Ben Thomson
In an age where extreme weather events are projected to occur more frequently, Du v Youn [2025] NZHC 62 will likely become a key reference point for practitioners when dealing with a property that has been damaged in the lead-up up to settlement. The High Court has clarified when a purchaser may cancel a property transaction under the standard ADLS/REINZ (now TLANZ) agreement for sale and purchase agreement (ASPRE).
The court provided valuable guidance about:
- the definition of “settlement date” under the ASPRE;
- what it means to be “ready, willing and able to settle”; and
- what “untenantable” means in the context of a sale using the ASPRE.
The facts
- The deal: On 26 October 2022, the purchaser entered into an ASPRE with the vendor to buy a property located at 149A Arney Road, Remuera, for $10.6 million. The property is situated at the top of the small cliff that overlooks Shore Road and enjoys unobstructed views of the Waitemata Harbour. A deposit of $1,063,000 was paid and settlement was set down for 31 January 2023.
- Extreme weather strikes: During Auckland Anniversary weekend, heavy rainfall triggered a substantial landslip across the cliff face on the northern frontage of the Arney Road property and adjacent properties overlooking Shore Road. The slip took with it the land below the decks of the Arney Road property and a concrete crib retaining wall. The foundations of the property were exposed in parts.
- Red sticker: On 28 January 2023, Auckland council red stickered the property, noting that the foundations had likely been compromised. The red sticker meant access to the property was not permitted without written authorisation from the Civil Defence Emergency Management Controller.
- Impact on settlement: Despite the red sticker and restricted access, the vendors pressed for settlement. They also informed the purchaser that Auckland Council had advised that the red sticker would be removed subject to a favourable geotechnical and structural engineering report. A series of geotechnical reports was then obtained by the parties in the weeks that followed.
- Yellow sticker: On 20 March 2023, the vendor’s lawyer advised the purchaser that the red sticker status had been downgraded to a yellow and proposed settlement on varied terms.
- Demand to settle: Having failed to receive any substantive reply to the varied settlement proposal, the vendor’s lawyer on 24 March 2023 demanded settlement on the proposed revised terms and issued a settlement statement that gave credit for the diminution in value the vendor calculated the property had sustained as a result of the landslide.
- Default notice: Later that day, when the purchaser failed to settle, the vendor’s solicitors served a settlement notice, giving notice of breach that triggered penalty interest and the 12-working-day notice period that would give rise to the vendor’s ability to cancel the agreement and keep the deposit as compensation if the purchaser failed to settle in that period. They also informed the purchaser’s solicitor that their client was ready, willing and able to settle at all material times.
- Purchaser cancellation: In response, the purchaser alleged the property was untenantable and cancelled the agreement in accordance with clause 7 of the ASPRE (the risk and insurance clause). When the deposit was not returned as requested, the purchaser issued High Court proceedings.
The legal dispute
The vendors argued that the property was not “untenantable” and the purchaser’s cancellation amounted to a repudiation. The purchaser maintained that the red sticker, together with the structural risks, rendered the property unfit for his intended use and entitled him to cancel under the ASPRE clause.
The decision
The court found that 31 January 2023 – three days after the red sticker was put in place – was the binding settlement date under the ASPRE. There was no mutual agreement to vary the settlement date and no valid notice was served under the relevant clauses of the ASPRE (clauses 5 and 13) that had the effect of varying that date.
Unsurprisingly, the court found that neither party was ready, willing and able to settle on due date. The vendor was unable to provide the pre-settlement inspection the ASPRE required and was also unable to provide vacant possession of the property on settlement date due to the red sticker preventing access for inspection or for the vendor to remove its belongings.
In terms of the purchaser, the court formed the same view on the basis of the uncertainty in the purchaser’s mind about the condition of the property and impact of the storm which was evident from correspondence his solicitors issued on his behalf. This was not consistent with someone who was willing to settle on that date. The purchaser did not assert he was ready willing and able to settle as he was unsure if he wanted to, due to the uncertainty around the condition of the property.
The effect of the red sticker meant the property was untenantable on the settlement date, the court found.
The court also said in its view the property remained untenantable in March 2023 when the red sticker was lowered to yellow which was when the vendor sought to force settlement.
The reason given was that at the relevant time the information available to the parties was not sufficient to show that the property was safe and did not present any risk of further slips.
In reaching this conclusion, the court applied the test in Bahramitash v Kumar: the property was unfit for the occupation and use of someone who was assumed to want the property for the same purposes as the purchaser, which was as his family home.
The court applied clause 7.2(1)(b) of the ASPRE strictly, which permits cancellation if the property is untenantable on settlement date.
The purchaser was entitled to the refund of the deposit in full, plus interest, from the date of cancellation to the date of payment and his costs.
Key takeaways for property lawyers
- Untenantability means someone seeking to live there could occupy it. This is to be assessed as at the settlement date recorded in the agreement. Even if the property could have been partly used, that will not be enough unless it is able to satisfy the purchaser’s intended use of the property.
- Understand what it means to be truly “ready, willing and able to settle” and always carefully consider what steps and/or remedies to take under the agreement to establish that (while also advising your client of the risks of doing so) before taking those steps. The correspondence from the parties’ solicitors was relied on heavily by the court when arriving at its decision.
This case provides valuable guidance on some difficult issues, particularly when the actual state of the property might not be known at settlement date, as well as the impacts of the council sticker system on the obligation to settle. The parties may decide to defer a settlement date to enable the facts to be ascertained, but that needs to be a mutual decision.
Ben Thomson is a director of Pidgeon Judd and a member of The Law Association’s Property Law Committee
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