A couple recently entered into an Agreement for Sale and Purchase to purchase their first home.  The couple were very excited.  However, their excitement quickly turned to concern when their lawyer advised them that, because the vendor’s legal representative was a conveyancing practitioner, they would likely incur additional costs in respect of settlement.  This was because their lawyer would need to attend to settlement in person, which is outside the usual process of settling a purchase transaction. 

A conveyancing practitioner is a person who has completed a Diploma of Conveyancing or has applied to be a conveyancer through the NZ Society of Conveyancers  They are not lawyers so are not able to provide ‘undertakings’ in the same way as lawyers can.

Generally, in the course of a purchase transaction, undertakings are required to be given by the purchaser’s and vendor’s lawyers.  An “undertaking” is a promise given by a law firm that they will do something.  A law firm MUST follow through on this promise.  If they do not, there are severe consequences imposed by the NZ Law Society and the Courts.  However, an undertaking by a conveyancing practitioner is not enforceable by the Courts, so lawyers are unable to rely on it. 

A purchase settlement is usually completed by the vendor’s law firm undertaking (or promising) to release the title to the purchaser’s law firm once they have received the settlement funds.  This is a risk-free situation for a purchaser, because the vendor’s law firm MUST follow through on this undertaking (or promise), as above.  This is known as a “remote settlement”.

This is not however the case with a conveyancing practitioner acting for the vendor.  As an undertaking from a conveyancing practitioner is not enforceable, there are significant risks in settling in the usual manner. 

Methods for settlement with a conveyancer

The Property Law Section of the NZ Law Society recommends that settlement in this situation occurs by way of “reverse undertakings”.  What this means is that the purchaser’s law firm undertakes (or promises) to pay the settlement funds to the conveyancing practitioner once the conveyancing practitioner releases the title to the purchaser’s law firm.  Essentially the purchaser’s lawyer will receive the clear title showing the purchaser as the new owner before the funds have changed hands (although this is not available to the purchaser until payment is complete). 

If the vendor’s conveyancing practitioner refuses to settle in this manner, then settlement must occur in person, meaning that the purchaser’s lawyer must physically go to the conveyancing practitioner’s offices to hand over a bank cheque.  The conveyancing practitioner will then release the clear title to the purchaser’s lawyer while they are present. 

Settlement in person greatly increases legal costs for the purchaser, as additional time and attendances are required to obtain a bank cheque and travel to and from the conveyancer’s office. 

In the event that the conveyancing practitioner’s offices are not located in the same region as the purchaser’s lawyer, then the purchaser’s lawyer will need to instruct an agent to act on their behalf.  This can also significantly increase the costs to the purchaser.  In this situation, the Property Law Section recommends that the additional costs are shared between the purchaser and vendor.  However, the vendor may decline to accept responsibility for a share in these costs.

As you can imagine, it can come as quite a surprise to purchasers that they will possibly incur additional costs for the settlement proportion of the transaction where the vendor has instructed a conveyancing practitioner.  Therefore, as agents, it pays to know what this means for both parties.



Laurie Pallett
Senior Registered Legal Executive
Wellington


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