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"Do it Yourself" sale of land leads to tough choices

03 July 2017

The internet and email are tools that most of us cannot now imagine living without. However, there is good reason for caution when using these tools when it comes to buying and selling real estate.

Do it yourself sale of land

Dave had always been a “do it yourself” type of person. When he decided to sell his property he listed it for sale on an internet site. This was attractive to Dave because he could save real estate agent’s commission and lawyer’s costs.  Soon after listing Dave had an interested buyer. Dave and the buyer entered into email correspondence about the property. In the course of the email correspondence the price and other terms were agreed. Before Dave’s lawyer could prepare an agreement another buyer contacted Dave and offered a higher price. Dave wanted to accept the higher price and told the first buyer that he would not be proceeding with the sale because the agreement had not been signed. The first buyer became angry. She claimed she had a deal. She instructed her lawyer who registered a caveat against the title to Dave’s property giving notice of her “agreement” to purchase it. The caveat prevented Dave from selling the property to anyone else or dealing with it until the caveat was removed or lapsed.

Is there a binding contract?

What should Dave do? Does Dave have to sell to the first buyer? Is there a legally binding agreement for sale and purchase?

The buyer will need to jump several legal hurdles before she can establish an enforceable contract to purchase Dave’s property. The buyer will need to prove the following to be successful in her claim:

  1. Both Dave and the buyer had intended to be bound by their email correspondence. This must be determined by considering objective evidence of what was said and done at the time.
  2. Dave and the buyer had reached agreement on the essential terms of their bargain.
  3. The email correspondence satisfies section 24 of the Property Law Act 2007. Section 24 requires the agreement to be in writing and be signed by Dave - being the person against whom it is to be enforced.
  4. Dave and the buyer had not intended to sign a formal contract before they would be bound.

Dave’s lawyer considered the email correspondence. On her reading of the correspondence it could certainly be inferred that both Dave and the buyer intended to be bound. It was arguable that the essential terms of a binding contract had been agreed. As for section 24 of the Property Law Act, the Court has held that email correspondence is sufficient to find an enforceable contract. Finally, although it is usual for a formal agreement for sale and purchase of real estate to be signed before the parties consider themselves bound, and even though Dave may not have intended to be bound until a formal agreement was signed, when all the evidence was viewed objectively there was nothing to show this was the case here.

Dave faces tough choices

Dave’s lawyer advised him that, if he took action to remove the caveat from his title, it was possible that the buyer could sustain her caveat by showing that she had an arguable case that there was a binding contract. This could mean Dave would be dragged into legal proceedings to decide whether or not there was a binding contract. Dave has three tough choices: 1) sell to the first buyer; 2) attempt to remove the caveat and risk being dragged into legal proceedings; or 3) negotiate a payment to the first buyer to enable Dave to sell to someone else.

Dave’s attempt to “do it himself” and save money has unintentionally backfired. Dave realises he should have made it very clear in his email correspondence that he would not be bound to an agreement until he had signed a formal contract that had been prepared by his lawyer.

 

Please email me at barbara.mcdermott@nwm.co.nz with your ideas for future articles. Keep an eye out for next month's column, where I will discuss another relevant rural legal issue.


Barbara McDermott is a partner of Norris Ward McKinnon, specialising in commercial and rural law. With offices in Hamilton and Huntly, we have friendly, expert legal advisors ready to help you with your business and personal legal matters.

 

Barbara McDermott