In a complex transaction, the purchaser's lawyer discovers a restrictive covenant on the title that prevents the intended use of the property. The sale agreement contains a standard 'requisitions on title' condition with a 10-working-day deadline that expires tomorrow. What is the most appropriate course of action?
Correct Answer
A) Serve a requisition before the deadline and seek an extension to investigate solutions
When a title defect is discovered near the deadline, the purchaser should immediately serve a requisition notice to preserve their rights and seek an extension to investigate potential solutions. This protects their legal position while allowing time to determine if the issue can be resolved.
Why This Is the Correct Answer
Serving a requisition before the deadline preserves the purchaser's objection under the agreement's title procedure. Seeking an extension buys time to find a solution, such as varying the covenant.
Why the Other Options Are Wrong
Option B: Wait until after settlement and take the covenant up with the vendor then
After settlement the purchaser is registered subject to the covenant. The right to requisition is lost if not used by the requisition date.
Option C: Accept the title as it stands, because the covenant was discoverable
Discoverability does not require acceptance. The requisition period exists so the purchaser can object to matters found on the title.
Option D: Cancel the agreement immediately, without serving any requisition or notice
The agreement's title procedure starts with a requisition. Cancelling without it risks a wrongful cancellation.
Deep Analysis of This Sale Purchase Question
This question tests understanding of requisitions on title procedures under New Zealand property law, specifically the critical timing requirements when title defects are discovered. The scenario involves a restrictive covenant that could prevent the purchaser's intended use - a significant title defect that must be addressed before settlement. The 'requisitions on title' condition is a standard protection mechanism allowing purchasers to raise objections about title issues within specified timeframes. When defects are discovered near deadline expiry, immediate action is essential to preserve legal rights. The question emphasizes the balance between protecting purchaser interests and maintaining transaction momentum. Understanding this process is crucial for real estate professionals as title issues are common in complex transactions, and proper handling can mean the difference between successful resolution and contract termination.
Background Knowledge for Sale Purchase
Under the standard TLANZ/REINZ agreement, the purchaser is treated as accepting the title except for objections or requisitions made by the requisition date. If the vendor cannot or will not remove the problem, the agreement sets out a procedure that can lead to cancellation. Covenants that stop the intended use are a common reason to requisition.
Memory Technique
Remember RAPID when title defects appear near deadlines: Requisition immediately, Ask for extension, Preserve your rights, Investigate solutions, Don't delay action. Like a medical emergency, title defect discovery requires immediate response to preserve all options - waiting could be fatal to your legal position.
When you see exam questions about title defects discovered near requisition deadlines, think RAPID. The key is immediate action to preserve rights while creating time to investigate solutions. Never choose options involving delay or immediate cancellation without following proper requisition procedures first.
Exam Tip for Sale Purchase
Look for timing pressure in title defect questions. When deadlines are imminent, the correct answer almost always involves immediate requisition notice service plus seeking extensions. Avoid options suggesting delay, acceptance without objection, or immediate cancellation without following proper procedures.
Real World Application in Sale Purchase
A purchaser buying a commercial property for a restaurant discovers a restrictive covenant prohibiting food service businesses just one day before the requisitions deadline. Their lawyer immediately serves a requisition notice objecting to the covenant and requests a 20-day extension to investigate solutions. During the extension, they negotiate with the vendor to obtain covenant modification from the original covenantor, allowing the transaction to proceed successfully. Without the immediate requisition notice, they would have lost their right to object and been stuck with an unusable property.
Common Mistakes to Avoid on Sale Purchase Questions
- •Waiting until after settlement to address title defects
- •Assuming discoverable defects cannot be objected to via requisitions
- •Cancelling contracts immediately without exploring resolution options
Related Topics & Key Terms
Key Terms:
More Sale Purchase Questions
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?
What deposit is most commonly agreed in New Zealand residential sale and purchase agreements?
When does an Agreement for Sale and Purchase become unconditional?
In a property auction, when is the sale considered complete?
- → How is the settlement date set in a New Zealand residential sale and purchase?
- → What typically happens to the deposit when an unconditional sale and purchase agreement is signed?
- → During settlement, what document transfers legal ownership of the property from vendor to purchaser?
- → A property is passed in at auction for $800,000 with a reserve price of $850,000. The highest bidder approaches the vendor immediately after. Which statement is most accurate about the subsequent negotiation?
- → When does an Agreement for Sale and Purchase become unconditional if it contains a finance condition with a 10 working day timeframe?
- → What is the typical deposit amount required immediately after a successful auction bid in New Zealand?
- → Under the standard TLANZ/REINZ Agreement for Sale and Purchase, who is typically responsible for paying rates from the settlement date?
- → At an auction, the reserve is $800,000 but bidding stalls at $750,000. The vendor then negotiates with the highest bidder and they agree to sell at $780,000, signing on the auction terms with no conditions. What type of sale is this?
- → 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?
- → What happens if a purchaser fails to pay the deposit by the specified deadline in the Agreement for Sale and Purchase?
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