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18-06-2009

No magic bullet for sunset dates

Landlords.co.nz

Delayed settlements can be a risky strategy for property investors, with no magic bullet clause purchasers can insert into the agreement that will protect them.

Referring to the recent High Court case where a falling market saw an unsuccessful purchaser forced to pay the difference in the amount he'd settled unconditionally on before losing the property deal, Vina Singh of BSA Law, says she has sympathy for the purchaser, but says both parties are affected by changing market circumstances. It can go either way.

In 2007, Yanxun Sun had a 12-month settlement period on a Karaka property which he'd agreed to pay $1.1 million for, when banks were lending 80% finance. A year later, the bank revalued it for $1.05 million and would only lend 50%. Sun couldn't get the finance to make the deal go through.

He lost his $55,000 deposit and the property was sold to someone else for just $750,000. Sun was forced by the court to pay the $350,000 balance plus the deposit to the vendor.

Singh says the important thing arising from this case, is that purchasers must be very careful in how they tie up their finances.

"Purchasers often get a verbal [quote] from the financier. They need to get written approval and lock the banks down to the amount and the term. They need to base it on the purchaser's price or the value at the time of purchase. If you don't, then this is the sort of thing that will occur."

Singh assures there's no clause that would protect a buyer, as that would effectively make the agreement conditional and that's not necessarily good for the vendor as the vendor has no certainty. It effectively makes the deal an option.

Source: Landlords.co.nz

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