31/01/2023
ADLS has issued some useful guidance on dealing with agreements for sale and purchase of real estate, leases and tenancies in light of the Auckland flooding:
"... it may be timely to look at how the ADLS/REINZ sale and purchase agreement deals with damage to property under contract.
Clause 5(1) of the Eleventh Edition 2022(2) states that the property and chattels remain at the risk of the vendor until possession is given and taken. If the property is destroyed or damaged and is untenantable and not made good by the settlement date, the purchaser under clause 5.2(1) has to make an election to either complete the purchase at the purchase price, less a sum equal to the insurance monies received or receivable by the vendor (unless the insurance company agrees to reinstate up to the insurance cover before settlement) or cancel, and then the deposit is refunded in full with no further claims able to be made between the parties.
If the property is not untenantable, settlement under clause 5.2(2) is to take place on the settlement date at the purchase price less a sum equal to the amount of the diminution in value of the property, which, to the extent that the destruction or damage can be made good is deemed to be equivalent to the reasonable cost of reinstatement or repair.
Under clause 5.2(3) if the property is zoned rural under the District Plan, damage to the property shall be deemed to have rendered the property untenantable when the diminution in value exceeds an amount equal to 20% of the purchase price.
Clause 5.2(4) requires any dispute as to the diminution in value to use the procedure set out in the Compensation Clause 10.8 of the agreement.
No doubt insurance companies will be very busy making assessments and dealing with claims, and we would encourage parties to try to co-operate where they can. Recently EQC caps which relate to damaged land were increased to $300,000 plus GST for land under and within 8 metres of a house and outbuildings. Cover also applies to land under and supporting the main accessway (but not the driveway surface) for up to 60 metres. It can also cover some retaining walls protecting a residential dwelling. Insurance companies now administer EQC claims.
In terms of rented residential properties, s 59 of the Residential Tenancies Act 1986 applies if properties are damaged due to something other than a breach of the tenancy agreement the RTA provides for two situations:
• Under s59(2) if the premises is destroyed or so seriously damaged or destroyed as to be uninhabitable, rent abates and either party can give written notice to terminate – landlords not less than 7 days' and tenants not less than 2 days’ notice.
• Under s59(4) if the premises are partially destroyed, or part of the premises is so seriously damaged as to be uninhabitable, then rent abates accordingly and either party may apply to the Tenancy Tribunal for an order terminating the Tenancy. The Tribunal will order termination if it is satisfied that it would be unreasonable to require the landlord to reinstate the property or (as the case may require) to require the tenant to continue with the tenancy albeit at a reduced rent.
For commercial tenancies the lease terms will dictate the processes Clause 26.1 of the ADLS commercial lease deals with total destruction, with untenantability causing immediate termination. If the landlord requires demolition or reconstruction the landlord has 3 months to give a tenant notice’ with a fair proportion of rent and outgoings abating in the meantime. Clause 27.1 relates to partial destruction when the premises are not untenantable with again a fair proportion of rent and outgoings abating pending completion of repairs and reinstatement."
