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Sign in haste, repent at leisure - solicitor's approval clause may be useless

25 January 2016

You want to sell some of the titles off your farm. It’s the weekend and the agent has turned up with a good offer. There has been a lot of to-ing and fro-ing to get to this point. You don’t want to lose the deal but you don’t understand all the fine print. Your agent suggests that a “solicitor’s approval clause” is included in the agreement. You can sign now and you won’t have to wait until your lawyer is available on Monday. You are reassured by this and sign the agreement. If the agreement is not ok, your lawyer can fix it up. When you discuss the agreement with your lawyer, you realise that the agreement describes the land being sold incorrectly. To start with you’re not worried about this because you’ve got a “solicitor’s approval” clause. You tell your lawyer that you don’t want her to approve the agreement. Your lawyer is not so sure that she can rely on the solicitor’s approval clause. You realise you might be stuck with the sale even though it is not what you want.

What is a solicitor’s approval clause?

There are different versions of the solicitor’s approval clauses in use. A common version states the agreement is conditional on the buyer’s (or the seller’s) solicitor’s approval of the agreement as to form, content and title. If the buyer’s (or the seller’s) solicitor does not approve the agreement, the agreement can be cancelled without any liability on the buyer (or seller).

 When can your solicitor withhold approval?

The Courts have consistently decided that a solicitor can only withhold his or her approval in a narrow range of circumstances. Although the ability of your solicitor to withhold approval will depend on the wording of the particular clause and the circumstances of the agreement, a solicitor may only withhold approval on the “conveyancing aspects” of the agreement. Your solicitor must not withhold approval on the “commercial aspects” of the agreement. Your solicitor cannot withhold approval because you might be able to obtain a better price or because you have second thoughts. Your solicitor must reach the decision to cancel independently and bona fide. Your solicitor is not obliged to disapprove the agreement just because you tell him or her to disapprove it.

Examples of the “conveyancing aspects” of the agreement which have enabled a solicitor to withhold approval are:

  1. the seller was not the registered owner of the land and the buyer’s solicitor needed to inspect the documents to see how the seller could become the owner
  2. the location of a right of way in relation to the property meant that the buyer could not park vehicles close to the house.

The Courts have held that the solicitor could not withhold approval in the following cases:

  1. a buyer’s lawyer couldn’t withhold approval when the leases of the property being purchased were not guaranteed by the shareholders and directors of the tenants
  2. a seller’s lawyer couldn’t withhold approval when the sale of part of a property meant that it would be difficult for the seller to farm the rest of his land
  3. a seller’s lawyer couldn’t withhold approval when the settlement date of the sale and the settlement date of the seller’s purchase were different
  4. a buyer’s lawyer couldn’t withhold approval when the buyers thought a condition relating to the sale of their property meant the agreement was also conditional on them arranging finance.

Play it safe

If you want to sign an agreement and still have an opportunity to consider the implications of the agreement then it is safer to include a “due diligence” condition than a “solicitor’s approval” condition. It is even safer to sign an option to purchase. Best of all, ask your lawyer to look at the agreement before you sign it.

 

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.