New Property Law Act - impacts on everyday commercial transactions

On 1 January 2008 the new Property Law Act came into force, bringing the law of real property into the 21st century. The new Property Law Act, like its predecessor, does not just deal with real property transactions, it contains rules of general law relating to the creation, disposition and control of property of all kinds. In this article we look at changes made to some of the more general statutory rules governing deeds and other instruments.

The Property Law Act 2007 (the Act) came into effect on 1 January 2008. The Act repealed the Property Law Act 1952 and the Contracts Enforcement Act 1956.

The Act is primarily focussed on property law issues and should help provide certainty in property dealings; facilitate the resolution of disputes; and reduce litigation for property owners, landlords and tenants. For more information on these aspects of the Act refer to the article "New Property Law Act creates positive reforms" in Bell Gully's recent Property Update. Bell Gully has also published an article on how the Act impacts on financiers, especially in relation to the restrictions and enforcements of loans secured by a mortgage. To view this article click here.

In addition to the specific property law provisions, the Act also establishes a new set of general statutory rules governing deeds and other instruments. These aspects are summarised briefly below.

Formalities required for deeds

It is a matter of everyday, practical importance that the way an individual, a company or other corporation executes a binding document should be well-known, simple and rational.

This is especially important for the more formal requirements of the law governing deeds. It is therefore unfortunate that the overhaul of the statutory rules governing deeds in part 2 of the Act raises a new uncertainty over the requirements for "delivery" of a deed.

Delivery of deeds

The new wording in section 9 of the Act prescribes that a deed must be in writing, executed and delivered in accordance with the terms of that section. The Act states that delivery can be effected by the person to be bound by the deed or by another person who has express or implied authority to deliver it on behalf of the person intended to be bound by it.

The draft legislation proposed by the Law Commission stated that it would be sufficient to constitute "delivery" if:

• it was apparent from the circumstances that the person to be bound by the deed intended to be bound by it or,
• if the binding force of the deed was subject to the fulfilment of one or more conditions, each of those conditions had been fulfilled.

This therefore precluded the need for "formal" or "literal" delivery as provided for in the old section 4 of the 1952 Act.

Although the same language proposed by the Law Commission has been adopted in section 9(9)(a) of the Act, it does not appear to be included as an explanation of what constitutes delivery, which is how it was originally intended. Instead, it appears to read as an additional requirement to the delivery obligation. We hope that this is an unintentional drafting error which will be rectified by the legislature in due course.

In any event, with the addition of the new statutory requirement for delivery, we would recommend that warranties and confirmations regarding due execution of a deed be extended to provide confirmation that the deed has also been delivered.

Execution of deeds

The Act sets out the requirements for how a body corporate, the Crown, an individual and an attorney may enter into a deed.

(a) Bodies corporate

A body corporate may still enter into a deed in the manner prescribed by another statute. Therefore, a company registered under the Companies Act 1993 may also enter into a deed in the manner provided in section 180(1)(a) of that Act, although the provisions of the Act in relation to execution of a deed by a body corporate are generally consistent with section 180(1)(a) of the Companies Act.

Under section 9(3) of the Act, a body corporate must execute a deed through the signature of:

• a single director (if the body corporate has only one director);

• not fewer than two directors (if the body corporate has two or more directors);

• one director or another person or member of a specified class of person if the body corporate's constitution authorises a deed to be signed in that way.

Except where a deed is executed by two or more directors, the signature of the signatory to the deed must be witnessed.

A body corporate which is incorporated outside New Zealand may also execute a deed in the manner permitted under the law of the place in which the body corporate is incorporated, were the deed executed in that place and governed by that law.

(b) Crown

One or more Ministers of the Crown may execute a deed on behalf of the Crown, but where a deed is executed by only one Minister it must also be witnessed.

(c) Individual

An individual must execute a deed by signing the deed and having their signature witnessed.

(d) Attorney

An attorney may execute a deed, although they must be appointed by deed.

Attestation of deeds

A person witnessing execution of a deed must not be a party to the deed. The witness must sign the deed and, if the deed is signed in New Zealand, the witness must add the name of the city, town or locality where they ordinarily reside and their occupation or description. No particular form of words is required for the description of the address or occupation of a witness.

Execution of other contracts by bodies corporate

The Act also sets out how a New Zealand incorporated company may enter into any other contract or obligation and those requirements reflect the provisions of section 180(1)(b) and (c) of the Companies Act 1993.

Those rules will also apply to non-New Zealand companies in relation to any contract or other obligation entered into in New Zealand or any contract or other obligation for which the proper law is the law of New Zealand (subject to any law of the place in which the company is incorporated).

Execution of instruments by an attorney

An instrument executed by an attorney must be made in the name of the donor, state that it is being executed on the donor's behalf by the donor's attorney, and otherwise be executed by the attorney in the same manner as would be required if the attorney were a party to the instrument.

Certificates of non-revocation of power of attorney

Under the Property Law Act 1952 a certificate of non-revocation of power of attorney could be in the form scheduled to that Act "or to like effect".

The Act requires a certificate of non-revocation of power of attorney to be in the form set out in schedule 1 to the Act. There is no provision for any variation from that form. The certificate must be signed by the attorney or, if the attorney is a body corporate, a director or other officer of the body corporate or a person acting on behalf of the body corporate in another capacity.

The Act also prescribes when the certificate must be given. It must be given immediately before, or at any time after, the doing of a thing by the attorney.

Specific performance of voluntary promises made by deed

In common law, a person wishing to enforce a voluntary promise (a promise made without consideration) made by a deed could only claim damages and could not seek specific performance of the promise. This rule is changed by section 18 of the Act so that courts are now able to order specific performance of a voluntary promise made by a deed.

Material alterations to a deed

Section 11 of the Act abolishes the old rule that a deed becomes invalid if there is a material alteration after its execution.

Changes for assignments of things in action

Sections 48 to 53 of the Act introduce a number of changes to the law governing assignment of things in action including:

• provision for the assignment of part of a debt to operate as a legal assignment by the extension of the definition of a "thing in action" to include a "part of a thing in action";

• clarification of the position in relation to the assignment of specified future debts;
• confirmation that consideration is not required to effect a valid legal assignment of a thing of action;
• changes to the requirements to give notice for a statutory assignment of a thing in action;
• clarification for an assignor's agent to execute an instrument of assignment; and
• a new regime setting out the requirements for the valid equitable assignment of a thing in action.

To access the new Property Law Act 2007 online visit the Government's legislation website www.legislation.govt.nz or click here.

For further information or advice on the new Property Law Act please contact your usual Bell Gully adviser.

Enquiries and information

For more information on any of the cases, articles and features in Commercial Quarterly, please email Diane Graham or call her on 64 9 916 8849.