The recent High Court case ARMSTRONG v MITCHELL  NZHC 2353 [7 September 2018] has reinforced the importance of doing your homework on legal boundaries when buying land.
In January 2017, Mr & Mrs Mitchell signed a standard REINZ / ADLS sale purchase agreement to buy a lifestyle block in Managawhai, Northland from Mr Armstrong.
The property included a four bay garage. This was an important feature to the Mitchells because Mr Mitchell was a mechanic.
Shortly after signing the agreement and talking to a future neighbour the Mitchells discovered that two of the four bays of the garage encroached onto the neighbour’s property (plus a water tank, fence and line of trees).
The Mitchells texted Mr Armstrong, who responded that he didn’t think there was an encroachment or if there was, it was a non-issue.
The Mitchells weren’t convinced. In the end it was agreed that the Mitchells would complete the purchase but $25,000 of the purchase price would be withheld pending the outcome of the dispute.
After the purchase was completed the Mitchells sued for damages on the basis that Mr Armstrong had misrepresented that the entire garage and various other improvements were all included in the sale. They sought (among other things) $88,000 to fix the encroachment by relocating the garage and water tank.
Mr Armstrong countered by seeking summary judgment in the District Court for the $25,000 of the purchase price that had been withheld. He claimed that the Mitchells were deemed to have accepted the title because they had not objected to, or requisitioned the title in accordance with the agreement.
Mr Armstrong’s case was unsuccessful in the District Court.
High Court Decision
Mr Armstrong then appealed to the High Court.
The Court considered the facts and concluded that the Mitchells had objected to the title under clause 6.2 of the agreement, not by formal notice but by their words and conduct. The High Court ultimately declined Mr Armstrong’s appeal meaning that the Mitchells could progress their legal case against Mr Armstrong based on misrepresentation. We will have to wait to see the outcome of that.
Clause 6.2 of the standard REINZ / ADLS sale purchase agreement is commonly known as the ‘requisitions clause’ and gives a purchaser some protection in the event of any material defects with the title.
The purchaser can either object to the defect in the title or requisition the title (i.e. request that the defect in the title is fixed). The purchaser can do this by giving formal notice in writing to the vendor within a specified timeframe (typically within 10 working days of signing the agreement).
The purchaser’s notice then triggers a process. The end result of that process is that if the vendor is not willing to fix the defect, or the defect can’t be fixed, then either party can cancel the agreement.
This case provides some useful reminders for purchasers when buying land:
For example it is common for a purchaser to add a condition that the agreement is subject to the purchaser being satisfied with a due diligence investigation of the property (including the title). That due diligence condition will usually overlap or cover similar matters as some of the other clauses in the agreement (like the requisition clause).
If a purchaser has actual knowledge of an issue like a potential boundary encroachment but still confirms the due diligence condition there is a risk that by doing so they may have also waived their rights under the requisition clause and possibly some of the other clauses in the agreement. This risk can be managed by your lawyer by expressly reserving your other rights when confirming a condition.
At Gallaway Cook Allan we have a dedicated and experienced property law team that can successfully guide you through these types of issues when purchasing a property. Please feel free to get in touch if you would like us to assist you.
Disclaimer: this article is general in nature and not intended to be used as specific legal advice.