you sign.

The agreement covers:

• The parties — buyer, vendor, and any guarantors.
• Property description — the legal description from the Record of Title.
• Purchase price — inclusive or exclusive of GST (GST treatment matters significantly for commercial property).
• Deposit — amount, timing, and who holds it pending settlement.
• Settlement date — the date on which title transfers and the balance of the price is paid.
• Chattels — fixtures and fittings included in the sale, with a warranty as to their working condition.
• Conditions — any agreed conditions precedent to the transaction proceeding.
• Vendor warranties — representations the vendor makes about the property.
• General provisions — standard terms governing risk, default, insurance, and related matters.

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Standard Conditions

Conditions give the buyer a set period within which to investigate the property. If the condition is not satisfied (or waived) by the agreed date, the buyer can cancel the agreement and their deposit is returned. The most common conditions in a residential purchase are:

Finance Condition

This gives the buyer time to secure mortgage finance from a bank or other lender. A well-drafted finance condition specifies the lender, the loan amount, and the interest rate range the buyer considers acceptable. Vague finance conditions (“subject to the buyer obtaining finance satisfactory to the buyer”) can be challenged.

Practical tip: The finance condition date must be realistic. Banks typically need 7–10 working days to issue a formal approval. If the lender requires a registered valuation, allow additional time.

LIM Condition

A Land Information Memorandum (LIM) is a report from the local council summarising all information the council holds about a property — building consents, notices, resource consents, rates, flooding or erosion status, and any outstanding issues. The LIM condition gives the buyer time to review the LIM and raise any concerns.

Common issues found in LIMs include unconsented building work, special hazard areas (flood plain, coastal erosion), outstanding code compliance certificates, and heritage or character overlay restrictions.

Practical tip: Allow at least 10 working days after LIM receipt for your lawyer to review it properly.

Building Report Condition

This condition allows the buyer to commission an independent building inspection report. For any property built before 2005 (particularly 1994–2004 when weathertight construction failures were prevalent), a builder’s report is strongly recommended. The report should cover structure, weathertightness, plumbing, electrical, and any deferred maintenance.

General Due Diligence Condition

Buyers sometimes negotiate a broader general due diligence condition covering any matter the buyer considers material. This gives maximum flexibility but must be exercised honestly — you cannot use a due diligence condition to walk away simply because you changed your mind about the purchase.

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How Conditions Work

1. Day 0

   Agreement signed by both parties

   The contract is binding. The deposit is typically payable within 2–3 working days of signing. Conditions are now running.

2. Days 1–5

   Due diligence commences

   Your lawyer orders the Record of Title and registered instruments. LIM is applied for or obtained (if not already supplied). Building inspection booked.

3. Days 5–10

   LIM and builder's report received

   Reviewed for red flags. If issues are found, your lawyer advises whether to renegotiate price, request vendor remediation, accept the risk, or cancel under the condition.

4. Days 7–14

   Finance approved

   Bank issues formal approval. Registered valuation (if required) completed.

5. Condition date

   Go unconditional or cancel

   If all conditions are satisfied, both parties sign a notice declaring the agreement unconditional. If a condition cannot be satisfied, the buyer gives written notice of cancellation and the deposit is refunded.

6. Settlement

   Title transfers

   The balance of the purchase price is paid (via lawyer trust accounts). The vendor’s mortgage is discharged. Title is transferred to the buyer. Keys handed over.

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When Risk Passes to the Buyer

This is one of the most misunderstood aspects of the REINZ/ADLS agreement. Under clause 6 of the standard form, risk passes to the buyer when the contract becomes unconditional — not at settlement.

This means that if a fire damages the property after the contract goes unconditional but before settlement, the buyer may bear that risk. The practical implication: arrange insurance on the property from the moment you go unconditional.

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Risk passes to the buyer when the contract goes unconditional — not at settlement. Arrange insurance cover immediately after declaring unconditional, before you take possession.

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The Deposit

The deposit (typically 5–10% of the purchase price) is paid by the buyer after signing and held by the real estate agent in their trust account pending settlement.

Scenario	What happens to the deposit
Condition not satisfied, buyer cancels on time	Scenario	Returned to buyer in full
Contract goes unconditional, buyer settles	Contract goes unconditional, buyer settles	Applied toward the purchase price at settlement
Contract unconditional, buyer defaults	Contract unconditional, buyer defaults	Vendor may elect to forfeit the deposit and sue for any further shortfall
Vendor defaults after unconditional	Vendor defaults after unconditional	Buyer can cancel, recover deposit, and sue for damages

The deposit is not automatically forfeited if the buyer cancels under a valid condition. Forfeiture only occurs where the buyer defaults on an unconditional contract.

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Vendor Warranties

The standard agreement includes a series of warranties by the vendor about the state of the property. Key warranties include:

• Chattels warranty — all fixtures and chattels listed in the agreement are in reasonable working order at settlement.
• Consent warranty — all building work carried out with consent has a Code Compliance Certificate (or the vendor discloses otherwise).
• Outgoings warranty — all rates, body corporate levies, and outgoings are paid to the date of settlement.
• Tenancy warranty — if the property is tenanted, the tenancy details disclosed are accurate and the landlord is compliant with the Residential Tenancies Act.

If a warranty proves false at settlement, the buyer may have remedies including a claim for compensation or (in serious cases) cancellation of the agreement.

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Default by the Vendor or Buyer

If either party defaults after the contract is unconditional, the other party has remedies under the Property Law Act 2007 and the agreement itself.

Buyer default:

• The vendor may serve a notice under section 225 of the Property Law Act 2007 requiring settlement within 12 working days.
• If the buyer does not settle within that period, the vendor can cancel the agreement and forfeit the deposit.
• The vendor can also sue for any shortfall if the property is subsequently resold for less.

Vendor default:

• The buyer may serve a similar notice requiring settlement.
• If the vendor does not perform, the buyer can cancel and recover the deposit, plus damages.
• In some cases, a buyer may seek specific performance — a court order requiring the vendor to complete the sale.

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Purchasing Commercial Property for Leasing

If you are buying a commercial property as an investment (retail, office, or industrial) with a view to leasing it out, the agreement must also address:

• Whether an existing tenancy transfers with the property (and on what terms).
• Any rent arrears or pre-paid rent as at settlement.
• Whether the sale is a going concern for GST purposes (zero-rated if both parties are GST-registered and the property continues to be tenanted).
• The Building Warrant of Fitness obligations that will transfer to you as incoming owner.

Your lawyer should review any existing lease documentation as part of the due diligence process.

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Purchasing for Residential Rental

If you plan to rent the property out after purchase, be aware that:

• Any existing tenancy transfers to you as the new landlord. You cannot simply ask a sitting tenant to leave at settlement.
• You must comply with the Residential Tenancies Act 1986 and the Healthy Homes Standards.
• Bond lodgement must be made within 23 working days of receipt.
• Minimum notice periods and grounds for termination are strictly regulated.

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Key Takeaways for Buyers

Before you sign a sale and purchase agreement

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1. Have a lawyer review the agreement before signing — not after.
2. Check all vendor amendments carefully; the standard form may have been modified in the vendor’s favour.
3. Ensure your finance, LIM, and building report conditions have realistic timeframes.
4. Understand when the deposit becomes payable and under what circumstances it can be forfeited.
5. Arrange property insurance to take effect from the date you go unconditional.
6. For commercial property: check GST treatment (going concern vs standard-rated).
7. For tenanted property: obtain and review the existing tenancy agreement.

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This article provides general information only and does not constitute legal advice. Property transactions are complex and fact-specific. Always engage a property lawyer to review your agreement before signing.

Get in touch with NZ Legal for a fixed-fee review of your sale and purchase agreement.

Sources

1. Agreement for Sale and Purchase of Real Estate, 10th Edition (REINZ/ADLS)The standard form agreement used for the vast majority of NZ residential and commercial property transactions.
2. Property Law Act 2007Governs cancellation of agreements, remedies on default, and deposit forfeiture.
3. Building Act 2004Code Compliance Certificates and consented works.
4. Residential Tenancies Act 1986Applies where a residential property is tenanted at the time of sale.