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Property counteroffers – don’t get caught out

With a hot property market like New Zealand’s, it is common to see some back-and-forth negotiation on price, including making a counteroffer. In this blog we drill down into a recent High Court case, which saw a seller sign a counteroffer for $200,000 less than they were prepared to accept for their property, and which the Court ruled was legally binding.

Court Case Background

  • In May 2020, the owner of a Karaka property with a rateable value of $1.1 mil entered into an agency agreement to sell it
  • The property was listed for $1.35 mil and the seller told the agent that she would not accept anything less
  • After more than 2 months on the market, the listing agent presented an offer of $1.03 mil via WeChat message
  • The offer was too low, so the seller did not bother to respond
  • 3 weeks later the seller and agent met. The agent presented the seller with the same offer of $1.03 mil in a sale and purchase agreement signed by the potential buyer
  • The agent told the seller that the buyer would be willing to pay up to $1.09million but no higher. However, her agent apparently wanted her to make a counteroffer that could be shown to other prospective buyers to encourage them to make offers
  • The seller countersigned the sale and purchase agreement at $1.14 mil but said that she did so based on her agent’s assurance that the prospective buyer would never accept it
  • A week later, the buyer accepted the counteroffer by initialling the price of $1.14 mil, and the agent informed the seller that the counteroffer had been accepted the same day

Was the contract binding?

  • The seller’s solicitor immediately contacted the buyer’s solicitor stating that the sale and purchase agreement was not binding as the seller had never agreed to the purchase price in the contract
  • The buyer maintained that there was a binding agreement and sought summary judgment to force the seller to perform their contractual obligations

Key Requirements of a Contract

The four key requirements for a valid contract are

  1.  An offer
  2. Acceptance of that offer
  3. Consideration (i.e. something of value passing between the parties)
  4. An intention to create legal relations

What happened in Court?

  • The seller argued that the agent had acted outside the scope of their authority, as they had no authority to present the counteroffer if there was any possibility that the buyer would accept it
  • This meant that the seller had not had any intention to be bound by the contract or to create legal relations with the buyer
  •  In determining whether there was a binding contract, the Court noted that both parties had signed what appeared to be an unconditional agreement for the sale and purchase of land
  • The standard form sale and purchase agreement states on the cover page that the agreement is a binding contract once it is signed
  • The buyer had not been told by the seller or agent that the agreement was not a genuine offer and, in presenting the counteroffer to the buyer, the agent had been acting within the scope of their agency agreement

The ruling

  • The Court ruled in favour of the purchaser
  • By making the counteroffer of $1.14 mil, the seller made an offer that was capable of being accepted, and the buyer accepted it when they initialled the counteroffer, converting the offer into a binding agreement
  • The seller was ordered to perform her obligations under the sale and purchase agreement

What did we learn? Check with your lawyer before you sign!

  • It’s fairly common for purchasers and sellers to enter into legally binding sale and purchase agreements without consulting a lawyer first
  • BUT, if you have any concerns during negotiation, or are changing the standard sale and purchase agreement, talk to us before you sign anything
  • It could save you from selling a property for significantly less than you planned, or on the flipside from purchasing a property for more than you intended t

Need help?

Our team can help you navigate the negotiation phase when buying or selling property. Get in touch to book an appointment.