As if finding property in the current market wasn’t stressful enough, nationwide and regional lockdowns are now a fact of life that could instantly upend months of careful planning.
Back in the first lockdowns, some buyers and sellers found themselves stuck in limbo, unable to settle on their home. The workaround for this sticky question is “Covid clauses”, which are now included in most – but not all – sales and purchase agreements.
“Some Covid clauses are definitely better than others,” warns property lawyer Kristine King, of DK Law.
Here’s what to know about them if you are buying or selling
What is a Covid clause?
Timelines in contracts are often defined by working days. Contracts routinely refer to five or 10-working-day periods for conditions and settlements, otherwise penalties can kick in.
But can lockdown days be classed as “working days”? Under alert level 4 conditions, many parts of the usual buying and selling process have to go on hold, and it’s usually not possible to move house.
A Covid clause pushes out the date that sellers and buyers have to settle and meet conditions by, until an agreed number of days after lockdown restrictions ease.
The clause recommended by the Real Estate Institute of NZ (REINZ) doesn’t refer to specific alert levels, because the definitions of those can, and has, changed. Instead, it’s triggered if “personal movement” is prohibited in the region where the property is, or where the buyer is.
Chief executive Jen Baird said that REINZ “recommends all agents insert our recommended Covid-19 clause into every agreement under the Further Terms of Sale section, regardless of the government alert level that New Zealand or a particular region may be in.
“REINZ recommends the date for satisfaction of conditions is deferred to five working days after New Zealand (or the region) enters an alert level where personal movement needed to satisfy the condition is permitted, and ten working days afterwards for settlement.”
They’re not all the same
Covid clauses aren’t mandatory, and there is no industry-wide standard (though there is currently work under way to try to improve this).
That means if you’re selling one house and buying another, the clauses may not always match. King said she is seeing “heaps” of different versions circulating.
“When people first started doing them, they were super focussed on settlement. But Covid also upsets the ability to satisfy conditions [such as getting in builders for reports, or doing valuations], so now we’re seeing a second generation.”
It can particularly become a problem if you are selling your house with a Covid clause in your contract for sale, but you don’t have one in the contract for the property you’re planning on buying and moving into.
Mark Sherry, chair of the NZ Law Society property section, said: “There are a myriad of clauses out there at the moment. Some of them leave a wee bit to be desired because they only deal with settlement.”
If you are buying and selling in different regions, he strongly suggests you chat to your lawyer about tailoring your contract(s), so you’re covered in case of another alert level split in the future.
What if I don’t have a Covid clause?
Sherry said such clauses had been left out of agreements “fairly often”, especially during the period when NZ was considered Covid-free.
“There was a degree of, why should we put this thing in when we haven’t been in lockdown for so long?” he said.
King echoed this: “We got lulled into a false sense of security. But broadly, I’d say 90 per cent of contracts have Covid clauses that defer settlement to alert level 3.”