A vendor agreed for their purchaser to move into the property two days earlier than the settlement date in their agreement as the purchaser had already sold their previous home.  This is called ‘early possession’.

While at face value this may seem like a simple and kind gesture, there can be many complexities and risks involved with allowing early access which we explain further below.

Default on settlement – removing the purchaser again

Usually a purchaser has to pay for your home before they are allowed access (that is, settlement needs to have occurred).  If letting them in early, there is a risk they will default on payment on settlement and you would then be tasked with removing them from the property.  This can get messy if purchasers refuse to leave.

Insurance risks

The standard Agreement for Sale and Purchase of Real Estate in New Zealand provides that the property is entirely at the vendor’s risk until after settlement has occurred. As a vendor, this means if anything in the property was damaged during that time of early possession, the vendor would be liable for any costs to remedy this.

While this risk exists, if you as a vendor are willing to give early access, you should discuss this with your lawyer and they will be able to draft an appropriate clause to be agreed between the parties to protect you. It may include prohibiting any dangerous materials or belongings (such as LPG bottles, and other flammables) from being stored on site until after settlement.

Carrying out renovations or building works before settlement

Granting early access to the purchaser for the purchaser to carry out renovations and building works can be especially risky.  If you do this, it is imperative you amend the Agreement for Sale and Purchase to transfer full (at least to the extent of works being carried out) liability and insurance risk to the purchaser.  However you need to bear in mind the risk that the purchaser defaults on settlement (that is, doesn’t pay) and you are left with half-finished works carried out by the purchaser.

You would need to notify and take advice from your own insurance provider about this as well, if the purchaser was only insuring the works they were carrying out.

How can a vendor protect themselves if they grant early possession?

Early access/early possession is generally not recommended for the above reasons.

If as a vendor you are considering granting early access, you should at least wait until the agreement is confirmed, and the deposit has been received from the purchaser. 

If the purchaser defaults and they had already been granted early access, you could use their deposit to remediate or redress any damage. This is why it is important to consider whether the deposit you are receiving from the purchaser would be sufficient to recover your losses.

Vendors should ensure they agree robust terms with the purchaser, through their respective lawyers, about the early possession to ensure as many of the risks above are mitigated as possible.

Vendors should also advise their insurer of the purchaser taking early possession and ensure, as above, the purchaser is restricted as to what items they can bring onto the property to reduce the risks.

You should always seek guidance and advice from your experienced property lawyer to ensure you are not caught out.

Leading law firms committed to helping clients cost-effectively will have a range of fixed-price Initial Consultations to suit most people’s needs in quickly learning what their options are.  At Rainey Collins we have an experienced team who can answer your questions and put you on the right track.

Thérèse Greenlees and Raiyan Azmi