A purchaser has signed an Agreement for Sale and Purchase with a finance condition that expires in 10 working days. On day 8, they discover they cannot obtain finance. What should they do?
Correct Answer
B) Immediately give written notice to the vendor that they cannot fulfil the condition
When a purchaser cannot fulfil a condition, they must give written notice to the vendor as soon as they become aware of the situation. Waiting until the condition expires without notice could be considered a breach of good faith, and immediate notification protects both parties' interests.
Why This Is the Correct Answer
Option B is correct because New Zealand property law requires parties to act in good faith throughout the contract process. Under the Property Law Act 2007 and established case law, when a purchaser becomes aware they cannot fulfill a condition, they must immediately provide written notice to the vendor. This obligation arises from the duty of good faith and fair dealing. Prompt notification allows the vendor to make informed decisions about their property and protects the purchaser from potential breach of contract claims by demonstrating transparency and good faith conduct.
Why the Other Options Are Wrong
Option A: Wait until day 10 and let the condition automatically cancel the agreement
Waiting until day 10 without notice violates the duty of good faith. The purchaser has known since day 8 that they cannot obtain finance, so remaining silent for two additional days could be seen as acting in bad faith and potentially expose them to breach of contract claims.
Option C: Ask for an extension to the finance condition
While asking for an extension might be an option after giving notice, the primary obligation is to immediately notify the vendor of the inability to fulfill the condition. Extensions require vendor agreement and don't address the immediate duty to communicate the situation.
Option D: Proceed to settlement and arrange finance later
Proceeding to settlement without finance is financially reckless and likely impossible. The purchaser cannot complete settlement without the necessary funds, and attempting to do so would constitute a fundamental breach of the agreement with serious legal and financial consequences.
Deep Analysis of This Sale Purchase Question
This question tests understanding of the duty of good faith and prompt notification requirements under New Zealand property law. When a purchaser discovers they cannot fulfill a condition precedent, they have an immediate obligation to notify the vendor in writing. This principle stems from the duty of good faith inherent in contractual relationships, particularly emphasized in the Property Law Act 2007. The timing is crucial - waiting until the condition expires without notice could constitute a breach of the duty to act in good faith, potentially exposing the purchaser to claims for damages or specific performance. This requirement protects both parties by allowing the vendor to make informed decisions about their property and potentially seek alternative buyers, while protecting the purchaser from potential breach claims by demonstrating they acted transparently and in good faith throughout the process.
Background Knowledge for Sale Purchase
New Zealand property transactions are governed by the Property Law Act 2007, which emphasizes the duty of good faith between contracting parties. Conditions precedent in sale and purchase agreements, such as finance conditions, protect purchasers by allowing them to withdraw if certain requirements aren't met. However, parties must act honestly and transparently throughout the process. The duty of good faith requires immediate written notification when a party becomes aware they cannot fulfill a condition. This protects both parties' interests and maintains the integrity of the property transaction process. Failure to provide prompt notice can result in breach of contract claims.
Memory Technique
Remember 'ASAP' - As Soon As Possible, Always Send A Paper (written notice). When you discover you can't meet a condition, think of sending an urgent message to a friend - you wouldn't wait days to tell them important news that affects them. The vendor needs to know immediately so they can make decisions about their property.
When you see questions about conditions and timing, immediately think 'ASAP' - the moment someone discovers they can't fulfill a condition, they must send written notice. Don't be tempted by options that involve waiting or delaying notification.
Exam Tip for Sale Purchase
Look for keywords like 'discover', 'become aware', or 'find out' in condition questions. These trigger the immediate written notice requirement. The correct answer will almost always involve prompt communication rather than waiting or taking other actions first.
Real World Application in Sale Purchase
Sarah signs an agreement to purchase a $650,000 home with a 10-working-day finance condition. On day 7, her bank declines her loan application due to a credit issue she wasn't aware of. Rather than hoping for a miracle or waiting until day 10, Sarah immediately emails the vendor's agent with written notice that she cannot obtain finance. This prompt notification allows the vendor to immediately re-market the property and protects Sarah from potential breach claims, as she demonstrated good faith by communicating as soon as she knew of the problem.
Common Mistakes to Avoid on Sale Purchase Questions
- •Thinking you must wait until the condition deadline expires before taking action
- •Believing verbal notification is sufficient instead of written notice
- •Assuming you can ask for extensions without first notifying inability to fulfill the condition
Related Topics & Key Terms
Key Terms:
More Sale Purchase Questions
What is the standard form used for residential property sales in New Zealand?
When does an Agreement for Sale and Purchase become legally binding?
What is the typical settlement period for a residential property sale in New Zealand?
What happens if a buyer fails to settle on the agreed settlement date?
A property is sold at auction for $850,000 with a 10% deposit required. The successful bidder has concerns about the LIM report after the auction. What is their legal position?
- → What is the primary purpose of a LIM (Land Information Memorandum) in the sale and purchase process?
- → Under what circumstances can a conditional offer be withdrawn without penalty?
- → What is the standard deposit amount required for residential property purchases in New Zealand?
- → A buyer has made an offer conditional on finance approval within 15 working days. On day 14, their bank indicates approval is likely but requires one additional document. What should the buyer do to protect their position?
- → In a private treaty sale, the vendor receives two offers on the same day: Offer A for $750,000 conditional on building inspection, and Offer B for $740,000 unconditional. Both offers have identical settlement terms. What factors should primarily influence the vendor's decision?
- → What is the standard form used for most residential property sales in New Zealand?
- → When does an Agreement for Sale and Purchase become unconditional?
- → What is the primary purpose of a LIM report in the sale and purchase process?
- → At a property auction, when is the highest bidder legally bound to purchase the property?
- → Sarah submits an offer on a property with a finance condition that expires on Friday at 5pm. On Thursday, she receives loan pre-approval but forgets to notify anyone. What happens when the condition expires?
People Also Study
Property Law & Legislation
130 questions
Agency Practice
130 questions
Professional Conduct & Ethics
110 questions
Property Management
90 questions
Related Study Resources
Previous Question
A purchaser has included a finance condition with a 10 working day deadline. On day 8, they receive loan pre-approval but final approval is pending. What should they do?
Next Question
A purchaser includes a building inspection condition in their offer that states 'subject to a satisfactory building report at the purchaser's sole discretion.' The report reveals minor cosmetic issues only. Can the purchaser use this condition to withdraw?