16 th ANNUAL CONFERENCE COMMERCIAL LEASING AND PROPERTY MANAGEMENT. ADLS Inc 6 th Edition Commercial Lease and 9 th Edition Sale Purchase Agreement

Transcription

1 16 th ANNUAL CONFERENCE COMMERCIAL LEASING AND PROPERTY MANAGEMENT ADLS Inc 6 th Edition Commercial Lease and 9 th Edition Sale Purchase Agreement 19 November

2 Biography Joanna Pidgeon is the founding partner of Pidgeon Law. She advises property developers, project managers, financiers, construction companies, landlords and tenants on all aspects of property development, property management and leasing, as well as providing commercial law and structuring advice. Joanna advises on projects including apartment buildings, terraced housing developments, hotel and resort developments, commercial, industrial office and retail building. She handles all aspects of fee simple, unit title, leasehold and cross lease subdivisions. Joanna is experienced in leasing matters, including green leasing and changes brought about by the Property Law Act Joanna has provided development, leasing and property management advice to New Zealand s largest retailer. Joanna acts for many New Zealand and overseas property investors. Pidgeon Law has drafted the model unit title body corporate rules for ADLS Inc. Joanna chairs the Auckland District Law Society Inc s Property Disputes Subcommittee and is a member of the Property Law Committee and sat on the Documents and Precedents Subcommittee that redrafted the Auckland District Law Society Inc s Deed of Lease. She is a member of the New Zealand Law Society s Property Section and its Land Titles Committee and is a member of the Conveyancing 2020 Workgroup. Joanna is a board member of the Selwyn Foundation. 2

3 6 th edition Commercial Lease 1. Background to the new Lease The 6 th edition lease is the first major redraft of the lease since 2006, other than tweaks to deal with the Property Law Act 2007, and the Unit Titles Act Changes reflect the changes to market conditions since then, including the GFC, together with challenges raised by the Canterbury Earthquakes. 2. Premises 2.1 The ADLS form of lease has previously taken the approach that there is a distinction between the premises and the Landlord's fixtures and fittings with the Tenant taking on the lease of the premises but with a right to use the Landlord's fixtures and fittings. This gave rise to consequential inconsistencies in the lease in relation to matters such as the maintenance provisions and to a lesser extent, notification of defects, Landlord's right of inspection and the alterations and additions provisions. It was decided that this distinction was no longer necessary and should be removed. This new approach is consistent with what the parties to a lease would expect in practice. The term premises is now defined in subclause 45.1 as including all the Landlord's fixtures and fittings and any specific items set out in the Fourth Schedule of the Lease. 3. Outgoings 3.1 The insurance excess in item 5 of the First Schedule has been increased to $2,000 to reflect current practice. There is now an additional acknowledgment contained in subclause 23.2 to the effect that for the purposes of section 271 of the Property Law Act 2007 any excess payable represents an amount which the Landlord has not insured in terms of the section. The section permits contracting out of the regime under sections 268 and 269, which exonerates a Tenant from liability if a Landlord is insured for specified perils. 3.2 item 7 (maintenance charges) has been reworded to exclude repairs due to defects in design or construction, inherent defects in the building and renewal of replacement of building services. 3.3 Item 10 of the list of outgoings has been amended to exclude repaving or resealing of yard and carparking areas. 3.4 Item 13 (Building Act compliance costs) specifically excludes costs of upgrading or other work to make the building comply with the Building Act Subclause 3.2 makes it mandatory for the Landlord to vary the proportion specified in the First Schedule of any outgoing that is not separately assessed in respect of the premises to ensure the Tenant pays a fair proportion of the outgoing. 1 ADLSI Commercial Leasing and the Sixth Edition 2012 ADLSI Form of Lease Justin March and Joanna Pidgeon October/November 2012 has been a source for some of this paper s material 3

4 4. Rent 4.1 A CPI rent review has been added as an optional alternative to market rent review, or both can be used by specifying the date for the type of review to take place. The practice of inserting for example "2 yearly" is discouraged as it potentially leads to disputes when this crosses over into or conflicts with reviews during the renewed terms. 4.2 All review dates must now be specified in item 11 of the First Schedule. Where there is a conflict in dates, the market review date will apply. 4.3 A market review is no longer the default method of review on a renewal of the lease. Amendments have been made to the renewal subclause 32.1 to allow for either a market rent review or CPI rent review on the renewal date. 4.4 Subclause 2.2 has been changed in relation to the determination of market rent by valuers acting as experts by extending the timeframes for the appointment of valuers to 20 working days. Both parties jointly and severally indemnify the third expert for costs, although as between the parties the costs are to be shared equally. The parties are also free to release the third expert from liability for negligence. 4.5 Subclause 2.5 applies to a CPI rent review by applying a formula or mathematical statement which is not uncommon. It does not contemplate any decrease in rent following a CPI rent review and therefore works as a 'collar' or ratchet. 4.6 The formula in the clause also envisages that there may be market rent reviews in between CPI rent review dates. In that situation, the CPI rent review would effectively be based on the percentage change in the CPI from the last rent review date, even if that date is a market review date and not a CPI rent review date. 4.7 If a more complicated CPI rent review is desired the clauses will need to be amended. 5. Default interest 5.1 If no default interest rate is specified in the First Schedule subclause 5.2 provides default position being the rate charged by the Inland Revenue Department on unpaid tax under the Tax Administration Act 1994 plus 5% per annum. 6. Costs 6.1 Subclause 6.1 provides that each party meets their own costs in relation to the negotiation and preparation of the lease and any variation or renewal. 7. Tenant's maintenance 7.1 Provision is made for the parties to complete a premises condition report which should be attached to the Fifth Schedule. It will be evidence of the condition of the premises at the commencement of the lease. Subclause 8.1 specifically refers to the report if it is attached to the lease. This is optional but it prevents disputes on reinstatement and redecoration issues. 4

5 7.2 Subclause 8.1 now makes it clear that in the event that the lease is renewed the benchmark for the standard of repair by the Tenant is determined at the commencement of the initial term of the lease and not the latest renewed term. It was noted by the subcommittee that there have been instances where disputes arose, particularly when lease terms were renewed and each renewed term is effectively a new lease. The potential for arguments when an existing tenant is not the original tenant is removed. 7.3 Because the premises now include the Landlord's fixtures and fittings, the Tenant's maintenance obligations extend to these fixtures and fittings. 7.4 Minor improvements have been made to the provisions in subclauses 8.1(b), (c) and (d) relating to glass breakages, painting and replacement of floor coverings by providing for the type and quality of works relating to them, which must be of the same or better quality, as that installed at the initial commencement date of the lease. 7.5 A Tenant is not responsible for the maintenance of building services but is responsible for the payment of the costs incurred by the Landlord to the extent allowed under the list of outgoings in the First Schedule. 8. Landlord's maintenance 8.1 Subclause 11.1 requires the landlord to keep the building weatherproof. The Landlord is required to maintain all building services under the previous edition of the lease. The term 'building services' is now defined in subclause 45.1 of the lease to mean all services provided by the Landlord as an integral part of the building for the general use and enjoyment of the building, whether or not they are located within the premises. It is now clear that maintenance of these services is the Landlord's responsibility and not the Tenant's. 8.2 Subclause 11.2 makes it clear that if building services cannot be maintained in good order and repair through regular maintenance they will have to be replaced by the Landlord if it is reasonably required. The costs of replacement of building services are not recoverable as an outgoing under the listed outgoings in the First Schedule. 9. Access for Works 9.1 Access under clause 13.1 for the Landlord s Right of Inspection and under clause 14.1 for the Landlord to repair needs to be at all reasonable times and with prior written notice except in times of emergency when prior written notice is not required. 9.2 Changes to the access for works under clause 15 have arisen as a result of the fallout from events in Christchurch. This led to an increased awareness of Landlord responsibilities to ensure that buildings are brought up to seismic standards. It also increased awareness concerning the potential for issues to arise in the landlord/tenant relationship where buildings are damaged and access to the premises for repair is required under extraneous circumstances. Three additional subclauses have been added to address some of these issues, in addition to other changes made. 5

6 9.3 Subclause 15.1 provides that the Tenant is to permit the Landlord (its employees and contractors), access to the premises to inspect and carry out repairs (where they are not the responsibility of the Tenant) to the premises or to the adjacent premises at reasonable times and on reasonable notice first being given, except in the case of emergencies. Once entering, the Landlord may remain at the premises for a reasonable period for the purposes of this inspection or carrying out the works. As noted, this arises in circumstances when it is not the Tenant s responsibility to carry out works, and if the works are required to be carried out to comply with the requirements of statutes, regulations, by-laws or are requirements of any competent authority. This and the following clauses have been drafted with building strengthening works in mind, but they also apply to other applicable works. 9.4 Subclause 15.2 is new. This clause provides for an abatement of a fair proportion of rent and outgoings of the Tenant s business use of the premises is materially disrupted due to the Landlord s works under clause However, this is without prejudice to the Tenant s rights if the disruption is due to the Landlord breaching its obligation under clause 15.1 to cause the least possible inconvenience to the Tenant. 9.5 Subclause 15.3 is new also. This clause enables the Landlord to require the Tenant to vacate the whole or part of the premises to enable work to be carried out under clause 15.1 if that is required in the Landlord s reasonable opinion. Reasonable notice must be given and the vacation must be for a reasonable time. On expiry of the notice requiring the Tenant to vacate, the Landlord may take possession of the premises or the part of the premises specified in the notice. A fair proportion of rent and outgoings will abate during that period of vacation from the premises. 9.6 Subclause 15.4 is the third and final new provision under this heading. It qualifies subclauses 15.1 and 15.3 by requiring the Landlord to act in good faith and have regard to the nature, extent and urgency of the works when exercising the Landlord s right of access or possession in accordance with those subclauses. This is to ensure that there is co-operation with the Tenant in terms of timing and the extent of the works completed which may require the Tenant to temporarily vacate. This protection was considered prudent in view of the legal principle that a tenant is entitled to quiet enjoyment and also in view of the fact that building upgrading is often not urgent. Different Councils are giving different periods of time to upgrade buildings, depending on rating, use and age. In some instances, the strengthening could be done, say, at the end of a tenancy rather than during the term of a Tenant s lease. By way of further example, if the Tenant is a retailer, the Landlord should look to avoid repairs during the Christmas sales rush. Clause 15.1 cannot be used to go beyond the minimum repairs required by statute. Landlords can only be encouraged to consult with their Tenants in terms of their plans, with view to negotiating a workable process before issuing notices, so that the Tenant s wishes and needs can be accommodated to the greatest extent possible. 9.7 Whether Council has issued an indicative assessment of a building or not, Landlords can only be encouraged to obtain their own Engineers Report obtaining firstly an Initial Evaluation Process. If that process then establishes that it is an earthquake probe building, they would then need to do a detailed assessment. 6

7 10. Alterations, additions, reinstatement and chattels removal 10.1 The alterations, additions and reinstatement provisions are now grouped together in clause Subclause 20.1 makes it clear that the Tenant's reinstatement of the premises must be completed no later than the end or earlier termination of the term, and cannot remain in the premises for a reasonable time to complete. Subclause 44.1 expressly excludes section 266 (1) (b) of the Property Law Act 2007 (removal of fixtures by Lessee) from the lease. Section 266(1) (b) gives the Tenant the right to remove its fixtures during a reasonable period after the lease ends unless the parties agree otherwise Ownership of the alterations or additions that are not removed may at the Landlord's election pass to the Landlord without compensation payable to the Tenant Tenants frequently fit out their premises before the commencement date during fitout periods. The reinstatement provisions in subclause 20.1 now also apply to additions or alterations made by the Tenant before the commencement date as well as during the term of the lease. 11. Compliance with Statutes and Regulations 11.1 A new subclause 21.1(c) has been inserted, requiring the Tenant to promptly provide the Landlord with a copy of all requisitions and notices received from a competent authority under subclause The improvements rent provision has been deleted from subclause There have been several reasons for this, including the fact that improvements rent is rarely, if ever, charged in practice, fears that Landlords may try to pass high building strengthening costs onto Tenants inappropriately under this clause, the further fact that structural repairs have always been excluded from the outgoings, and finally that, by comparison, the Property Council lease does not have an improvements rent provision. Improvements Rent only lasted until the next rent review. Sometimes the Improvements Rent percentage has been used as a guide for a return a Landlord might make on doing some additional fitout works for a Tenant over, say, a 10 year term, rather than it being used for its intended purpose as a statute/regulation imposed works return As the 6 th edition lease is only being used in new lease situations the parties can consider at the time of entry what timing, arrangements, returns etc need to be factored in if there are going to be strengthening works carried out during the term of the lease and any renewals. If the building was to be strengthened during the lease term, the parties could, for example, agree for the rent to be reviewed, which may allow some additional return on expenditure. However, we note that actual building strengthening expenditure has little relevance to market rent, and other issues can impact on costs, such as whether the building is historic or not The Landlord only pays for the improvements if required by legislation or a competent authority, where it is not an existing responsibility of the Tenant s under clause (That is, if the works are required due to the use of the premises by the Tenant). The 7

8 Landlord still has the right to terminate the lease if the expenditure on improvements is unreasonable. If there is a dispute over whether expenditure is unreasonable it is to be determined by arbitration. 12. Insurance 12.1 The insurance provisions have been grouped together in clause Landlord's insurance is now all specified in the First Schedule so as to make clear that the perils such as fire, flood, and explosion are in respect of the building and loss of rents, damage or destruction of the Landlord's fixtures and fittings and public liability are optional additional risks which were previously in subclause Loss of rents cover is for 12 months unless amended With insurance issues about cost of cover, availability, whether it is indemnity or replacement and excess levels arising out of the Canterbury earthquakes a landlord should disclose the terms of insurance before entering into a deed of lease to a tenant Subclause 25.1 provides for situations where the Tenant is to have the benefit of the Landlord's insurance. This is a minor rewording of the subclause in the previous edition of the lease to better reflect the provisions of section 269 of the Property Law Act In relation to Unit Title development, subclause 34.4 has been modified so that a Landlord must insure the building if the Body Corporate resolves that the Landlord is to as permitted under section 132 (2) (a) the Unit Titles Act 2010 for stand-alone units. 13. Untenantability 13.1 Untentantability has been deliberately left undefined in the Deed of Lease. This decision was reached in light of several useful judgments on the issue, which indicate that situations where untenantability issues arise are very fact specific. Matters such as the degree of damage and length of term to run etc are among the relevant considerations in determining whether a premises has become untenantable. Russell v Robinson (2011) 2 NZLR 424 (HC) confirmed the test to establish untenantability as follows: 1. Due to the damage the premises must be unfit for occupation by the tenant for their intended purpose; and 2. There must be a degree of permanence to the damage that is, damage that is not of a transitory or temporary nature This will always be a question of fact and degree. Also, the time required to make the premises tenantable again must be considered, together with the length of the remaining term of the lease. Those working on matters where untenantability arise 8

9 are also directed to New Lynn Compliance Centre Ltd v Birdwood Custodians Ltd (2011) 12 NZPR 730 (HC) which further considers this issue. 14. No Access in Emergency 14.1 Subclause 27.5 and 27.6 are new and are designed to cover situations such as the red zone in Christchurch, where the actual premises might not be damaged but cannot be accessed Emergency is defined in clause 45.1(d) as meaning a situation that: (1) Is a result of any event, whether natural or otherwise, including an explosion, earthquake, eruption, tsunami, land movement, flood, storm, tornado, cyclone, serious fire, leakage or spillage of any dangerous gas or substance, infestation, plague, epidemic, failure of or disruption to an emergency service; and (2) Causes or may cause loss of life or serious injury, illness or in any way seriously endangers the safety of the public or property; and (3) The event is not caused by any act or omission of the Landlord or Tenant Subclause 27.5 is new. It provides for an abatement of a fair proportion of the rent and outgoings where there is an emergency and the Tenant is unable to gain access to the premises to fully conduct the Tenant s business from the premises because of reasons of safety of the public or property or the need to prevent reduce or overcome any hazard, harm or loss that may be associated with the emergency. This includes circumstances where there is: (a) A prohibited or restricted access cordon applying to the premises. (b) Prohibition on the use of the premise pending the completion of structural engineering or other reports and appropriate certifications required by any competent authority that the premises are fit for use. (c) Restriction on occupation of the premises by any competent authority. In such circumstances, then a fair proportion of the rent and outgoings ceases to be payable for the period commencing on the date when the Tenant became unable to gain access to the premises to fully conduct the Tenant s business from the premises, until the inability ceases Subclause 27.6 is new also. This clause states that it applies where subclause 27.5 applies (that is, there is an emergency and the Tenant is unable to gain access to the premises to conduct business) and the premises or building of which the premises form part are not totally or partially destroyed or damaged as provided for in subclauses 26.1 or This subclause provides that either party may terminate this lease by giving 10 working days written notice to the other if: (a) The Tenant is unable to gain access to the premises for the period specified in the First Schedule (default period is 9 months); or 9

10 (b) The party that terminates this lease can at any time prior to termination establish with reasonable certainty that the Tenant is unable to gain access to the premises for that period. Any termination shall be without prejudice to the rights of either party against the other This provision is intended to provide a clear direction in situations where it is evident that the premises will be inaccessible within the stipulated period, so that matters can be dealt with expeditiously rather than waiting for the inevitable. As the no access period is specified in the First Schedule, the parties can turn their minds to whether 9 months is a suitable period of time at the outset when entering into the lease. For example, if the lease term is quite short, the parties may decide that a shorter no access term would be appropriate. Needless to say, tenants should also consider taking out business interruption insurance and landlords should consider taking out loss of rent insurance to help ease their respective situations if the premises becomes inaccessible. 15. Assignment or Subletting 15.1 Subclause 33.1 adds the prohibition of assigning, subletting or otherwise parting with possession of, not only the premises, but also the carparks (if any) or any part of them, without first obtaining the Landlord s written consent. As required under s224 of the Property Law Act 2007, the Landlord shall not unreasonably withhold or delay its written consent Subclause 33.1(a) requires that the Landlord s satisfaction as to the suitability of the proposed assignee or sublessee must now be reasonable. In the case of subleases they must be shown to have the financial resources to meet the subtenant s commitments under the sublease. The Tenant is now required to give the Landlord any additional information reasonably required by the Landlord in order to make its determination Subclause 33.1(d) now gives the option where a company assignee is not registered on the public stock exchange in New Zealand or Australia to require either: (a) What was previously required, namely a guarantee in the customary form approved or prepared by the Landlord; or the new option of (b) A bank guarantee from a registered trading bank in New Zealand on reasonable terms approved by the Landlord as security for the performance by the Company of its obligations under this lease is provided to the Landlord While a one year s rent and outgoings is reasonably standard, the level reasonably accepted by a Landlord will vary, and may depend on the type of property and how quickly the property might be re-let. Thought should also be given to whether the guarantee amount should increase be aligned with the rental so that, whenever the rent is increased, the guarantee amount increases in correlation Subclause 33.3 specifies the public stock exchange as being in New Zealand or Australia, in recognition of our increasing Trans-Tasman commerce. An effective 10

11 change in control of a Tenant company triggering an assignment requiring the Landlord s consent, has now been extended to changes in shares in a shareholder of the Tenant company. That is, in terms of new capital triggering a change of control for the purposes of assignment, this has now been specified as being either in the Tenant Company or its shareholder. It is now specified that written consent of the Landlord is required which will not be unreasonably withheld or delayed. 16. Implied Terms 16.1 Subclause 44.1 expressly provides that all the covenants and conditions implied in leases under the Third Schedule of the Property Law Act 2007 do not apply Section 224 (Landlord's consent not being reasonably withheld or delayed) of the Act is expressly deleted, but is inserted as an express provision of the lease under the interpretation provisions in clause 45.1(u). 17. Guarantee 17.1 The key change is that this now a guarantee and indemnity with the words and indemnity inserted in clauses 3, 5 and 6 in the First Schedule When lawyers are attending to clients signing guarantees, they should bring their attention to clause 4, in particular, to the provision that that guarantees extend to rent reviews as well as continuing when leases are assigned. It was decided against putting a warning in the Deed of Lease in relation to this. 18. Bank Guarantee 18.1 Experienced landlords are increasingly requiring of bank guarantees, given that shareholders and directors commonly have assets tied up in family trusts, and independent directors refuse to give personal guarantees. There is no provision for a bank guarantee in the Deed of Lease although the parties can easily negotiate a bank guarantee as a term of the lease in place of a personal guarantee (although as stated above, a bank guarantee is an option on an assignment in clause 33.1(d)). If taking this course, then an additional clause referring to a bank guarantee would need to be inserted into in the original Deed of Lease. 19. Conclusion 19.1 The new deed of lease has evolved with changed market conditions, and events coming out of Canterbury and remains a trusted, balanced lease document. It is only ever a base document to be amended as different deals and situations require. 9 th edition Sale and Purchase Agreement 20. Key Changes 20.1 The Ninth edition 2012 agreement implements numerous changes, the key ones are outlined below. 11

12 20.2 The distinction between the Possession Date and the Settlement Date is removed, so that if these dates are not the same date, a new clause will need to be inserted in the agreement A standard building report clause has been inserted which shows on the front page and links back to a new subclause 9.3 as a building report condition is now a standard sale and purchase condition. The key things to note are that the purchaser has to be satisfied with the building report on the basis of an objective assessment. The report must be prepared in good faith, by a suitably qualified building inspector and in accordance with acceptable principles and methods as established in the High Court Lerner v Schiehallion Nominees Ltd [2003] 2 NZLR 671. The purchaser has 10 working days to obtain the report, and has to provide the vendor with a copy if required. If the purchaser wants a subjective test then this clause should be deleted and a new clause inserted. A general due diligence clause may be preferable in some instances Technical settlement requirements have been updated making sure that settlements are usually remote and follow Property Protocols and E-Dealing Practice Guidelines issued by the Property Law Section of the New Zealand Law Society, as well as referring to electronic documents In the case of Unit Titles a requirement has been inserted in clause 2.4(3) for the Stakeholder to hold the deposit until the purchaser s rights of cancellation under the Unit Titles Act 2010 have been exhausted, ie until after the pre-settlement disclosure statement has been given at least 5 working days before the Settlement Date and additional disclosure requirements have been met. The stakeholder will want confirmation from both parties that the disclosure statements have been provided by the prescribed deadlines, or if not that the purchaser has elected to postpone the settlement date rather than exercise rights of cancellation Changes have also been inserted fine tuning in clause 8 the vendor s compliance with disclosure obligations under the Unit Titles Act The Canterbury earthquakes have led to the insurance provisions being amended in clause 4.2(2) so that in the case of partial damage on settlement where a property is not untenantable, the purchaser may deduct as compensation for the diminution in value an amount equivalent to the cost of reinstatement or repair. If there is a dispute over the amount of diminution in value clause 4.2(4) sets out a procedure the same as set out in clause Clause 7 deals with the Supreme Court decision in Property Ventures v Regalwood 2. This particular case has been very significant in the legal world having started at the District Court, then upheld in the Court of Appeal and finally overturned in the 2 Elias CJ, Blanchard J, Tipping J, McGrath J, Wilson J, Supreme Court, SC85/2008, [2010] NZSC 47 [28 April 2010] 12

13 Supreme Court. The Supreme Court decision meant a change to the agreement to incorporate the courts findings and amendments were promptly made The case revolved around the settlement of a $1,500,000 building that did not have a Council building warrant of fitness and had an outstanding Council notice to obtain engineering reports to ascertain compliance with the Building Code. The purchasers claimed breach of warranty under the agreement and settlement was delayed. The Council matters were not resolved and the vendor issued a settlement notice and settlement in full. The purchaser responded requesting a reduction in the purchase price for breach of warranty. The District Court and High Court accepted there was as breach of warranty, but found in favour of the vendor for settlement in full. They held the purchaser had to demand a purchase price reduction before settlement for such a breach, otherwise the purchaser was required to settle in full The Supreme Court overturned this decision and held that the purchaser did have a right to a reduction in purchase price for the breach of warranty, and therefore the vendor had no right to demand settlement in full. They agreed that the purchaser could not delay settlement but that settlement did not mean settlement in full. Instead it meant the purchaser could settle by paying the purchase price less a genuine pre-estimate of the amount by which the property had devalued resulting from the breach of warranty. In this case this amount was approximately $500,000. The Supreme Court found that the vendor s cancellation was not valid and found in favour of the purchaser. As a result the agreement was amended to reflect the court s findings The purchaser also argued that there was a mis-description of the property entitling them to an abatement of the purchase price under clause 5.4 of the agreement. This claim failed but the clause was analysed and subsequently amended as a result of the court s findings Clause 6.5 now says a breach of warranty by the vendor does not give the purchaser a right to defer settlement until the breach is remedied, but that the purchaser can claim compensation provided it s claimed before settlement using the new procedures in clause 7. Clause 5.4 now says if there is an error, omission or mis-description of the property or title, the purchaser is not entitled to cancel (except where section 7 of the Contractual Remedies Act 1979 applies) but (like clause 6.5) it can claim compensation before settlement using the procedures under new clause Clause 8 in the agreement dealing specifically with unit titles has been changed to reflect the new disclosure regime under sections 144 to 153 of the Unit Titles Act 2010 and to reflect the new term owner under the Act, as well as the introduction of redeveloping by an amendment to the unit plan. Additions have also been made to the acknowledgements on the signing page and the signing warnings on the back page to address the new disclosure regime Clause 14 and Schedule Two have been inserted to allow for zero rating of transactions under the new compulsory GST zero rating regime introduced by recent amendments to the Goods and Services Tax Act Clause 15 regarding the supply of a going concern has been changed slightly to be consistent with clause 14. There are signing warnings on the back page to address the new zero rating regime. 13

14 It is important before signing an agreement to obtain tax advice, particularly before completing new Schedule Two as failure to do so correctly can cause significant tax consequences. See Appendices attached to this paper for a useful flowchart to follow when addressing the GST position under the agreement It is essential that the real estate agent check they are using the latest version of the agreement, for both general sale and purchases, and for auctions and tenders (discussed below). If not, the parties to the agreement will miss out on important changes that benefit them and help clarify past legal issues arising under old agreement versions. Failure to use the latest version could result in unnecessary legal costs if a dispute arises that could have been adequately dealt with under the latest version of the agreement. Auction Agreement - Fourth Edition This will be released shortly implementing the relevant standard agreement changes. Tender Agreement - Fourth Edition Just like the auction agreement discussed above, this will be released shortly. Joanna Pidgeon, Pidgeon Law joanna@pidgeonlaw.co.nz 14