Agreements to sell and buy subdivided land - the right to cancel

29 July 2019

A farmer wishes to subdivide off part of his farm and sell the new title for extra cash. Even if a prospective purchaser was prepared to pay for the land before the new title had issued (which would be an unusual and unwise thing to do), the purchaser’s bank won’t advance mortgage finance until there is a title to the land over which the bank can take a mortgage. However, there is no reason why the farmer can’t market the land and sign an agreement to sell it before the new subdivision has been completed. Settlement will take place after the new title has issued. Agreements for the sale and purchase of land before it has a title are fairly commonplace. What is not often realised, however, are the conditions implied into such agreements under the Resource Management Act 1991 (the RMA). These conditions mean the agreement could be cancelled if certain milestones are not reached within the time frames specified in that Act. The purchaser could also have the right to cancel depending on how the new title is described in the agreement.

The subdivision process

There are four main steps in the subdivision process:

  1. Apply to the Council for a resource consent for the proposed subdivision. A draft subdivision plan will be included with the application.
  2. Obtain the Council’s approval to the survey plan under section 223 of the RMA. After the resource consent has been obtained the surveyor will survey the land and prepare a survey plan to submit to the Council for approval.
  3. Obtain section 224c certification from the Council. The s 224 certificate confirms all the conditions imposed by the Council have been completed and the plan has been approved.
  4. Lodge the documents in Land Information New Zealand to obtain the new titles. This will include the deposit of the plan under the Land Transfer Act 2017, the s 223 and 224 certificates, the orders for new titles and any consents of documents required for the titles to issue – for example, Council consent notices and easements.

The RMA conditions and the rights of cancellation

The RMA implies certain conditions into Agreements to sell land before the new title has issued.

  1. An agreement to sell land being subdivided is subject to a condition the survey plan will be deposited under the Land Transfer Act 2017 (section 225(1) RMA).
  2. The purchaser may cancel the Agreement within 14 days of the date of signing the agreement if the survey plan has not been approved by the Council under s 223 of RMA as at the date the agreement (s 225(2)(a) of the  RMA).
  3. The purchaser may cancel the agreement if the seller has not made reasonable progress towards submitting the survey plan to the Council for approval, or the plan has not been deposited within a reasonable time after its approval at any time after two years from the grant of the resource consent or one year after the date of the agreement (whichever is the later) (s 225(2) (b) of the RMA).

In addition to the RMA conditions, the standard agreement for sale and purchase includes a process giving a purchaser the right to “requisition” or “object” to the title within five working days after receiving notice the new title has issued. The right of requisition only arises in some circumstances if there are interests registered against the title that are not described in the agreement for sale and purchase. If the vendor is unable to satisfy the requisition the purchaser may cancel the agreement.

The Agreement for Sale and Purchase

If the purchaser decides to use the right to cancel the agreement under the RMA, particularly if it is at the eleventh hour, then neither the seller nor the purchaser is likely to be happy – especially if they have invested considerable money, time and energy into the agreement and the subdivision process. Anyone buying and selling land being subdivided would be well advised to have the agreement drafted or reviewed by a lawyer who specialises in these types of agreements. Whether drafted or reviewed by the seller’s or the purchaser’s lawyer these types of agreements normally have additional clauses included in them which modify or take into account the RMA and title conditions and tailor the agreement to meet the parties’ expectations.

Barbara McDermott is part of our Private Client team at Norris Ward McKinnon.