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.

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.

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?

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.

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.

 

The importance of requisitions on title when purchasing a property

As part of the normal conveyancing process, the purchaser will make enquiries with the vendor about the Title of the property.  These are referred to as “requisitions on title”.

The purpose of requisitions is to ask the vendor information which may not have been disclosed in the contract or discovered during an inspection of the property.  The information can range from whether there is a dispute with the neighbour regarding fences, to whether there is any matter that could justify the making of a demolition order.

There are four categories of requisitions:

• Requisitions as to title – these are matters relating to the title of the property for sale, such as whether there is an easement affecting the property.
• Requisitions as to conveyance – these are matters relating to how the property will pass to the purchaser, such as the documents to be handed over at settlement. For example, the proper execution of documents to be handed over at settlement and the time and place for settlement.
• Requisitions in the nature of general enquiries – these are best described as things that are routinely asked and may include information on how matters are to be dealt with on completion. For example, adjustments to be made, documents to be handed over, or the existence of any statutory notices.
• Requisitions in the nature of reminders – these are as they sound, simply reminders to comply with the Contract.  For example, any caveat on title must be removed before settlement, vacant possession must be provided on settlement, and so on.

Whilst a great deal of the information sought in Requisitions on Title are now covered in a vendor’s duty to disclose matters affecting the property, there are some areas that are not covered by this duty of disclosure.  Given that purchasing property is probably one of the biggest decisions and investments a person will make in their lifetime it goes without saying that it is vitally important that as much information as possible is obtained about the property before settlement takes place.

The vendor is required to answer Requisitions on Title honestly and to the best of their knowledge.  There are a range of remedies if this is not done, some of which can be quite severe.

Incorrect  Answers

A vendor who deliberately answers a requisition falsely is liable for damages for deceit if the false answer was intended to, and does, induce a purchaser to complete the purchase.  This not only applies to the answers originally given but also to situations where the vendor unintentionally provides an incorrect answer, becomes aware that the answer is incorrect and does nothing to disclose the truth to the purchaser.

If a vendor or their practitioner intentionally conceals a matter that is material to the title of the property in order to induce the purchaser to settle, then they may both face criminal and civil charges (s183 Conveyancing Act 1919).

If the reply is honest but incorrect the vendor and possibly their practitioner may be liable for negligent misstatement.

Incorrect replies may also be found to be a breach of consumer protection legislation such as the Australian Consumer Law.

If a vendor is unable or unwilling to reply to a requisition the contract provides that the vendor may rescind the Contract but only if:

• the purchaser has made a proper requisition;
• the vendor is acting on reasonable grounds, not for ulterior purposes or out of recklessness.

Any notice of intention to rescind under this clause must give the purchaser a reasonable time to waive the requisition (s56 Conveyancing Act 1919).

Can I be gazumped?

It is a common misconception amongst buyers of real estate in New South Wales that once a vendor has agreed on a price with you, then the vendor is obliged to sell the property to you.  Unfortunately, that is not the case.

A vendor is only legally bound to sell the property to you once contracts have been exchanged – that is, both you and the vendor have signed a copy of the contract, the identical copies are physically exchanged, and you have paid a deposit. Until then, a vendor is entitled to enter into negotiations with any number of purchasers.

Therefore, even if you have negotiated to purchase a property and even agreed on a price with the vendor, the vendor can still decide to sell the property to another purchaser (usually for a higher price, or on more favourable terms) – typically referred to as “gazumping“.

A vendor can gazump you even if you have paid a “holding deposit” to the real estate agent – this payment has no legal basis and is usually only considered to be a sign of goodwill by the purchaser.

Of course, if you are gazumped, you are entitled to a refund of your “holding deposit”. However you are usually not entitled to be reimbursed by the vendor for any expenses you may have incurred in anticipation of purchasing the property, such as pre-purchase inspection reports and valuations.

It is because of this that buyers often will exchange contracts in a hurry so that the property is secured and not sold to anyone else, even though the buyer has not yet undertaken the recommended pre-purchase inspections and contract negotiations.

Many buyers prefer to exchange with a cooling-off period and then obtain their inspections and negotiate the contract during the cooling-off period.  Although it must be noted that once contracts are exchanged, the vendor is under no obligation to agree to negotiate anything regarding the contract.  Your only option if you do find something untoward with the property, as disclosed in an inspection report, is to rescind (that is, pull out of) the contract and pay a penalty of 0.25% of the total purchase price.

Do you need to disclose a death or suicide when selling your home?

Like many commercial transactions, the transfer of ownership of property is underpinned by the common law doctrine of “buyer beware” (aka “caveat emptor”).  That is, the purchaser needs to make sure they make their own enquiries and carry out their own pre-purchase inspections to be satisfied as to the title and quality of the property being purchased.  They cannot rely on anything said by the vendor and/or the vendor’s agent, other than what is disclosed in the Contract.

Over time, however, statutory protections have been introduced to require the vendor to assist the purchaser by disclosing certain information about the property and including certain documentation in the Contract.  For example, the sale of property in New South Wales is subject to “vendor disclosure” laws requiring certain documents and statements relating to the title of the property to be included in the Contract for the Sale of Land (see section 52A of the Conveyancing Act and Schedule 1 Conveyancing (Sale of Land) Regulation 2010).  These documents include a title search, zoning certificate, and sewerage diagram.

Failure to comply with the vendor disclosure laws enables the purchaser to rescind (that is, pull out of) the Contract and obtain a full refund of any deposit paid (clauses 16 and 17 of the Conveyancing (Sale of Land) Regulation 2010).

Apart from the vendor disclosure legislation, the vendor is not otherwise required to disclose other defects, such as structural defects, irrespective of their impact on the value or use and enjoyment of the property.

But what about the history of the property?  Does a vendor need to disclose the fact that a violent death or even a suicide took place at the property, if such facts are within the vendor’s knowledge?  Should a distinction be drawn between an actual murder and an attempted murder?  What if a rape or a violent assault took place?  Or what if the elderly owner passed away peacefully in their bed?

Generally speaking, no, the vendor is under no such obligation.  However, the real estate agent may be so obliged.

Real estate agents are under an obligation to disclose “material facts” in relation to any property they are selling.  Failure to disclose “material facts” may constitute misleading and deceptive conduct, enabling a purchaser to seek appropriate orders from the Court to have the contract set aside and an award of damages made in their favour.  The agent could also be prosecuted for breaching consumer protection laws.

But what exactly is a material fact?  What is material to one person may not be so material to another person.  Obviously, if disclose of the fact risks the home suffering a significant drop in price, then an agent would prefer to not disclose it.

Whether or not a fact is a material fact that should be disclosed depends on whether the disclosure of the fact might affect the purchaser’s decision to proceed with the purchase.  If so, then the fact must be disclosed.

Agents are also under a general obligation not to mislead or deceive:

3 Honesty, fairness and professionalism

(1) An agent must act honestly, fairly and professionally with all parties in a transaction.

(2) An agent must not mislead or deceive any parties in negotiations or a transaction.

(Schedule 1 of the Property, Stock and Business Agents Regulation 2003).

The issue of “material facts” disclosure has arisen a number of times in recent years, as reported in various media reports.  Perhaps one of the most publicised cases was the Gonzales house in north-western Sydney, the scene of a horrific triple murder in 2001 by the family’s son.  Following the exchange of contracts for the home’s sale in 2004, the purchasers found out about the murders and demanded a full refund of their deposit.  The agent ended up refunding the deposit and fines totalling $21,000 were imposed on the agent for failing to disclose this fact.

The agent for the infamous Snowtown bank vault property mentioned in the listing:

 Buyers should note that illegal activities were conducted in the old bank building and you should enquire as to the nature of these activities prior to bidding.

The agent for a notorious home in Easey Street, Collingwood, where murders took placein 1977 referred to the home as having a place in Melbourne’s “folklore” – until victims’ groups took offence, which resulted in the agent amending the wording to “history”.

The agent selling the Cremorne home of murdered businessman Michael McGurk make a conscious decision not to disclose the fact that the businessman had been murdered on the front footpath – he took the view that as the murder did not take place within the home, it was not a material fact.  “The buyers would have known about its history anyway”, he is quoted as saying at the time.

The recent re-leasing of a unit where Morgan Huxley was stabbed to death in his bedroom in 2013 involved a below-market rent and a qualifying statement in the advertising: “Recent crime scene occurred”.

The different views often relate to a person’s particular spiritual, religious or ethnic background.  For example, Chinese buyers are among the most superstitious and will usually avoid homes where recent deaths or unsavoury acts have taken place.

If in doubt, we suggest it would be best practice for agents to disclose all facts in relation to the property.

And if you are in the market to purchase a property, we suggest that you ask the agent: “Is there anything else about the house we should know?”  Then if you do subsequently find out something about the house (a “material fact”), perhaps by speaking to the neighbours, then you may have more ground to dispute the sale.

What are my rights with a cooling-off period?

The Conveyancing Act 1919 (NSW) allows purchasers a five day business period commencing the next business day after exchange during which time the purchaser can decide to pull out of the contract and not continue with the purchase (pursuant to section 66S). The cooling-off period is a good opportunity for you to obtain your unconditional finance approval from your bank, arrange pest/building/strata inspection reports and make any other enquiries you wish about the property before committing to the contract.

The cooling-off period can sometimes be negotiated with the Vendor’s Solicitor
to be extended if you require further time to finalise the property inspections and/or obtain finance approval.

If you do decide to pull out of the contract, a Notice of Rescission needs to be sent to the vendor’s solicitor before the expiry of the cooling-off period (ie. 5pm on the final day of the cooling-off period). You are then penalised 0.25% of the purchase price (e.g. $1,000 on a $400,000 purchase, or $2,000 on a $800,000 purchase) (section 66V).

If you decide to continue with the contract, you just need to make sure that the balance of the deposit is paid to the deposit holder (usually the real estate agent) before the expiry of the cooling-off period, otherwise you will be in breach of the contract and the vendor would have rights to terminate.

Vendors have the right under section 66W to not allow you a cooling-off period. In this case, your solicitor needs to complete a “Section 66W Certificate” certifying that they have explained to you that there is no cooling-off period and that you understand that you will be bound by the contract as soon as it is exchanged.

You also do not have a cooling-off period if you purchase a property at auction.  If you are the successful bidder, you are required to sign and exchange Contracts at the auction, and pay the agreed deposit.  You do not have the benefit of a further period of time in which to obtain a pest and building inspection report, finance approval and/or negotiate amendments to the Contract.  These all need to be attended to prior to the auction.  To assist our clients, Shire Legal offers a complimentary pre-auction review of Contracts.

Most importantly – vendors do not have a corresponding right to pull out of the transaction during the cooling-off period. The cooling-off period only gives rights to the purchaser.

Please feel free to contact the team at Shire Legal if you have any questions.