When an Agreement for Sale and Purchase can be cancelled due to damage before settlement

Following a significant deluge in early October 2024, more than 60 properties in Dunedin were either red, yellow, or white stickered by the Dunedin City Council due to the damage sustained during the extreme weather event. Of those, 11 were red stickered (meaning that entry to the building was prohibited due to risk to health or life) and 44 were yellow stickered (meaning that access was restricted: this could involve short-term restrictions to the whole building due to the possibility of further damage or restricted assess for some areas of the building only). When a house has been red or yellow stickered by a Council, further investigation and repairs are required before the building is safe to use.

The properties which were red or yellow stickered as a result of the Dunedin flooding may have been insured and had no recorded history of flooding or natural hazards. A property owner may not have had any warning that the property was at risk in this way (in a LIM report, for example): yet this single event damaged these properties so extensively that they were unable to be lived in without significant (and expensive) remedial works.

It is projected that extreme weather events will become more frequent and intense in New Zealand owing to the impacts of climate change. With this, the possibility of damage occurring to a property due to extreme weather or natural disaster between the sale and purchase agreement being signed and the settlement date may become a more pertinent issue for both purchasers and vendors to consider. 

A recent High Court ruling has clarified the rights of property purchasers and vendors when a property is damaged between the signing of a sale and purchase agreement and settlement.

Du v Youn

In Du v Youn [2025] NZHC 621, the purchaser, Ningfei Du, successfully cancelled his purchase of a $10.63 million Auckland property after it was damaged by a severe weather event. The Court held that the property was “untenantable” at the agreed settlement date, entitling Mr Du to cancel the contract and recover his $1.06 million deposit.

Background: Storm Causes Significant Damage Before Settlement

Mr Du had successfully tendered to purchase a home on Arney Road, Remuera. Days before the scheduled settlement date of 31 January 2023, a major storm hit Auckland, causing landslips that seriously affected the property, and left it teetering on the edge of the cliff side, with its foundations exposed.

The Auckland Council issued a “red sticker” for the home, barring access due to safety concerns. This rendered the property uninhabitable, and the buyer was unable to carry out a final pre-settlement inspection.

Mr Du’s lawyers requested further information from the sellers but ultimately concluded the home was untenantable and cancelled the sale. The sellers disagreed, arguing the house could still be lived in and tried to keep the $1.06 million deposit.

Legal Issue: What Does ‘Untenantable’ Mean?

The dispute centred on a standard clause in the Agreement for Sale and Purchase of Real Estate (ASP).

If a property is damaged before settlement, the contract allows:

•     Cancellation – if the property is “untenantable” (no longer fit to live in or use for its intended purpose).

•     Price reduction – if the damage is less severe.

A further issue was whether the settlement date had changed. The vendors argued that the settlement date was amended from 31^st January 2023, because neither party settled, nor did they expect to, on that date due the red sticker.

The Court's Decision

The Court ruled in favour of Mr Du, finding:

•    The settlement date remained 31 January 2023, as there was no mutual agreement to change it and no valid notice to shift the date was issued.

•     On that date, the property was untenantable:

•  The red sticker meant the home couldn’t legally be occupied; and

•  There were serious safety concerns about the land and structure.

•     Mr Du’s cancellation was lawful, and he was entitled to a full refund of his deposit.

•     The vendor's counterclaim for damages was dismissed.

Why This Case Matters

This decision reinforces key protections for purchasers under New Zealand’s standard property sale agreements. In particular:

•    Damage before settlement: If a property is damaged before settlement, and the damage renders it untenantable, the purchaser may have the right to cancel even if the vendor had no control over the damage.

•     Importance of building safety stickering by local councils:  Council-issued red or yellow stickers, although not determinative, can be strong evidence that a property is untenantable.

•     Timely notice is critical:  Vendors must act carefully and promptly if damage occurs. Simply asserting readiness to settle later may not override a purchaser’s contractual rights.

What this means for Purchasers and Vendors

Purchasers: If you suspect damage has made a property untenantable before settlement, seek legal advice as soon as possible before taking any steps to attempt to cancel the agreement. Your rights may depend on acting quickly and correctly under the contract.

Vendors: If your property suffers damage before settlement, it’s essential to understand your contractual obligations. Ensure that you speak to your lawyer as soon as possible so the level of damage can be assessed against the legal standard of being “untenantable”. If you still wish to complete the sale, your lawyer will be able to assist you in issuing the appropriate notices under the agreement.

Both Vendors and Purchasers also need to keep in mind that LIM reports only contain information known to the Council at the time of issue: a property’s susceptibility to damage in adverse weather conditions is subject to change at any time. Further, having no recorded history of land hazards in a LIM report does not mean that no hazards do or have existed: the Council may just be unaware of them.

If you are buying or selling property, our specialist team of property lawyers at McMillan&Co would be happy to assist and advise you. If the unexpected happens, and the property suffers damage prior to settlement, we will expertly guide you through this, protecting your investment and avoiding a costly dispute.

Emily Robertson, Senior Solicitor
emily@mcmillanco.nz