What you need to know about KiwiSaver before having a purchaser sign an Agreement for Sale and Purchase…

A young couple were purchasing their first home and signed an Agreement for Sale and Purchase with the real estate agent that was conditional on finance, a builder’s report and a LIM report.  All parties considered these to be sound conditions and the offer was accepted. 

However when the Agreement was sent to the couple’s lawyer and further discussions followed it transpired that the couple were withdrawing their KiwiSaver funds for the transaction and that they required the funds for the deposit due under the Agreement.  The timeframes in the Agreement did not allow enough time for the withdrawal of the KiwiSaver funds for the deposit.

KiwiSaver funds for deposit

To avoid getting tripped up by this issue, if purchasers are first home buyers you should ask them if they will be using their KiwiSaver funds for the transaction.  If they are, it is very important that these potential purchasers show the Agreement to their lawyer to discuss the timeframes required for KiwiSaver withdrawal, prior to signing the Agreement.

KiwiSaver providers have varying timeframe requirements for withdrawal of funds, ranging from 10 to 15 working days.

If KiwiSaver funds are required for payment of the deposit under the Agreement, a Further Term of Sale is required that records the way the deposit shall be paid, and also records how the deposit is administered. 

For example, the purchaser may pay the deposit in two stages being (a) a cash sum they have readily available from their savings and (b) the balance of the deposit that is coming from their KiwiSaver funds within a timeframe that is required by their particular KiwiSaver provider.

Furthermore, when a deposit is being paid with KiwiSaver funds, then that deposit must be held in the vendor’s lawyer’s Trust Account until settlement of the transaction.  This is because the purchaser’s lawyer has to provide undertakings to the KiwiSaver provider that should the transaction not proceed to settlement, those funds will be immediately returned to the purchaser’s KiwiSaver account.

KiwiSaver funds for settlement

If purchasers are using their KiwiSaver funds for application towards settlement of the transaction, then this is more straight-forward. 

No specific Further Term of Sale is required, however it is highly recommended that the potential purchasers still show the Agreement to their lawyer prior to signing it.   This is because they still need to be very careful about the timeframes in the Agreement aligning with the timeframe for withdrawal of KiwiSaver funds in time for settlement – particularly if their provider requires 15 working days for withdrawal.  Weekends and public holidays need to be taken into account.

It is always prudent to encourage potential purchasers to seek legal advice prior to submitting an offer on a property.