What is the problem with unapproved building works?

A few years ago, Shire Legal acted for a client purchasing a property at Kurnell.   There was nothing particularly unusual about the transaction – it was a standard family home being sold from one family to another.

However initial enquiries carried out by Shire Legal suggested that the recent renovation at the rear of the property was unapproved.  The significant risk in purchasing a property with unapproved building works is that not only is the workmanship potentially dangerous (particularly if it was carried out by an unlicensed tradesman), but the property owner could be ordered by Council to demolish the building works if it doesn’t comply with Council regulations.

This would no longer have been an issue for the vendors if they were able to sell the property without any questions being raised by the purchasers, but luckily for the purchasers, we picked up on the unapproved works prior to contracts exchanging.

So how were the purchasers protected?

Shire Legal was able to request a special condition be inserted into the Contract to make the entire Contract subject to our clients being able to obtain a satisfactory Building Certificate from Sutherland Shire Council.  We thought it was a pretty bold move, but one worth making.

Renos 223

So, what was the outcome?

Fortunately for our clients (and the vendors!), the certifier from Council inspected the property and issued a Building Certificate.  Meaning that no rectification work was required, and the previously unapproved works were now approved.

But what if they weren’t approved?

Nevertheless, the special condition would have given our client a way to get out of the Contract if the Council was not prepared to grant the Building Certificate.  The vendor then would have the responsibility of making the property comply in accordance with Council’s requirements, something that our clients would not have wanted to do at their own cost.

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Make sure that you conduct sufficient searches and enquiries in relation to any property that you are purchasing – in particular, don’t take the risk with unapproved building works.

Contact Shire Legal on 95263444 or info@shirelegal.com.au if you have any questions about purchasing property.

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The new 2016 Contract for the Sale and Purchase of Land

Largely because of legislative changes, the Law Society of New South Wales periodically reviews and reissues the standard clause pages for the contract used when selling a property.

Despite the last edition being released only 2 years ago, there is another edition about to be released, mostly because of the introduction of legislation requiring purchasers to withhold part of the purchase price when the vendor was not an Australian resident.

Law Society

What were the major changes in the 2014 edition?

More room provided in pages 1 and 2 to include all required information.

Space for the nomination of a buyer’s agent – a change that was requested by the Real Estate Institute.

In light of the new concept of unfair terms in contracts introduced by the Australian Consumer Law (sections 24 and 25), clause 8 was amended to give the purchaser a right to terminate the contract.

Dealing with the use of deposit bonds – this includes specifying the process to be followed with providing and returning the deposit bond.

Dealing with the common practice of vendors attaching to the contract a form of requisitions to be asked, and often the form of the answers.

The use of electronic certificates of title (e-CTs).

Clauses dealing with electronic conveyancing (aka PEXA).

What are the major changes in the 2016 edition?

Amendments to deal with the Foreign Resident Withholding Tax – such as a space for the entry of the duty assessment number allocated by the OSR.

Changes to terminology – e.g. the Registrar General division of LPI will become the Office of the Registrar General.

The obligation on the vendor to provide either a Certificate of Compliance or Certificate of Non-Compliance if the property has a swimming pool.

Introducing an obligation on the vendor (not the purchaser) to obtain a land tax certificate which is current for the year in which it is served on the purchaser.

Referring to an off-the-plan vendor’s obligation to comply with the newly introduced legislation governing a vendor’s right to rescind the contract during the sunset period (following the court’s decision in Jobema Developments Pty Ltd v Zhu and Ors [2016] NSWSC 3).

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If you require assistance with the sale or purchase of property, contact the team at Shire Legal on 95263444 or info@shirelegal.com.au.

Are you buying a property with friends or family members? What you need to know about co-ownership.

Rising house prices across Sydney have made it difficult for people trying to enter the property market. In response to this we are seeing more and more people buying property with friends or family members rather than trying to go it alone.

This can be a great solution because sharing the costs of buying and holding property puts owning property within reach for many who otherwise wouldn’t be able to afford the current property market.

But what happens if these friends have a falling out?  What do you do when one of you wants to sell but the other doesn’t?  Trying to resolve these kinds of situations can end up costly and time consuming for all parties.

So how do you avoid this and best protect yourself should things not work not the way you had hoped?

Put in in writing!

We cannot say this enough when it comes to entering into any kind of financial relationship with someone else.  Having a written agreement in place from the outset will save plenty of headaches later.  Whilst everyone may have every intention of harmoniously sharing property with others, things can happen and circumstances can change – which is when having a written agreement in place, addressing what happens in these instances, is invaluable.

House

Some of the main things to consider when purchasing property with other people are:

What proportion of the property will each person own?

If each person is contributing to the purchase costs equally then it’s common for the parties to own the property as tenants-in-common in equal shares (that is, 50/50).  If one party contributes a larger amount than another though, then the parties’ shares in the property can reflect this difference.  For example rather than owning the property equally, the parties may decide that an ownership of 60:40 is more appropriate given the parties’ contributions in purchasing the property.

How will the property be used or occupied?

If all parties will be living in the property then this is relatively straightforward.  It becomes more complex however, if not all of the parties will be living in the property and things such as who will be responsible for the maintenance and upkeep of the property and the apportionment of rates will need to be considered.

What if one party can’t pay their share of the expenses?

Life can throw curveballs and it may be that at some point one of you may not be able to cover their share of the rates or the cost of unexpected repairs or maintenance. So what happens then? If another party pays it for them when and how will this be paid back? Will they be compensated? Will it be treated as a loan with interest be payable?

What if a party wants to sell their share?

The sale of an interest in a jointly owned property is usually not something that can be readily sold on the open market.  Particularly if the joint owners live together, then the remaining owner would no doubt wish to have a significant say in who is able to purchase the outgoing owner’s interest – ideally, with a right of first refusal (that is, the right to purchase the outgoing owner’s interest) and then if the remaining owner does not wish to purchase the share, then the outgoing owner should have the right to force the sale of the entire property.

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Whilst the above list is not exhaustive, it certainly is indicative of the types of issues that need to be discussed between the joint owners, and the agreement recorded in writing – ideally before the property is purchased.

If you have any questions about joint ownership, please contact the team at Shire Legal on 95263444 or info@shirelegal.com.au

Developers pulling out of off-the-plan contracts

As some people may be aware the government passed new legislation, the Conveyancing Amendment (Sunset Clauses) Act 2015 (NSW), at the end of last year with the sole purpose of amending the Conveyancing Act 1919 (NSW) to prevent a developer from unreasonably rescinding an off-the-plan contract for a residential lot under a sunset clause.

Firstly, what is an off-the-plan Contract?

If you purchase a property off-the-plan you are buying a residential property that does not have a separate title at the time you exchange Contracts.  For example, purchasing a lot in a new housing estate or a unit in a new strata complex.  Developers will often sell the properties before they begin building to gauge interest and to finance the construction.

Secondly, what is a Sunset Clause?

Sunset clauses set a time limit (the sunset date) within which registration of the separate title for the property must be completed.  If registration does not happen by the sunset date then the Contract can be rescinded. If this happens then the deposit and any monies paid under the Contract to date are reimbursed to the purchaser.  Sunset dates can vary in length depending on the size of the development and the Contract normally contains a provision that the date can be extended within certain limits.

Property lawWhy was the legislation changed?

Due to the nature of off-the-plan contracts, they can be on foot for a number of years before the construction is finalised and the purchase can be completed – during which time the property market can change drastically.

The government was concerned with reports of developers using the sunset clauses to rescind Contracts and re-sell the same property at a higher price.

Some developers found the opportunity to re-sell at a higher price too good to pass up and deliberately dragged out the construction or registration to the point that the sunset date came and went and they could then rescind the Contract.  This then left the purchasers without the new property, and quite often not being able to afford to purchase in the higher property market.

For example, a developer of a new unit block in Surry Hills rescinded contracts for 7 units, then proceeded to resell them for up to 50 per cent more than the original contract price.  Closer to home, a group of 34 purchasers took a class action against a developer of a new unit block in Wolli Creek who rescinded their contracts, claiming that the developer did not use “reasonable endeavours” to complete the construction and register the new strata documents before the expiry of the sunset date.

What do the changes mean for purchasers?

Under the new legislation (section 66ZL of the Conveyancing Act), if a developer intends to rescind a contract under the provisions of a sunset clause, they must give the purchaser notice of their intention at least 28 days prior to rescinding the contract together with their reasons as to why they are rescinding.  Only if the purchaser consents can the developer go ahead and rescind.  If the purchaser does not consent the developer must apply to the Supreme Court for an order permitting the rescission of the Contract.

Recent Case under the new legislation

The legislation has already been put to use at the start of this year in the case of Jobema Developments Pty Ltd v Zhu & Ors [2016] NSWSC 3. In this case a developer (“Jobema”) purchased a development site from a developer and took on the obligations of the original developer under several off-the-plan contracts that had been entered into with purchasers.  Jobema subsequently made an application to the Supreme Court of NSW to rescind one of the contracts after the sunset date had come and gone.  The reasoning given was that the first developer had done little to no construction work  at the time Jobema took over the development site and that as a result of this, registration of the separate lot was not expected until mid-2017. The Court dismissed the application and refused the order for rescission.

If you are purchasing an off-the-plan property, you should obtain legal advice before exchanging contracts, so that you are aware of your rights and obligations – and the possible delay in completion.  If you have any questions, or would like some advice in relation to your particular circumstances, contact Shire Legal on 9526 3444 or info@shirelegal.com.au

What to do if your property is damaged between exchange and settlement?

With the wild weather in New South Wales of late, the question has come up – what happens if the property you are buying is damaged between exchanging contracts and settlement? What are your rights? Does the vendor have to fix the damage? Do you have to settle?

Property law

Part 4 Division 7 of the Conveyancing Act 1919 (NSW) offers some protection to purchasers if the property is damaged.  Exactly what protection is available will depend on the extent of the damage.

Minor damage

If the damage is minor then there are a number of options:

  • the owner of the property may agree to make the repairs to the property before settlement; or
  • an abatement (or reduction) of the purchase price may be negotiated for the loss of value or the agreed cost of the rectification works.

What’s appropriate will depend on the circumstances of each case.

For example, if you have purchased a property and need to move in because you have given notice to your landlord, it may suit you better to negotiate an abatement of the purchase price and make the repairs yourself once you have moved in.  Keep in mind though that it is not just a matter of the cost of rectification but also the inconvenience of having to make the repairs.

It may be the vendor would prefer to carry out the repairs prior to settlement and claim it on their insurance particularly if the damage was caused by a tenant.

Substantial damage 

In the event that the property has been substantially damaged so as to “..render the land materially different from that which was purchased…” you may have grounds to rescind (that is, pull out of) the contract and the deposit and any other monies paid in accordance with the Contract refunded to you.  You need to be able to show that you would not have purchased the property if the damage already existed when you first inspected it.

The Courts will consider various factors when a Contract is rescinded as a result of damage.  For example, if you were purchasing the property with plans to demolish the existing house and develop the land, it is less likely that the Courts will consider it reasonable to allow the rescission since the damage would not be interfering with your intended demolition.

The Conveyancing Act sets out strict timelines to exercise rights arising from damage to property, so it is essential that you do a final inspection of the property before settlement and as soon as you become aware of any damage you should discuss your options with your solicitor or conveyancer.

Contact Shire Legal on 9526 3444 if you have any questions.

Do I need to disclose pre-existing termite damage to my home?

Unfortunately it’s a fact of life that many houses in bushy areas, such as the Sutherland Shire, are subject to termite invasions. It is actually more common than not for homes in the Shire to already have pre-existing termite damage.

But what if the pre-existing damage is so substantial, that it threatens the structural integrity of the home?  And what if the vendors selling the home already know about the damage?

The District Court of New South Wales (and subsequently the Court of Appeal) dealt with this type of situation in the case of Wood & Anor v Balfour & Anor [2010] NSWDC 139. This case centred on the purchase of a property located in Kareela. The property had been owned by the Balfours from the time it was constructed in 1980 until it was purchased by the Woods in 2004.

During their ownership of the property, the Balfours discovered termite activity in the timbers of the home, and had the home treated by a pest control company. They later discovered three further areas of termite damage, and then took steps to repair and cover the damage in each of these areas. The repairs included cosmetic building work to cover the damaged areas. The last of these repairs were completed in 2000.

Four years later, the Balfours placed their property on the market and sold the property to the Woods. After purchasing the property, the Woods discovered the extent of the termite damage was greater than expected.

The Woods sued the Balfours in the tort of deceit, alleging that the concealment and non-disclosure of the termite damage constituted a fraudulent misrepresentation that there was no serious termite damage to the property. The Woods also alleged the Balfours knew this representation was false and intended to deceive the Woods.

LPP

At the trial in the District Court of NSW, the judge rejected the Woods’ claim, holding the alleged representation was not made, and, even if it had been made, it had not been false, and the Woods had not relied on it. The decision upheld the principle of ‘caveat emptor’ meaning let the buyer beware. Further, the Contract included a Special Condition which specifically acknowledged that the purchaser was not relying on any representations made to them by the vendor.

The trial Judge found that the work carried out to conceal the past termite activity was done for aesthetic purposes and not with the intent of deceiving prospective purchasers.

The Woods appealed the District Court decision and the matter was heard in the NSW  Court of Appeal.

The Court of Appeal found that by making the property available for inspection and being silent as to the existence of any latent defects, the Balfours created the implication that the vendor had not knowingly concealed any defects that would otherwise be visible to the eye or otherwise discoverable by the exercise of reasonable care when inspecting the property.

The Court found that the conduct of the Balfours was not fraudulent. It was not enough for the Woods to prove that the Balfours were aware of the damage. In order to be successful in bringing a claim in the tort of deceit, the Woods needed to prove that the Balfours were aware that the property had substantial termite damage which compromised the structural integrity of the property. The Court of Appeal therefore dismissed the appeal and the trial judge’s decision that the Balfours were not liable to the Woods was upheld.

Whilst the appeal was unsuccessful, it is clear that if you as a vendor are aware of the existence of substantial termite damage which compromises the structural integrity of the property and you takes steps to conceal such damage from prospective purchasers, you  can be held liable for losses suffered by the purchasers.

For assistance with the sale or purchase of property, contact Shire Legal’s property team on 9526 3444.

 

Now that contracts are exchanged, can I start renovating?

Gaining access to your recently purchased property to commence renovations can provide you with an opportunity to save time before moving into your new home or alternatively, reduce any time your new investment property remains vacant. However, there are inherent risks involved and the potential benefit can be outweighed in the event that there are complications with the settlement.

Renovations

The ownership of the property does not actually change hands until settlement (also referred to as completion).  But if you want to gain access beforehand to paint, lay new carpet, or even upgrade the toilet, you must first negotiate with the vendor or their representative.

The vendor is under no obligation to provide access to the purchaser prior to settlement. The vendor’s only obligation under the Contract for the Sale and Purchase of Land (clause 12.3 of the 2014 edition) is to do everything reasonable to enable you to make one (1) inspection of the property in the three (3) days before a time appointed for completion (subject of course to the rights of any tenant who may be living in the property).

Whilst a vendor may allow access to take measurements, it is unlikely that the vendor will consent to allow the purchaser access between exchange and completion to undertake significant renovations as the vendor remains responsible for the property and its insurance during this period.  There are also other considerations which will have an effect on the vendor’s decision such as:

  • whether there is a tenant in the property,
  • whether the vendor is currently occupying the property and
  • whether the vendor is unwilling to take on the risk that the purchaser may not be able to complete the transaction after undertaking the renovations.

In the event that a vendor does allow access, the terms of such access should be determined prior to undertaking any work. The purchaser must ensure any appropriate building or planning permits are in place before commencing any work. This is especially relevant where substantial work is being undertaken.  Also the purchaser should ensure that adequate insurance is in place before commencing any works.

As a purchaser it is crucial that an agreement is in place as you are taking on risk that the time and money spent on improving this property prior to settlement will be wasted in the event that the sale does not proceed.

Whilst getting a head start on your renovations upon purchasing your new home seems like a great idea, the potential downside of investing time and money and energy into improving what is essentially someone else’s property (up until settlement) is significant.

There are alternatives which we can explore including:

  1. Negotiating with the vendor for a shorter settlement period to get you into your new property sooner; or
  2. Negotiating for you to take possession prior to completion (which usually involves paying a token rent or licence fee to the vendor) – although if you want to renovate during this time, you will still need to negotiate this with the vendor.

Contact Andrew Morris, Solicitor, on 9524 3444 if you have any questions about buying or selling property.