Can a purchaser hold back money when buying a property?

17 January 2019

Until recently, the law was unclear on whether a purchaser had the right to hold back some of the property purchase price if the vendor hadn't done what they’d agreed to; or if the property wasn’t as described in the Agreement.  For example, if the vendor hadn't completed repairs to the property, or if a chattel included in the sale was not at the property.  If the purchaser doesn’t follow the correct procedure before paying for the property, he or she can’t hold back money and will have to pursue the vendor after settlement, often by bringing a claim in the Disputes Tribunal – an unnecessary delay, expense and hassle.

Exercising the purchaser’s right to inspect the property before settlement is one way purchasers can check everything is okay before making payment. The inspection should be done with enough time for the purchaser to give notice to the vendor about any problems. Notice can’t be given on the settlement day. If notice isn’t given in time, the purchaser still has the right to claim against the vendor for the problem, but doesn’t have the right to hold back money on the settlement date.

The correct procedure the purchaser must follow is:

  1. The purchaser must give the vendor full details of the claim before the settlement date.

  2. The amount claimed by the purchaser must be a genuine pre-estimate of the purchaser's loss.

  3. The purchaser must give notice before 5 pm on the day before the settlement day.

  4. If the vendor agrees with the purchaser's claim, it is deducted on settlement.

If the vendor doesn’t agree with the purchaser's claim then an interim amount is to be paid to a stakeholder and held until the amount of compensation is determined.

If the vendor and the purchaser can’t agree on the interim amount, then it must be determined by an experienced property lawyer. The vendor and the purchaser are equally responsible for the costs of the property lawyer.

Get in touch with any of our Hamilton property solicitors if you have questions about your residential property transactions.


Gill Whinray is an Associate in the Business, Rural & Property team at Norris Ward McKinnon. You can contact Gill at [email protected]