Disclosure And Warranties In Residential Property Transactions
When selling residential real estate, a seller mustgive statutory warranties through certain disclosure documents in the contract. Buyer beware, however, as certain matters affecting the property may not be covered. Sarah Cappello explains.
Sellers of residential real estate must give statutory warranties about the property they are selling through certain disclosure documents in the contract. The disclosure and warranty requirements are found in the Conveyancing (Sale of Land) Regulation 2017 (effective 1 September 2017).
Despite these obligations however, certain matters affecting the property are not covered by the legislation or may not be apparent in the disclosure material. These will need to be investigated through the buyer’s own enquiries.
This article outlines a seller’s disclosure and warranty obligations and identifies some ‘gaps’ that may need further consideration by a purchaser.
For most residential sales, the following disclosure documents are required:
- a title search from Land and Property Information;
- copies of registered deeds or dealings that burden or benefit the land – easements, positive covenants and restrictions on the use of the land;
- the registered plan of the land;
- a 149 certificate from the local council which indicates the zoning of the land, its permitted, the relevant development and control plans and whether the land is affected by bush fire, flooding, road widening, mine subsidence, coastal protection, conservation, landslip or contamination;
- a drainage diagram from a recognised sewerage authority showing the location of sewer lines on the land upstream of the point of connection to the sewer main and downstream of the point of connection to the sewer main, including the points of connection;
- if the land is strata title (an in addition to the above), a copy of the strata plan, the precinct or neighbourhood plan, a title search of the common property and any dealings registered that burden or benefit the common property, the by-laws in force for the strata scheme, the strata management statement and / or a building management statement;
- if the property contains a swimming pool, a certificate of compliance, relevant occupation certificate of registration authorising use of the swimming pool, or certificate of non-compliance.
Sellers must provide a warranty that, as at the date of the contract, unless disclosed:
- the land is not subject to an ‘adverse affectation’ – this includes proposed interests by authorities such as road widening, compulsory acquisition and heritage listings or orders;
- the land does not contain part of a sewer belonging to a recognised sewerage authority;
- the planning certificate reflects the true status of the land;
- the buildings on the land are not subject to any work or demolition orders that would require those works to be upgraded or demolished or, if there are such matters, a building certificate has issued;
- the relevant approvals for the construction and use of the buildings on the property have been obtained;
- if the land is burdened by certain positive covenants in favour of an authority, no amount is payable in respect of the covenant;
- the land is not subject to an annual charge for coastal protection services.
So Why Investigate Further?
A seller who fails to include the prescribed documents risks losing the sale – although the contract will not be invalid or void, the purchaser will have a right to rescind (cancel) the contract within 14 days of exchange. Similarly, a breach of warranty (unless already disclosed in the contract) gives the buyer a right to rescind before completion.
Despite these protections however, purchasers will need to conduct their own enquiries to uncover certain adverse affectations (giving them the right to rescind) and to ensure they are completely satisfied with what they are purchasing, reflective of the price they are paying.
These investigations can be costly, but property is a long-term investment and the ramifications of not undertaking due diligence can be extreme.
What Further Investigations And Reports Should I Obtain?
The extent and nature of enquiries undertaken will depend on the age and condition of the property, what you already know about it, the location, the intended use of the property and anything arising from the disclosures already made in the contract.
A cautious yet sensible approach is required and an experienced property lawyer will go through the contract carefully to recommend the additional investigations necessary. These generally include:
Government Searches and Enquiries – council and water authority certificates provide details of land and water rates, which will be adjusted on settlement.
Enquiries of other Government authorities such as Roads and Maritime Services and Transgrid will reveal whether they have an interest in the property such as a proposal for road widening or realigning or to acquire the property for future infrastructure. Such matters are not apparent by reviewing the contract.
Pest And Building Reports – verify the condition and state of repair of the buildings on the land and identify problems such as termites or other pest activity, structural damage, rot, inferior workmanship and drainage issues. These reports flag potential maintenance concerns and may give the purchaser an opportunity to either renegotiate the selling price, pull out of the contract within the cooling-off period, or simply plan for future maintenance.
Building Certificates – Issued by the council, building certificates will consider whether the improvements on the property comply with the relevant building regulations and requirements. Many properties have add-ons such as converted garages and pergolas which have been built without approval – these issues are best discovered now rather than later.
The council is also a first point of call if you are considering developing the property as you will need information about development control plans and restrictions affecting the land. If the planning certificate attached to contract identifies concerns such as contamination or flood issues then further investigations are advised.
The council also provides information on outstanding health and other notices that may affect the property.
Survey Reports – Identify the correct boundaries of the land and indicate whether there are any encroachments by the property of from neighbouring property. The survey will confirm the dimensions and size of the land, identify the location of the buildings and confirm whether the fences are situated on the actual boundaries of the property.
Complying with disclosure requirements is essential when offering to sell residential property. The objective of disclosure is to enable a purchaser to make an informed decision regarding the property with the implied warranties providing a safety net against latent (unobvious) defects.
Buyers however must consider additional enquiries to uncover certain matters affecting the property and to confirm the condition, location and permitted use of the buildings on the land.
A good property lawyer will have the experience to guide buyers and sellers through the disclosure requirements and recommend the necessary additional searches.