How useful is a solicitor's approval clause?
The Js decided to sell their farm near Hororata. This is their story:
Their agent presented them with an offer from SE Limited for $3,081,500.
Mr J told the agent they would need $4m "in [their] hands clear".
The agent then left the house for ten minutes and returned saying he had the $4m clear. He then changed the purchase price to $4.1m.
Mr J then advised the agent that they would not sign the agreement until their solicitor had seen it.
After some discussion, the agent wrote in a "solicitor's approval clause" and they signed the contract.
The agent then took the agreement to the purchaser to sign, at which time the Js claim the name of the purchaser was changed from "SE Limited" to an individual, "R J R or nominee".
The Js phoned their solicitor's office and were advised that they might have some GST issues.
The same day, the Js also received several phone calls from the purchaser's agents, requested access to various parts of the farm.
All these things made the Js uncomfortable, so their solicitor sent a fax to the purchaser's lawyers advising that, under the solicitor's approval clause, the contract was at an end.
The reasons given were:
- the GST concern
- the change in the purchaser, and
- the purchasers would have nowhere to house the sheep they were retaining
HOWEVER, the cancellation was not accepted by the purchaser's lawyer! What is more, they lodged a CAVEAT on the title, meaning the Js couldn't sell the farm to anyone else!
The matter went to Court when the purchaser applied for a second caveat.
The Court ruled that:
1. A solicitor is only entitled to refuse approval if there are genuine legal objections or impediments to the bargain the parties have made. (Dashwood Vineyards Ltd v Hammond 21/7/00, Wild J, HC Blenheim CP15/99)
2. It was arguable that the issues raised by the Js were issues of accounting rather than conveyancing, and were reasonably resolvable.
These things, combined with the "shifting nature of the reasons given for wanting to bring the contract to an end" meant that RJR had made out a reasonable case for registration of a second caveat.
The interesting thing about this case is that it would appear that the vendors thought that a solicitor's approval clause was the same thing as taking the contract to their solicitor to approve before signing it.
This was clearly a major misunderstanding.
A solicitor's approval clause does not allow a party to simply walk away from a contract they have regretted signing.
So, what are the lessons here?
- It is possible to write a clause that allows you to get your solicitor's approval before going ahead with the contract, but
- Consult your lawyer before trying to draft a legal clause, and
- If in doubt, take your contract to your lawyer BEFORE you sign anything!!
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This article is brought to you by Colette Mackenzie of Gibson Sheat Lawyers and its subsidiary The Conveyancing Company, specialists in property law, mortgage broking, refinancing, buying and selling residential or commercial property, and subdivision.
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