Winter 2015 Newsletter

Property sales – disclosure

The principle of ‘caveat emptor’, or “let the buyer beware”, applies to buying property. Purchasers are always advised to complete their own thorough due diligence investigation before they buy.

It is important however to remember that despite caveat emptor, the people involved in selling a property (i.e. the vendor and in particular, the real estate agent) have significant obligations to disclose information to the purchaser. These requirements are in place to protect the purchaser.

A real estate agent, as a licensee under the Real Estate Agents Act (Professional Conduct and Client Care) Rules 2012 (the Rules), cannot rely on caveat emptor when involved in the sale of a property. The obligations on a licensee under the Rules require, at a minimum, that an agent discloses known defects to a customer. Clearly, where an agent has knowledge of an issue with a property, the only appropriate course of action is to advise prospective purchasers.

In some situations, the Rules require an agent to go further than simply disclosing known defects. Rule 10.7 states that where it would appear likely to a reasonably competent licensee that land may be subject to a hidden or underlying defect, the licensee must obtain confirmation from their vendor client and expert evidence that the land is not subject to the defect, or ensure the purchaser is informed so that they can commission expert advice should they choose to do so.

An example where rule 10.7 would apply, is where a house was built in a particular time period using particular materials, the combination of which are commonly associated with a risk of weather tightness issues. Regardless of whether a client vendor discusses this issue or not, an agent is expected to take appropriate action as described above to investigate (and possibly disclose) this risk as part of their obligations.

If a situation arose where a vendor directs an agent to withhold information in respect of defects, an agent must stop acting for that vendor as required by rule 10.8. Such an obligation should provide some comfort to purchasers that an agent cannot simply stay silent on any issue, even if that is what their vendor client wants.

The provisions of the Rules only apply to licensees, so obligations on the vendor in a private sale with no vendor’s agent are not as well defined. However, most sales of real estate use as a template the ADLS / REINZ Agreement for Sale and Purchase form. This form includes a comprehensive list of vendor’s warranties, for example the vendor warrants that building works at the property completed by that vendor have been properly consented.

While purchasers must complete their own investigations on a property, they can take some comfort in the obligations around disclosure on the people involved in selling property. A combination of upfront clear questions about a property and an understanding of these disclosure obligations is the best recipe for uncovering any issues and avoiding problems down the line.

Speak no evil – non-disparagement provisions in employment settlement agreements

The media love reporting on salacious details of employment disputes before the Employment Relations Authority (ERA) and Employment Court, by trumpeting headlines like “Sacked worker who took worthless magazine gets $9,000”. Many employers and employees, however, choose to avoid the glare of publicity by resolving employment disputes with settlement agreements.

Settlement agreements are confidential, keeping matters from the glare of publicity. Settlement agreements also often have a term preventing either party from speaking badly of each other, known as a non-disparagement provision. Several recent ERA decisions have examined the issue of breaches of these non-disparagement provisions in settlement agreements.

In Kea Petroleum Holdings Limited v McLeod [2014] NZERA Wellington 113, a settlement agreement between the parties included a term that Ms McLeod would not “disparage or speak ill of the company…or its officers.” However, Ms McLeod posted articles on Facebook, including allegations that Kea’s managing director had made “false statements” and “disrespected shareholders by lying to them.” Kea sought a financial penalty against Ms McLeod for breaching the settlement agreement. The ERA found that Ms McLeod’s statements regarding the managing director were disparaging. The ERA also observed that Kea paid a “substantial sum of money” to Ms McLeod to resolve an employment relationship problem. In return she agreed not to pursue her personal grievance and not to disparage or speak ill of the company. The ERA found Ms McLeod breached the settlement agreement, and ordered her to pay a penalty of $2,000.

In Jacks Hardware and Timber Limited v Beentjes [2015] NZERA Christchurch 29, the parties signed a settlement agreement with a non-disparagement provision. Mr Beentjes then sent text messages to a current employee calling the director of Jacks Hardware a “sociopath”, alleging the current employee was lying, calling another staff member a “sycophantic sociopath” and accused Jacks Hardware of hushing up his allegations. The ERA found the text messages breached the non-disparagement provision and were flagrant, deliberate and ongoing. The ERA imposed a penalty of $2,500 against Mr Beentjes.

In Simpro Software New Zealand Limited v Nuttall [2015] NZERA Auckland 64, the parties entered into a settlement agreement requiring Mr Nuttall to desist from publishing “any statement which would be construed as being degrading, defamatory, negative or disparaging against Simpro and its agents, officers, directors or personnel.” Mr Nuttall published a comment on a Xero blog site that referred to Simpro software as “a pile of crap” and “a waste of space”. Simpro sought an order from the ERA that Mr Nuttall comply with the non-disparagement provision. The ERA found Mr Nuttall in breach of the provision, and ordered he immediately comply. While Simpro did not seek a financial penalty, the ERA noted that Simpro could have asked for a penalty, indicating the ERA would likely have ordered a penalty.

These cases are a clear warning to employees to take settlement agreements seriously, including the requirement not to speak ill of their former employers, and gives hope to employers wanting to enforce settlement agreements when their former employees do not comply.

Building Amendment Act 2013 update

From 1 January 2015 the Building Amendment Act 2013 (the Act) changed the rules around residential building works. These include the following:
• Works worth more than $30,000 now require a written contract including the building timeframe, the process for varying the contract and the dispute resolution process.
• For works worth more than $30,000, or if requested, a prescribed checklist must be provided together with information about the legal status of the builder, their dispute history, their skills, qualifications and licensing status.
• Work done to a household unit may automatically include a one year defect liability period in which the builder can be required to remedy defects.

The Act also provides implied warranties in all works, that:
• the work will be completed within a stated or reasonable time and will be in accordance with the plans, the building consent, all laws and legal requirements and with all reasonable care and skill in a proper and competent manner, and
• supplied materials will be new (unless otherwise agreed) and suitable for the purpose for which they will be used

Should you pay a deposit?

Payment of deposits has become a normal part of everyday business, being commonplace in transactions from house purchases to building work.

However, what is best practice? There is always risk involved when paying money and receiving nothing tangible in return. What happens, for example, if a company or natural person becomes insolvent before completing the work you paid the deposit for? What if a property vendor has spent your deposit but cannot complete settlement on the day, because they owe their bank too much? Typically, you may then find yourself an unsecured creditor and it is quite possible that you will not recover all of your money.

While loss of a deposit happens rarely, you should consider the risk when paying a deposit. For example, is the other party solvent? Always seek to pay the smallest amount possible and consider requiring security to be granted in return. In property transactions you should consider requiring a deposit to be held in trust as stakeholder until risks have been assessed and minimised.

All information in this newsletter is to the best of the authors’ knowledge true and accurate. No liability is assumed by the authors, or publishers for any losses suffered by any person relying directly or indirectly upon this newsletter. It is recommended that clients should consult a senior representative of the firm before acting upon this information.

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