THIS WEEK’S ARTICLES
Issue 30 4 Sep 2020
Bank cheques still critical in property deals p1
How our new tenancy laws will play out pages 4-5
A call for better mental health in prisons pages 6-7
LawNews adls.org.nz
PROPERTY LAW
Property lawyers battle to retain bank cheques By Jenni McManus
Lawyers are warning that moves by most major banks to stop issuing bank cheques will make the settlement of property transactions more expensive and difficult for clients.
But bank cheques still play a key role in conveyancing, establishing proof that a purchaser is unconditionally ready, willing and able to settle. As they are written on the bank’s account, bank cheques represent to the bearer that the bank, and not the party for whom the bank is delivering the cheque, is responsible for meeting the payment. As such, they are a clear representation that the bank has cleared funds in hand and it, and not the customer, controls the destiny of these funds. Jonathan Flaws, a director of Sanderson Weir and a property, banking and finance law specialist, says the use of bank cheques is a long-standing conveyancing practice, confirmed by case law. By presenting a bank cheque, the purchaser is demonstrating the bank has taken the funds from his or her account and they have now become the bank’s funds “as is represented by the bank cheque in favour of the vendor or its solicitor”. For property settlements, the alternative is for the vendor to accept an irrevocable undertaking from the purchaser’s solicitor that it holds funds in its trust account with an instruction from the client to pay them to the vendor for the purpose of settling a specific transaction. Trouble is, Flaws says, the purchaser could change his or her mind, revoke the instruction to the solicitor and asked for the funds back. The solicitor would be compelled to return them, leaving the
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Kiwibank, New Zealand’s largest locally owned bank, stopped dealing in cheques earlier this year and ASB has begun phasing them out, saying less than 1% of customers now use them. The websites of ANZ and BNZ indicate they too will stop issuing bank cheques midway through next year.
If problems arise at settlement, a bank cheque might be better than an electronic transfer of funds
solicitor caught with a breach of an undertaking and at risk of potentially severe disciplinary action. It’s an extreme example and 99% of transactions are settled without issues, says Flaws, a member of ADLS’ Documents & Precedents Committee. Most are done through same day cleared payments through the banking system in a non-reversible transfer. Once these cleared funds hit the vendor’s solicitor’s trust account, they can be used. Bank cheques – used in conjunction with face-toface settlements in the ‘old days’ – tend to be used now only for rare situations such as where there is a vendor’s settlement notice (after a purchaser has defaulted on settlement) or if a vendor cannot settle and the purchaser needs to tender settlement so it can then trigger rights that might exist under the sale and purchase agreement. If a vendor cannot settle, offering a bank cheque
to demonstrate the purchaser is ready, willing and able to settle is preferable to transferring funds electronically to the purchaser. “It’s easy and convenient and the banks have been doing it for a long time,” Flaws says. “If bank cheques go, what do you put in their place?” One option is to amend the ADLS/REINZ sale and purchase agreement but, as Flaws points out, that is a contract between the parties and not the parties’ solicitors. A purchaser can still breach its agreement with the vendor and act contrary to the agreement process. “If the client withdrew its instructions and required the funds in the trust account to be returned after the solicitor has given a settlement undertaking that cleared funds were available in the trust account to complete settlement, are we confident Continued on page 2