Unconditional contracts: can you get out?

Kelly Bek

Associates

Associate

Phone: +64 7 927 0546
Email: kbek@clmlaw.co.nz

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Bachelor of Arts (Hons), PG Dip Law, University of Birmingham

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An unconditional contract is one that has no conditions attached to it. Once both parties have signed the contract it is binding on both of them and the parties are legally obliged to settle.

However, lawyers acting for purchasers often get asked the question “Is it possible to get out of an unconditional contract”?

In general the answer is no. The property and commercial world revolves around parties being able to rely on unconditional contracts to enter into other commitments. However, as set out below, there are limited circumstances in which a purchaser may be able to challenge and legally cancel an otherwise “unconditional” contract.   

Requisitioning title

If the title for a property turns out to be materially different from that which the purchaser contracted to buy, there may be a right for the purchaser to requisition the title. This right is currently contained in Clause 6.2 of the ADLS Agreement for Sale and Purchase (ninth edition, 2012(5)). It gives the purchaser a 10 working day period in which the purchaser can notify the vendor of any objections or requisitions to the title. If no requisitions are received, the purchaser is deemed to have accepted the title.

It is important to note that the right to requisition is limited in scope. A purchaser can only requisition the title in relation to serious defects or encumbrances registered against that title that are not notified or recorded in the contract. An example of this would be where a purchaser enters into an agreement to purchase land from a vendor that is undertaking a subdivision. If the vendor subsequently registers restrictive land covenants on the title but does not at any point make the purchaser aware of their intention to do so, the purchaser may have the right to requisition the title for a removal of the covenants.

Once a purchaser has raised a requisition, the vendor has two options. Firstly, it can accept the requisition and arrange for the offending encumbrance to be removed prior to settlement. If this happens, the requisition is extinguished and the purchaser must proceed with the contract. However if the vendor is unwilling or unable to comply with the requisition, then the purchaser then has the option to cancel the contract (or proceed regardless).

It is worth noting that a specific right to requisition also exists in relation to cross lease titles. If there have been any alterations to the external dimensions of any leased structure or if structures not intended for common use are situated on any part of the land that is not subject to an exclusive use area, then the purchaser can require that the vendor rectifies the title by depositing a new plan and registering a new cross lease. If the vendor is unwilling to do this, the purchaser can cancel the contract.

Misrepresentation

A purchaser may be able to cancel a contract if they can show that they were induced to sign the contract on the basis of a misrepresentation by the vendor or the agent. This is provided for in Section 7 of the Contractual Remedies Act 1979. It is important to note that the remedy is only available in respect of material misrepresentations that go to the very root of the contract. It effectively means that the purchaser is purchasing something that is fundamentally different to that which they initially contracted to buy. For example, if the vendor intentionally lies or distorts a crucial fact about the property (such as representing that the property does not have any leaking issues when in fact it does) then the purchaser may be able to argue that the contract is invalid.

Misrepresentations can be made either orally or in writing or in fact by silence. A purchaser may be able to cancel a contract if a vendor knows about, but fails to disclose, something material in relation to the property. A recent court case involved a vendor who had knowingly fenced the property outside of the legal boundary but did not disclose this to the purchaser. It was held that the purchaser was actually purchasing something that was materially different to that which he signed up for, and the purchaser was able to cancel the contract.

Breach of essential term

This remedy is also contained in Section 7 of the Contractual Remedies Act. It basically provides that where a term in a contract is agreed by the parties either expressly or impliedly as being essential, then a breach of that term can give the purchaser a right to cancel. An example of this is a case handled by our firm a few years ago. Our client entered into a contract to purchase a deer farm. The contract included a provision stating that the vendor was required to “de-stock” the property prior to settlement. The vendor did not do this, and the matter was referred to Court. Taking in to account the surrounding circumstances and correspondences, the Court held that the provision was an essential term and it had been breached. Our client was therefore able to cancel the contract.  

Conclusion

It is of the utmost importance in the commercial and conveyancing worlds that unconditional contracts can be relied upon by parties to a contract. However, the law does provide purchasers with the remedy of cancellation in certain circumstances. The above is a very brief outline of three of the main remedies available, but there are others.

The complex nature of this area of law and the requirement for certain circumstances to be in existence means that parties should always seek specialist advice before seeking to reply on such remedies.

If you have any questions please don’t hesitate to get in touch with us on (07) 578 2099.