Understanding conditions in a Sale and Purchase Agreement
Buying your first home is super exciting, but all the paperwork can feel a bit overwhelming. One of the most important documents you’ll come across is the Agreement for Sale and Purchase (Agreement). This is the legal contract you sign once your offer on a property has been accepted by the seller.
Typically, the real estate agent presents the Sale and Purchase Agreement to you to sign after you’ve made an offer on a house. Your lawyer should review the agreement before you sign to make sure the conditions included actually protect you. Once both parties have signed, the agreement becomes legally binding, unless it is subject to conditions.
This Agreement usually includes common conditions in an offer, basically, things that need to happen (and by when) for the agreement to become unconditional.
Here’s a quick guide to the common conditions in a house sale agreement and what they really mean:
1. Finance condition (getting your home loan approved)
If you ticked that you need finance on the front page of the agreement, the deal becomes conditional on you getting your loan approved, on terms that you’re happy with. You’ll need to confirm your finance by the finance date (or by the extended date if an extension is granted).
If you can’t get a loan and need to cancel the agreement, the vendor has the right to ask for a satisfactory explanation. You’ll need to provide supporting evidence, like a letter or email from your bank or mortgage broker, showing that finance was declined or not approved on suitable terms. It’s not enough to just say, “I changed my mind.” The finance condition protects you, but it also comes with some responsibility to act in good faith.
2. LIM report condition (checking council property records)
You’ll need to order and pay for it yourself within five working days of signing the agreement, and the sale will only go ahead if you’re happy with the LIM—though you need to be reasonable and can’t turn it down without a valid reason.
If there’s something in the LIM that worries you (like unconsented work, flood risks, or boundary issues), you need to:
- Let the seller know in writing within 15 working days, clearly explaining what the problem is.
- If the issue can be fixed, you should also explain what you’d like the seller to do to fix it.
Important: If you don’t give written notice by the 15th working day, it’s assumed you’re happy with the LIM—even if you’re not.
Once you’ve raised concerns, the seller has 5 working days to tell you whether they’re willing and able to fix the issue by settlement day.
Then, you have a choice:
- If the seller won’t fix the problem, or doesn’t respond, you can either walk away or waive your objection and go ahead anyway.
- But you need to let them know your decision within 10 working days of raising your concern. If you don’t, the LIM condition is treated as not fulfilled, and again Clause 9.10(5) kicks in.
If the LIM isn’t ready in time and that’s not your fault (e.g. a council delay), and the seller won’t agree to extend the deadline, the LIM condition may be treated as not fulfilled, and you could cancel under Clause 9.10(5).
The LIM condition gives you a chance to check council records for red flags. If a serious issue arises, you have the right to raise it and potentially cancel the deal, but there are strict deadlines, and you need to follow the process properly.
3. Building report condition (checking the property’s condition)
You need to arrange for a qualified building inspector to prepare a written report on the condition of the buildings and any other improvements on the property. This must be done at your cost within 15 working days. The report must follow accepted industry standards and be based on an objective assessment. You’re allowed to have the property inspected at all reasonable times with reasonable notice, but any invasive testing (like drilling or cutting) requires the vendor’s written consent. Also, the inspection must respect any tenants’ rights, meaning you must give tenants reasonable notice before entering the property.
If the report raises concerns and you decide to cancel the agreement, you must provide a copy of the building report to the vendor if they request it.
It is important to note that this clause does not give the vendor an opportunity to fix any defects. Instead, it gives you, as the purchaser, the right to cancel the agreement if the report is unsatisfactory. However, there are some requirements if you wish to cancel using this clause — that is, you must obtain a written report and consider whether a reasonable purchaser reading the report would find the issues significant enough to walk away from the purchase.
That said, if you are unhappy with the report, you can still try to negotiate with the vendor, for example, to reduce the price or have certain defects fixed. Please note that the vendor is not obliged to agree.
4. Toxicology report condition (checking for contamination)
If the property was previously occupied and you’re unsure how it was used, especially with older homes or places that have been empty for a while, it’s a good idea to get a toxicology report. This is particularly important if there are rumours or signs the property was involved in drug production, like unusual damage, strange smells, or chemical stains. The report checks whether the property has been contaminated by illegal drugs, especially methamphetamine (P), though it can also detect other substances.
You’ll need to arrange and pay for the report yourself, and it must be completed within 15 working days of signing the agreement. The inspector must be qualified, follow accepted testing methods, and provide the report in writing and in good faith.
The seller must allow access for the inspection at a reasonable time, with reasonable notice. However, if the inspector needs to carry out any invasive testing (like cutting into walls or floors), they’ll need the seller’s written permission first.
You must assess the report based on facts, not gut feelings or assumptions. You can cancel the agreement if the report shows contamination or other legitimate concerns, but the reason must be tied to what’s actually in the report. If you do cancel for this reason, the seller has the right to ask for a copy, and you must provide it straight away.
5. Overseas Investment Act (OIA) consent condition
If you’re not a New Zealand citizen or permanent resident, or if you’re buying certain types of land (like large rural blocks or sensitive coastal areas), you might need permission from the Overseas Investment Office (OIA). You’ll be responsible for paying the OIA application fee. The agreement won’t go unconditional unless you get that consent, and the terms of that consent must be satisfactory to you, as long as you’re acting reasonably.
6. Land Act consent condition (subdivisions)
If the property you’re buying is part of a subdivision, and Section 225 of the Resource Management Act 1991 applies, the agreement can’t go ahead until all necessary approvals from the council or local authorities are in place.
7. Using KiwiSaver for your house deposit
This isn’t a condition, but it is important to note. If you are using your KiwiSaver funds to pay the deposit, it is important that the funds are paid into the vendor’s lawyer’s trust account and held there until settlement, rather than being paid directly to the real estate agent. This is because lawyers are required to provide an undertaking that, if the purchase does not go ahead (and the cancellation is not due to any fault or omission on your part), the deposit (or the portion funded by KiwiSaver) will be refunded, without any deductions, to your lawyer’s trust account, and then returned to your KiwiSaver provider.
When you’re buying your first home, or any home, these conditions are there to protect you. Each one gives you time to check important details, like whether you can get finance, if the property is structurally sound, or if there are legal issues hiding in the council records. Knowing how these conditions work and sticking to the deadlines can make the difference between a smooth first home purchase and a stressful one.
It’s important to speak with your lawyer before signing a Sale and Purchase Agreement. Some standard conditions may not be necessary for your situation, or you may need to include specific clauses to protect yourself. Your lawyer can explain the process, make sure the deadlines are realistic, and help you avoid unexpected problems later on.
Buying your first home is a big milestone, and understanding the sale and purchase agreement process in New Zealand gives you confidence and peace of mind as you move from making an offer to finally getting the keys.
Thinking about buying a home? Talk to our property team before you sign a Sale and Purchase Agreement. We’ll make sure you’re protected.