Conditional offers: finance, LIM, building — what they actually protect

How conditions work in the ADLS Agreement

The ADLS Agreement for Sale and Purchase is the standard NZ residential contract. When conditions are included, the contract is conditional. The agreed condition periods run from the contract date. On or before the condition deadline, the purchaser must either:

• Confirm the condition is satisfied (the condition is then waived and the contract proceeds toward becoming unconditional).
• Decline to confirm — the contract is cancelled and the deposit (if paid) is returned.
• Extend the condition by mutual written agreement — the original deadline is replaced.

Silence at the deadline is not the same as confirmation. The specific form of confirmation is typically written notice from the purchaser's solicitor. If the deadline passes without action, the contract may cancel automatically (depending on how the condition is worded) or the vendor may give the purchaser notice to confirm or cancel. Your solicitor handles these mechanics.

Auction contracts are unconditional — conditions cannot be included. Tender contracts can include conditions, though vendors often prefer unconditional tender offers and price accordingly.

The finance condition

The finance condition protects you if your lender will not approve your mortgage on acceptable terms. Typical wording makes the contract conditional on the purchaser obtaining finance "on terms acceptable to them" — the standard is subjective, giving the purchaser some flexibility.

Typical period: 10 to 15 working days from the contract date. Shorter is risky if your lender is slow; longer signals to the vendor that your finance may be uncertain.

What the finance condition protects:

• Loan declined.
• Loan approved at a lower amount than needed.
• Loan approved on terms (interest rate, fees, insurance) you find unacceptable.

What it does not protect:

• A change of heart. The condition requires a good-faith attempt to obtain finance. Confirming to the vendor that "finance was refused" when no real application was made can be a misrepresentation.
• Pre-approved lending evaporating post-contract — if the lending was pre-approved and you have not done anything to jeopardise it, the finance condition applies normally. If you have (new debt, changed job, tanked your credit), your lender's response is your problem.

Before making an offer, have finance pre-approval in hand from your lender (letter or email stating the amount and conditions). This converts the finance condition from "I hope I can get finance" to "my lender has already said yes; I just need the property-specific valuation to confirm."

The LIM condition

The LIM condition makes the contract conditional on the purchaser obtaining and being satisfied with a Land Information Memorandum. See Reading a LIM for what the LIM actually contains. Typical period: 10 working days.

What the LIM condition protects:

• Revelations on the LIM that materially change the property — hazards, unconsented work, outstanding notices, designations you were not told about.
• Cost-generating surprises — outstanding rates arrears, council-required remediation works.

What it does not protect:

• Matters outside council records. A LIM cannot reveal what the council does not know.
• Subjectively disliking the LIM content. "Not satisfied" has to be reasonable; arbitrary rejection after receiving a clean LIM may be challenged as bad faith.

Some vendors supply a LIM with the listing. If so, you can still include a LIM condition, especially where the vendor's LIM is older than three months. Check that any pre-listed LIM is current and from the correct council.

The building report / builder's report condition

The building report condition makes the contract conditional on the purchaser obtaining and being satisfied with a building inspection report. Typical period: 10 to 15 working days. See The building inspection report: what NZS 4306 requires for what a competent NZS 4306 inspection looks like.

What the building-report condition protects:

• Material defects identified in a competent inspection that you did not know about when you made the offer.
• Structural, weathertightness, or compliance issues that change the property's value or remediation cost.

What it does not protect:

• Issues that would have been apparent to a reasonably observant buyer (missing taps, broken windows) — these you should have seen.
• Issues from a report that falls below NZS 4306 standard. A padded report with exaggerated items does not grow your right to cancel; your solicitor will assess whether the findings are material.
• Issues that arise after the condition period. Discoveries between contract and settlement are handled differently — see the ADLS standard vendor warranties.

Commission the inspection yourself, with an inspector holding LBP and/or NZIBI credentials. A vendor-supplied inspection is useful but is commissioned by the vendor's side. Your inspection is your own.

The title condition

The title condition makes the contract conditional on your solicitor being satisfied with the title search. Typical period: 5 to 10 working days. The title search surfaces registered interests — easements, covenants, encumbrances, caveats.

What this condition protects:

• Registered interests that affect the use or value of the land and that you were not informed of.
• Outstanding issues on the title (caveats, notices).

Most title searches on residential property surface standard items (utility easements, subdivision covenants). The condition is a catch for the unusual.

Sale-of-other-property conditions

Where the purchaser needs to sell an existing property to fund the purchase, a sale-of-other-property condition makes the contract conditional on the existing property selling within a specified period. This condition significantly weakens the offer from the vendor's perspective; expect vendor resistance or a lower chance of acceptance for offers with this condition.

Variants:

• Full sale-of-property condition. Contract conditional on the existing property selling; typically with a "cash-out" clause allowing the vendor to give notice and require the purchaser to waive or cancel if another buyer appears.
• Bridging finance instead. The purchaser arranges short-term finance covering the gap; removes the condition.

Other conditions

Depending on the property, you may want to include specific conditions:

• Insurance condition — confirmation that insurance is available on acceptable terms. Increasingly relevant for properties in natural-hazard zones.
• Body corporate pre-contract / pre-settlement disclosure condition (unit title only — see the Unit Titles Act 2010).
• Specific investigation condition — e.g., a weathertightness specialist assessment, an asbestos test, a drainage investigation.
• Chattels condition — specific chattels working on inspection.

What happens at the condition deadline

On or before each condition's deadline, your solicitor gives the vendor's solicitor written notice of:

• Confirmation — the condition is satisfied and waived.
• Cancellation — the condition is not satisfied and the contract is cancelled under that condition. Deposit returned.
• Extension — both parties agree to a later deadline.

Where a condition is not satisfied — for example, your finance is declined — the contract cancels, the deposit is returned, and each party walks away. This is the condition operating as intended.

Where you want to cancel for reasons that are not a condition failure, the position is different. A vendor may have grounds to keep some or all of the deposit, and may have grounds to sue for specific performance or damages. This is why conditions matter: they give you a defined, risk-free exit on specific grounds.

Summary

• Conditions are your structured exit ramps. Each covers a specific risk.
• Have finance pre-approval before offering; the finance condition is a backstop, not a starting point.
• Order your own LIM and your own building inspection; vendor-supplied versions are informational, not a substitute.
• Conditions must be actively satisfied or cancelled by the deadline. Silence is not safe.
• Auction contracts are unconditional — all conditions must be satisfied before the auction.

Where this guide sits in the section

Previous: Reading a LIM: what matters most.

Rules cited: ADLS Agreement for Sale and Purchase, LGOIMA / LIM, NZS 4306:2005, Unit Titles Act 2010.