Solicitors approval clauses.
Solicitors approval clauses are often included in agreements for sale and purchase when they need to be signed in a hurry and one party’s lawyer is not available to talk to them first. Many people mistakenly believe that the clause means either that there is no contract until approval is given, or that the lawyer can consider all aspects of the proposed sale and all of the terms of the agreement when deciding whether to give approval. Unless the clause is carefully worded, that is not correct. The standard solicitors approval clause only gives the lawyer the right to look at “conveyancing aspects” when deciding whether or not to give approval.
What is a “conveyancing aspect”?
The Courts have interpreted “conveyancing aspects” as meaning legal matters affecting the title to the property e.g. a buyer can use a solicitors approval clause to cancel if the seller is not the registered owner on the title and has no authority to sell the property, or because of some problem with the nature or extent of an easement on the title, or if there is some restrictive covenant registered against the title.
The Courts have also said that a lawyer cannot unreasonably withhold approval, and the lawyer must act in good faith.
“Conveyancing aspects” do not include whether it is a good idea for the lawyer’s client to enter into the agreement at all, or because of commercial considerations. One case dealt with a property which had been leased to 5 different tenants. The buyer’s lawyer did not approve the agreement because the leases did not include personal guarantees. The Court said this was a decision about the value of the transaction, rather than a “conveyancing aspect”. The buyer’s lawyer could not use that as a reason to withhold consent.
Also, the standard solicitors approval clause can not be used to change an agreement e.g. if a finance condition or a LIM condition has not been included, the buyer’s lawyer can not require those conditions to be included as a condition of giving approval. In another case, a seller’s lawyer did not give approval because the condition and settlement dates in the agreement did not match up with the condition and settlement dates under the seller’s agreement for the purchase of another property. The Court said that this was not a legal or conveyancing impediment, and was not a reason for withholding approval.
The standard solicitors approval clause is not a “cure all” which allows a buyer’s lawyer or seller’s lawyer to rewrite the agreement, and it does not allow the buyer or seller to cancel if he or she decides it was unwise to sign the agreement in the first place because of some commercial reason. A standard clause only allows the agreement to be cancelled if there is some “conveyancing aspect” which is unsatisfactory.
If a buyer or seller wants his or her lawyer to consider the overall wisdom of entering into the agreement, or to be free to consider whether the clauses in the agreement should be changed or added to, the standard solicitors approval clause should not be used.
Please Note: This information is designed as a general guide only, and should not replace specific legal advice on a particular issue.
Mike Toepfer – Aspiring Law
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Aspiring Law is a general practice firm, offering the best in legal services and advice to our local Upper Clutha community, as well as our national and international clients. We recently launched our new firm, after taking over AWS Legal’s Wanaka office. We’ve carefully tailored our firm’s services and culture to meet the needs of our business, and wider, community. Clients from further afield also draw on our specialist expertise, particularly advice and support around property, including large-scale developments, and agribusiness. As our clients have come to expect, the cornerstone of our new practice remains excellent, timely advice, underpinned by personalised, genuine service and support. Further to that, we’re really excited about building further on our community-based initiatives to educate and inform people on legal issues, and do our part in finding meaningful, innovative ways to support our area. Before that I was at large Auckland firm Hesketh Henry for 17 years - over 13 years as a partner and 10 years on the firm's board of management and as property team leader. I have specialised in all types of property transactions for the last 27 years.