Conditions in sale and purchase agreements: Whose condition is it anyway?

Conditions in property sale and purchase agreements are often expressed as being for the “sole benefit” of either the purchaser or the vendor.  A recent High Court case highlights the importance of understanding what that means – particularly if one party tries to cancel the agreement.

What are the facts?

In Li v GSC Holdings Ltd, the purchaser (Li) and the vendor (GSC) entered into an agreement for sale and purchase for a lot in the vendor’s subdivision.  The agreement was conditional on the vendor obtaining a section 224 certificate under the Resource Management Act 1991 within two years of the date of the agreement.  A section 224 certificate (Certificate) is a certificate from the territorial authority confirming that all subdivision conditions have been met, and such a certificate must be obtained before titles can issue.  The Certificate condition was expressed as being for the sole benefit of the vendor.  The agreement also stated that if the Certificate had not issued by 4pm on 30 November 2017, the purchaser could cancel the agreement.

By 21 October 2017 (two years after the date of the agreement), the vendor had not obtained the Certificate.  A few days before, the vendor’s solicitor notified the purchaser’s solicitor that the vendor had waived the Certificate condition.  Then, shortly after 4pm on 30 November 2017 (with still no Certificate) the purchaser’s solicitor sent a notice of cancellation to the vendor’s solicitor and requested return of the deposit.  Finally, on 22 December 2017 the vendor obtained the Certificate.

The case ended in up in the High Court to decide if the purchaser had validly cancelled the agreement on 30 November 2017, or if the agreement was still on foot at the time the vendor obtained the Certificate (which would then satisfy the Certificate condition and the purchaser would be bound by the agreement).

What was the decision?

The key questions for the High Court were whether the vendor’s notice of waiver was sufficient to satisfy the Certificate condition and whether, as a result of that notice, the purchaser’s cancellation right was lost.  The High Court found in favour of the purchaser – i.e. that the vendor’s waiver notice did not mean that the Certificate condition was satisfied – and accordingly the purchaser’s cancellation notice was valid.  The main reasons were:

  • The general principle is that a condition expressed for the sole benefit of one party can be satisfied or waived by that party.
  • However, in this case, the parties had agreed a specific cancellation right if the Certificate had not issued by 30 November 2017.  The High Court interpreted this to mean that the parties intended the vendor to have the right to waive the need to obtain the Certificate by 21 October 2017 – but the agreement remained conditional upon the vendor obtaining the Certificate by the 30 November 2017 cancellation date.
  • The vendor’s obligation to obtain the Certificate went to the heart of the vendor’s obligations under the agreement (i.e. to provide a new title for the lot to be purchased by the purchaser).
  • The vendor’s waiver notice did not mean that the Certificate condition had been satisfied, and the purchaser had validly cancelled the agreement on 30 November 2017.

Want further information?

If you would like further information about the operation of conditions in sale and purchase agreements or the case mentioned in this article please don’t hesitate to contact a member of our team.

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