Buyer Beware! But of What?
The doctrine of Caveat Emptor holds that a buyer purchases a property as it is, and must therefore be wary of any problems with the property before it is purchased.
The can be many kinds of defects, but a defect will rarely allow you to back out of a purchase. It is wise to obtain building and pest inspections before exchanging contracts. This way, you will have an understanding of any structural problems with a property. But remember, not all defects are structural, so having an idea of the kinds of defects to be wary of will give you an understanding of the enquiries that should be made before you buy. Get in touch with Zingler Legal for free contract review, and to discuss what checks you should be making before the contract is exchanged. As a general rule, you buy a property as is, and the doctrine of caveat emptor means that you must make your own enquiries into the condition of the property.
ALL PROPERTIES HAVE DEFECTS
There is no perfect property, and not all defects will be obvious. A property might be flood-prone or subject to restrictions on use. It may have contaminated soil, or be subject to restrictions on use. Properties might be worn with age, leading to some structural issue that isn’t readily observed. It is up to the purchaser to conduct their due diligence, figure out which of these defects apply, and decide whether or not they can live with them or are prepared to spend money on fixing them themselves.
A defect in title is less common. This kind of defect relates to an abstract legal idea of ownership of the land, rather than any problems with the quality of any building on the land. There might be an easement on the land preventing construction in a particular place, the land might be adversely possessed by another, or there might be some notice affecting the land’s use. For example, a property might be subject to a notice that a part of it can be acquired by the Government at some later stage for road widening works.
It may be possible to back out of a contract if there is a defect in title, but it is much more difficult to back out where there is a defect in the quality of the property.
FINDING TITLE DEFECTS
Some title defects can be discovered easily. Any property advertised for sale in New South Wales must include with its contract various disclosure materials, including a copy of the certificate of title, and a council report. Those documents will disclose many title defects. There is a danger of a ‘latent defect’, which is not disclosed by title document, such as unregistered easements, or a notice from a government agency which affects the property, or might affect the property at some later date.
A title defect the purchaser should have known about will not give rise to a remedy. Should a latent defect be discovered before the settlement date, the purchaser may terminate the contract if the vendor cannot cure the defect.
DEFECTS IN QUALITY
Other than in the case of title defects, a defect in a property is unlikely to assist the purchaser in terminating the contract. The purchaser buys the property, defects and all, at the time the contract is signed, and should expect to receive that property in the condition it was purchased, with some allowance for fair wear and tear. This is why it is important to conduct a building and pest inspection on any property before exchanging contracts.
The situation can be different in certain circumstances. If the absence of the defect is agreed to in the contract this may give the purchaser some additional rights. A contract might include a condition that all building approvals have been obtained from council, for example. Should this not be the case, this defect might give the purchaser the ability to terminate or seek compensation.
Where the vendor has been found guilty of fraud with respect to a property, there will be the ability for the purchaser to seek restitution from the vendor. However, it is difficult to prove fraud, and the Courts will take months or years to decide whether a finding of guilt is warranted.
The Purchaser might more easily show that an attribute of the property was misrepresented by the Vendor, and thereby rescind the contract. In the Queensland case of Johnson v Zhithel [1996] QCA 266, the vendor had lied about the presence of a termite infestation in the property by hiding it with paint, thereby misrepresenting the property’s state of repair. Staying silent on a problem is not a misrepresentation, but acting in a particular way is.
THE HISTORY OF A PROPERTY
In NSW, there is no obligation for the vendor to disclose anything about the history of a property, outside of anything that affects title.
If there was a death in a property this would not give rise to any obligation to disclose. A watcher of police or court room dramas on television might think this obligation did exist. A disclosure of a murder in a house is required by the vendor in some states in the USA, but not in Australia. Similarly, if the property was used to commit a crime, this may not give rise to a duty to disclose. This is a sensible position, as a landlord might not know whether or not a crime was committed by their tenant on their property, or a vendor may not know all of the details from a previous owner. The purchaser would understandably want to know if the house had been used for illegal activities, some of which (like clandestaine laboratories) might leave some chemical residue or otherwise damage the property. There is no obligation to disclose such uses, and other than searching the local newspapers for a reference to the property’s address, it might not be possible to find out.
If the history of a property is important to you, it is your responsibility to conduct your own research into its past, and make your decisions about buying on the basis of that research.
We at Zingler Legal hope this is of some assistance to you in understanding what enquiries should be made when considering your purchase, and what disclosures are required upon a Sale. We offer full service conveyancing across NSW. Feel free to get in touch to discuss how we can help.