#17080 - Sale Of Land - Property Law

Sale of Land

• Stage 1 - Contract (exchange of promises)

• Must be in writing and signed

• Usually purchaser pays a deposit once signed

• Part Performance - an oral contract which is not enforceable, but equity might enforce it if ‘partly performed’ by one of the parties

• In NZ - most contracts use the ‘Standard Form Contact’ (Auckland District Law Society)

• Strict rules to ensure certainty and to encourage evidence in court cases

• Stage 2a - Settlement (enabling registration)

• P pays V in full

• Stage 2b - Registration

• P gets the actual property title

• Issue (in-between stage)

• Assuming there is an unconditional contract, what happens if problematic events occur between the contract and settlement/registration? E.g. damage, death of party

• Re Richards (party dies)

• Facts

• Richards left Opie Street to Ms McTague in his will

• Richards and Eade enter into an unconditional agreement to sell Opie Street

• Richards agrees to buy a house in Meyer Street

• Richards dies

• Issue 1 - Did Ms McTague have an interest in Opie Street?

• Issue 2 - Does Ms McTague have an interest in Meyer Street?

• Judgment on Issue 1

• When contract is signed, purchaser (Eade) becomes owner in equity

• Vender (Richard) holds land in a similar way to a trustee

• This means vendor no longer has an interest in the land but in a personal estate i.e. the sum of money being the unpaid purchase price

• Therefore, Opie Street no longer in will (adeemed)

• Judgment on Issue 2 - as Opie Street not in will, can’t trace title to Meyer Street

• Clark v Ramuz (when land is damaged)

• Facts

• R enters into contract to sell land to C

• In between, trespasser entered property and took a piece of land

• Issue - does the vendor (R) or the purchaser (C) have to pay for the land?

• Default Rules

• Equitable title passes on the contract. This means that risk lies with the purchaser.

• But the vendor becomes a ‘sort-of’ trustee.

• Judgment

• R was in a similar position to a trustee with C as the beneficiary

• R owed certain duties to C - one being “to use reasonable care to keep the property in a reasonable state of preservation” from when contract made

• R had breached contract, so had to pay for land

• Englewood Properties v Patel (commentary on many circumstances)

• After contract vender is a ‘quasi-trustee’ - owes some duties to purchaser

• Keep property in proper state of cultivation.

• Use reasonable care to keep property in a reasonable state.

• Prevent removal of soil by a trespasser.

• Keep property in good state and condition and ensure it does not deteriorate.

• Not to abandon rubbish on the property.

• If the sale is of land and a business, not to let the business lapse.

• Liable for physical damage resulting from not exercising reasonable care (including damage by trespassers)

• However, vendor retains possession and can still receive benefits from the property (like compensation) - Snowball case

• Central Duty - “preserve the property in its state as at the time of contract”

• There is still uncertainty as to how far this contract extends (perhaps a duty to maintain a future development agreement is the absolute limit)

• Scepticism of Trustee Analogy

• Duties imposed by the vender are contractual - not that of a trustee

• The vendor still has right to possess and enjoy land at the in-between stage

• Analogy does not work for all trustee duties

• Batchelar Centre Ltd v Westpac New Zealand (duty of vendor)

• Facts

• Westpac was exercising its mortgagee’s power of sale.

• Contract with BCL contained a term allowing Westpac to accept a better offer from someone else before settlement (which it did).

• BCL objected arguing that Westpac owed it a ‘duty of good faith’ to keep it informed and to allow it to match that offer.

• A ‘duty of good faith’ is also known as a ‘fiduciary duty’ akin to a lawyer-client and broker-investor duty, also in relationship between trustee and beneficiary

• BLC argued that Westpac owed this duty as it was a kind of trustee

• Judgment

• BCL did have an equitable interest - but duty of vendor not so clear

• Fiduciary duties usually only occur when one party is vulnerable to another - not clear that this was the case here

• Usually no fiduciary duty in commercial relationships

• There was a clear term stated in the contract that Westpac could accept a better offer

• Therefore, no duty owed by Westpac

• Seems that any duties beyond preservation (as stated in Englewood) would be too far

• Rayner v Preston (insurance/risk default rules) (English case)

• Facts

• Preston (vendor) had a contract of sale of property with Rayner (purchaser)

• Property suffered fire damage - vendor received pay-out

• Purchaser wanted this money himself or for it to go into repairing the damages (argued this should happen due to the trustee-like relationship)

• Issue - should the vendor or purchaser receive insurance pay-out at the in-between stage?

• Judgment - vendor gets to keep the money - equitable title has passed on contract so risk lies with the purchaser in this situation

• Problem with judgement - the vendor hadn’t suffered any loss so why should he get to keep the money?

• Insurance Law Reform Act 1985 (modification of English default rules by statute)

• Section 13 (1) - defines the in-between stage differently (after contract, before purchaser takes possession or settlement - whichever comes first)

• Section 13 (1A) & (1B)

• If there is loss/damage during that period, and

• If V has insurance against that loss

• P may claim directly against the insurance company on V’s insurance contract

• ADLS Standard Contract (modification of default rules by contract)

• Clause 5.1 - the property and chattels shall remain at the risk of the vendor until possession is given and taken (reverses default and defines in-between stage differently

• Clause 5.2(1) - if in this stage, property is damaged as to be untenantable, purchaser can either (a) complete the purchase minus the sum of insurance pay-out money, or (b) cancel the agreement

• Clause 5.2(2) - if property is not untenantable, purchaser must complete purchase but minus the sum of diminution in value i.e. the amount it would cost to restore property to way it was

• Clause 5.2(3) - for rural properties, untenantable means the diminution in value is more than 20% of the purchase price

• Southland District Council v McClean (property made untenantable)

• Facts

• McClean (vendor) entered into Standard Contract to sell a block of land...