An elderly Vendor was presented with an Agreement for Sale and Purchase for signing by a real estate agent.  Her son, who was training to be a builder, had completed some structural alterations to her house.

She had assumed that her son had completed all required paperwork in relation to the alterations.  The agent advised her that she should check this with Council, which she did, to discover that her son had applied for a building consent, but no Code Compliance Certificate had been issued.

As agents will be aware, when a Vendor signs an Agreement for Sale and Purchase, they warrant (among other things) that they have not completed any works to the property that required Council consent without obtaining such consent, and that they have obtained a Code Compliance Certificate for such works.

If a Purchaser discovers after entering into the Agreement for Sale and Purchase that works had been completed without Council consent or that there is a missing Code Compliance certificate, then the Purchaser is entitled to compensation for a breach of Vendor warranty.

In the above situation, had the agent not explained the warranties and questioned the owner about the building works, that Vendor would have breached a warranty in the Agreement for Sale and Purchase on settlement.

When receiving instructions to list a property for a Vendor, if it comes to light that they have either completed works to the property without consent (when Council consent was required) or have completed works but have not obtained a final Code Compliance Certificate, then you need to ensure that further enquiries are made. 

Firstly, a Vendor will need to make enquiries with the Council to ascertain what they need to do to enable them to obtain the necessary Certificates to certify the works comply with the relevant building consent.

Once this has been obtained a specific Vendor Warranty should be included in the Further Terms of Sale.  Such Vendor Warranty should outline what work has been completed, what the Vendor is still required to do to in order for Council to certify the works, what the Vendor proposes to do to remedy this, and a timeframe for the remedy e.g. settlement date.  It may also involve recording the settlement date to be a certain number of days after the Code Compliance Certificate is issued.

Disclosing the issue and remedy of the same to Purchasers early (as part of the Further Terms of Sale in the Agreement for Sale and Purchase) will avoid potential issues and/or delays later on in the transaction.

Vendors and Purchasers should always be encouraged to take legal advice where there is an outstanding issue such as the absence of a Code Compliance Certificate.

Laurie Pallett
Registered Legal Executive
Wellington