The ADLS/REINZ agreement for sale and purchase of real estate – the form of agreement used in most conveyancing transactions in New Zealand – allows buyers to make the contract subject to a range of standard conditions, including finance, building report, LIM, and toxicology report. These are helpfully included in the Conditions box on the front page of the agreement and can be included or excluded simply by crossing the “No” or “Yes” next to the condition. But there is one condition that is not mentioned in the box, which, if included in the Further Terms, can effectively trump them all: a due diligence condition.
A due diligence condition is the best condition for a buyer to include when purchasing property. While there is no standard wording for a due diligence clause, a well drafted clause that allows the buyer to undertake whatever due diligence investigations they require and cancel for any reason, at the buyer’s discretion (and ideally without having to give a reason), provides the broadest, easiest, and most flexible escape route from an otherwise legally binding contract.
With such a clause, a buyer has no need for the standard finance, LIM, building report, and toxicology report conditions, or any other conditions such as solicitor’s approval. The due diligence clause can be used to cancel an agreement in the same circumstances as all those other, more specific conditions, and in many other circumstances. The buyer can basically get out of the agreement for any reason, or for no reason at all, if they are not satisfied with the results of their due diligence investigation.
If a buyer can get away with it, we recommend including a single due diligence condition in agreements for the purchase of real estate, rather than multiple other, more specific conditions. This is a simplest and most cost-effective path for a buyer, which also gives the most protection and flexibility. However, because sellers are alive to the broad right to cancel that a due diligence condition typically provides, buyers may find their request for a due diligence condition to be a sticky negotiation point.
If you are a prospective buyer thinking about due diligence or other conditions for your property purchase, contact our specialist property lawyers to find out how we can help.