sale and purchase

Is there a contract?

In writing and signed.  Exception:  Short term leases Part Performance  Equity title passes on Agreement/Contract Legal title has not passed

Standard Form Contract?

ADLS - Auckland District Law Society  -> Note Clause 5

Unconditional Contract

Once both parties have signed it is binding on both of them and they are legally obliged to settle.  OR A CONDITIONAL CONTRACT?

Conditional contract

Once all conditions are satisfied, the contract can be treated as if it is unconditional. Conditional contract can give rise to fiduciary relationship and equitable interest (Bevin v Smith) - depends on contract itself and the practical situation of the parties Whether equitable title has passed depends on the contract and the parties intention in relation to contract (discretionary) (Bevin v Smith) What will give rise to equitable interest: Option to purchase (Intention to sell) Vendor acting inconsistent with contract of sale. (Bevin v Smith). Vendor must do everything necessary to transfer the title (Initial intention to sell) Getting resource consent (intention) - because it’s likely to happen What wont give rise to equitable interest: Right of first refusal/ or pre-emption No intention to sell (Motorworks v Westminster Autos)

Settlement

Purchaser Pays in full and is able to acquire registration.

Completion

Registration. Common law/legal title does not pass until registration.

Rules for risk order

1. Replacement of default rules by contractual provisions

2. Limited statutory modification of default rules /insurance

3. Default rules of common law and equity

1. ADLS and how it changes the rules (5.1 where risk lays, 5.2 Damage) and recognition of changing in other contract

1.1 Is the ADLS standard form contract in use?

5.1 Property and Chattels remain at risk of vendor until Possession is given.

Vulnerable to Damage, Fire, Natural Disasters, Trespass

Trespass;

The purchaser can sue the vendor for the reasonable cost of reinstatement. The vendor has suffered a loss and in possession, therefore can sue the trespasser. Claim against trespasser: The reasonable cost to put property back into the state that it was in (Lockwood Buildings, Scutt v Lomas, Bryant v Mackin) If older version which has no clause 5 is used where the purchaser holds risk: (Cousins v Wilson) P cannot sue in trespass unless they have possession Vendor may only sue if they are in possession. (Should have to point to loss but may get exemplary damages.)

Damage:

5.2 How serious is the damage?

Major damage

The purchaser has the choice to complete the contract at a reduced price or cancel the contract. Threshold: Untenantable assessment on settlement date. (Du v Youn) = if at time of settlement the property as a whole has been rendered unfit for the occupation and use of someone assumed to want the property for the same purposes as the purchaser.

If Minor

The purchaser must complete the contract, at a reduced price.

No need to go further if ADLS is in use.  [don't talk about the default rules if they use the ADLS contract]

IF NOT in use continue:

1.2 Did the contract they use modify any Common law duties?

Statutory Modification of Default Rules

Is there a statutory provision that changes the default rules.

Insurance Law Reform Act 1985, s 13

• Default Rule: Vendor’s duty doesn’t extend to having to hand over insurance payout (Rayner v Preston)

 Default rule can be changed/overcome by statute if

1. There is loss/damage during period and

2. If vendor has insurance against that loss then

3. Purchaser may claim directly against insurance company on vendors insurance contract.

Default Rules of Common Law and Equity

Equity Passes on Contract. (Re Richards) Risk Lies with the Purchaser (Re Richards) The Vendor Becomes a ‘Sort of Trustee’ (Re Richards, Clark v Ramuz) Duty: Preserve the state that it was in on contract (Clark v Ramuz, Englewood Properties) Vendor retains possession, and the benefits of possession (Re Hamilton Snowballs conveyance) Vendor’s duty doesn’t extend to having to hand over insurance payout (Rayner v Preston) Englewood's possible scope of duties; Keep property in proper state of cultivation Use reasonable care to keep property in a reasonable state Protect from trespassers Keep property in good state and condition and ensure it does not deteriorate.  Not to abandon rubbish on the property  Sale of land and a business not to let the business lapse.

Trespass under the default rules or when ADLS hasnt been used

Risk is on the purchaser, purchaser has no possession, and cannot claim Trespass. (Cousins v Wilson) Vendor hasn’t suffered any loss, vendor is not at fault, no breach of fiduciary duty. No claim available. Possible Argument: the Vendor may hold rights to trespass on trust for the purchaser. (unlikely success per Reynor v Preston) Scutt v Lomax, Bryant v Macklin (UK) Claimants (vendor) may be entitled to the diminution in the value of the land or the reasonable cost of reasonable reinstatement. But it depends on the circumstances of the case. BUT loss would not be the vendors, risk shifted to the purchaser, if vendor is not negligent or at fault then the purchaser cannot sue the vendor claiming a breach of fiduciary duty Perhaps possible for the purchaser to sue the trespasser directly but requires extending the law of trespass.

Re Richards

Opie street - left by will to Ms McTague.  Richards and Eade enter into an unconditional agreement to sell Opie Street  Richard agrees to buy a house in Meyer Street.  Richards dies Issue: Does Ms McTague have an interest in Meyer Street?  Did Ms McTague have an interest in Opie Street? What happens if the vendor dies?

When contract becomes unconditional equitable title passes and equitable owner (purchaser) can seek specific performance for transfer. Equitable Title had passed to Eade Risk lies with the purchaser but Vendor has duty of preservation until settlement (sort of trustee ship) Vendor may still make use of property as they see fit (growing and harvesting crops) provided they don’t damage the property Richards only had an interest in the unpaid purchase price-

Clark v Ramuz

C had unconditional ASAP to buy R’s property.   Someone removed soil from the property while R was still in possession.   Issue: Where does the burden of risk lie in cases of differing equitable and legal ownership?

When ASAP is unconditional, purchaser becomes an equitable owner and vendor has a duty of preservation, i.e. to take reasonable care to keep the property in its current condition pending settlement.   Vendor becomes in some senses a trustee.   Omitting to do anything to take care will probably not suffice.

Englewood Properties v 

Patel

No need to know facts - Ben

In equity the vendor is a sort of trustee for the purchaser and therefore owes a sort-of trustee’s duties ‘A quasi-trustee’ Liable for physical damage resulting from his not exercising reasonable care (Lucie-Smith v Gorman = vendor left property early but did not drain the water system which froze and burst) Including damage inflicted by trespassers (Davron Estates Ltd v Turnshire) - Trespassers present at time of contract got them out but they removed stuff.  Theres a need to constrain the power of vendors during the in between.  Vendor keeps any money made during the in between (Re Hamilton-Snowballs Conveyance) Possible scope of duties:  Keep property in proper state of cultivation Use reasonable care to keep property in a reasonable state Protect from trespassers Keep property in good state and condition and ensure it does not deteriorate.  Not to abandon rubbish on the property  Sale of land and a business not to let the business lapse.  Act of god = Not liable unless they haven’t maintained something

Law Reform Act 1985, s 13 (Way of changing default rules)

What the law says Purchaser of land entitled to benefits of insurance between dates of sale and possession Applies during the period beginning with the making of a contract for the sale of land and ending on the purchaser taking possession of the land (or final settlement - whatever's first) Any policy of insurance maintained by the vendor in respect of any damage to or destruction of any part of the land.. Ensures in respect of the land agreed to be sold and to the extent that the purchaser is not entitled to be indemnified [paid] or to require reinstatement of that land under any other policy of insurance for the benefit of the purchaser as well as the vendor.  The purchaser is entitled to be paid by the insurer or require the insurer to reinstate that land in the same manner and to the same extent as the vendor would have been so entitled under the policy if there had been no contract of sale.

Summary:  Defines gap as between making of contract for sale and ending when purchaser takes possession or final settlement (1 that happens 1st) If there is loss/damage during that period; and  If V has insurance against that loss, then  P may claim directly against the insurance company on V’s Insurance contract.

ADLS Standard Contract for the sale of land

Clause 5

5.1 Statement of general principle reversing the default position at common law and equity 5.2 How serious is the damage?  If Major: P has the choice outlined in 5.2(1) Complete at reduced price or cancel.  If Minor 5.2(2) P must complete the purchase but at reduced price.  Major - ‘untenantable’

Du v Youn

House got damaged during Auckland anniversary flood.  Affected the retaining wall  Red stickered at date of settlement  Later downgraded to yellow sticker allowing some access to the property Issue: is the house untenantable

Untenantable if ‘at the settlement date the property as a whole had been rendered unfit for the occupation and use of someone assumed to want the property for the same purposes as the purchaser.’

Bevin v Smith (Conditional Contract)

Bevin was selling his farm to the Smiths who owned land nearby.  Contract was conditional upon receiving consent from the Land Valuation Tribunal (going to give approval) Bevin regretted his contract and took no steps to facilitate the application to the Tribunal when time permitted by the Act expired he claimed contract therefore had become illegal.  Whilst the contract was conditional Bevin was offered a paper road, he bought it and registered his title to it. He told the Smiths that whatever the outcome of their application to have the contract validated was he would still not sell them this strip of land he had acquired

Bevin owed fiduciary duties (extending to not take advantage of the fact he has acquired the paper road) Policy considerations:  ‘The view that a purchaser under a conditional contract has no equitable interest in the property pending fulfilment or waiver of the condition is unsatisfactory in a number of respects’ Many Contracts are made conditional upon the consent of a statutory board, consent which is ordinarily given as a matter of course.  - Odd if the vendor was free to treat land as his own and retain the benefit.  Smith should in equity have sufficient interest in the land to support a caveat and to impose fiduciary obligations on the vendor continuing in possession.  Need to have equitable title to launch a caveat (unsatisfactory if a purchaser in the position of the Smiths could not protect their position by way of caveat and had to rely instead on an injunction.) If equitable interest has passed depends on the contract itself and the practical situation of the parties. (if facts are relatively similar to Bevin v Smith probably will apply) Contrast to right to pre-emption or right to first refusal

Motor Works v Westminster Autos

MW was WAS’s tenant.   MW had right of first refusal.   MW discovered WAS had entered into an ASAP with a third party.   MW lodged a caveat on the title.   Issue: Whether a right of first refusal created a caveatable equitable interest

Four stages in sale of land when right of first refusal exists:   1.    Right granted 2.    Triggering event 3.    Offer made to purchaser 4.    Agreement for sale and purchase Equitable interest arises at stage three – when the right is distilled into enforceable terms capable of specific performance.

Cousins v Wilson

Used an earlier version of ADLS ASAP = If property is not untenable on the possession date the purchaser shall complete the purchase at the purchase price less a sum equal to the amount of the diminution in value of the property  The property remains sole risk of vendor until possession was given and taken. BUT damage caused hadn’t reduced the market value of the property.  C had ASAP (ADLS) to buy land.   W was a third party who came onto the land between completion of ASAP and actual taking of possession and cut down trees and bush.   Issue: Who can sue a trespasser in between a concluded ASAP and purchaser taking possession?

Trespass protects possession therefore the purchaser could not succeed.  Neither did the purchasers have a reversionary interest in the property. No damage to the properties overall value Wasn’t a continuing trespass so still couldn't sue when they gained possession.  Vendor may sue in trespass Issue with damages in succeeding from damages to the reversion -> must look at the effect on the value of the land -> reality was that the damage has not affected the value of the property at all [may actually increase the value depending on where in NZ it is] So the court gave them nominal damages and modest exemplary damages. Since this case:  Mortgagee may succeed in trespass  (Lockwood Buildings v Trust Bank Canterbury) New clause changed how risk is dealt with - may be able to point at some loss Scutt v Lomax, Bryant v Macklin (UK) Claimants (vendor) may be entitled to the diminution in the value of the land or the reasonable cost of reasonable reinstatement. But depends on the circumstances of the case. BUT loss would not be the vendors, risk shifted to the purchaser, if vendor is not negligent or at fault then the purchaser cannot sue the vendor claiming a breach of fiduciary duty Perhaps possible for the purchaser to sue the trespasser directly but requires extending law of trespass.