Property Disputes when Buying and Selling

Introduction

A common area of disputes that we see arising from the sale and purchase of properties is where a vendor fails to meet their disclosure obligations during the sale process. This article briefly touches on a vendor’s disclosure obligations when selling a property, as well as some safeguards available to purchasers who find themselves on the receiving end of the same.

It is important to first note that section 32 of the Sale of Land Act 1962 (Vic) is the primary piece of legislation which regulates the conveyancing process by placing certain obligations on vendors, and creating certain statutory protections for purchasers, when dealing with the sale of land and property in Victoria.

Vendor Disclosure Obligations

As part of the sale process, vendors are legally required to provide disclosure to potential purchasers of matters affecting the land in the form of a disclosure document called a ‘Vendor’s Statement’. This document is provided under section 32 of the Sale of Land Act, and its purpose is to provide transparency in land transactions and to allow purchasers to make a fully informed decision before entering into a contact of sale. This is a document that is most commonly prepared by a vendor’s conveyancer or solicitor, and provided to a potential purchaser alongside the contract prior to it being signed.

Disclosure Examples

Some examples of ‘matters affecting the land’ that are required to be disclosed by vendors include:

• Title details (showing the vendor’s right to deal with the land, including any easements, covenants or restrictions affecting the land);
• Planning zone information (including any overlays on the land);
• Current outgoings (such as land tax, council rates, water rates and any owners corporation fees);
• Building permits (where there is a residence or dwelling on the land);
• Owner-builder works (which refers to building works or renovations conducted by a vendor themselves as opposed to a registered builder);
• Recent works by builders or other trades, including renovations;
• Any notices or orders issued (such as council demolition notices, compulsory land acquisition or EPA contamination notices);
• Availability of services (such as electricity, gas, water and sewerage); and
• Whether the land is within a bushfire prone area(or other high risk area).

Most of the information required to be disclosed (such as those listed above) can be easily found by ordering the relevant certificates related to the land. A conveyancer or solicitor will also be able to guide vendors as to the relevant and necessary information to disclose and the appropriate certificates to obtain as part of the disclosure process. However, do bear in mind that the obligation does still fall on you as the vendor, and therefore it is important to raise any matters which you believe to be affecting the land or a material fact which could or would likely influence the decision of a potential buyer to purchase your land or property to your representative for them to advise on disclosure accordingly.

Material Facts

In addition to the specific disclosures required in a Vendor’s Statement, vendors and their representatives cannot knowingly conceal from a prospective buyer any ‘material facts' about a property when selling land. It is a requirement under section 12 of the Sale of Land Act not to make or publish any statement, promise or forecast which a vendor knows to be misleading or deceptive or to knowingly conceal any material facts or recklessly make any statement or forecast about the property which is misleading or deceptive.  

The Material Fact Guidelines issued by Consumer Affairs Victoria provide key examples of what will constitute a material fact that should be disclosed, and includes things such as termite damage, structural defects, criminal activity at the property and the like. Failure to disclose a material fact can give risk to civil liability (meaning you can be sued by the purchaser for the loss this causes them) and potential fines.

It is often a failure to disclose something ‘material’, but which is not specifically listed under section 32 of the Sale of Land Act, which leads to costly disputes. So if in doubt, it is better to disclose than to not if you are unsure.

Common Examples

Common examples of disputes arising from a vendor’s failure to make the appropriate disclosure include:

• Owner-builder works (including whether the relevant and required permits and insurance was obtained at the time of the works);
• Concealment and/or non-disclosure of defective works (either by the vendor as owner-builder or by a registered builder with the knowledge of the vendor);
• An ongoing dispute with a neighbour (such as over a shared fence or nuisance);
• Concealment and/or non-disclosure of present or recent historical termite infestation and major structural damage; and
• The presence of a structure or dwelling on the land without the proper approvals and permits (i.e. illegal structures).

Unfortunately, these are real examples of recent cases that we have come across at our firm and circumstances where the vendor (and even their representatives) are being held liable for failing to adhere to the strict disclosure obligations imposed by sections 12 and 32 of the Sale of Land Act.

Key Tips for Vendors

To summarise for vendors, here are a few quick tips when selling land or property:

1. Find an agent, conveyancer and/or solicitor that you can trust;
2. Be open and transparent with your representative about the land or property that you are selling and let them advise you on what disclosure is required – it is always better to over-disclose than to under-disclose;
3. Check the advertising material to ensure nothing is being represented that is not true and check the disclosure statement to ensure it covers everything;
4. Put yourself in the position of the purchaser and ask yourself, “if I were buying this property, what would I want to be aware of or know beforehand”; and
5. Whilst the safest place for disclosure is in the Vendor’s Statement provided with the contract of sale, disclosure can also be made during the sale, marketing and advertising process, as well as in yours/your representative’s communications with the purchaser and/or their representative at any time prior to the contract being signed – this means that you must be honest and transparent about the land at all times during the sale process, and not just in the disclosure statement itself.

Purchaser Protections

So what does this mean for purchasers, and what protections are available to those the subject of absent or misleading disclosure?

Section 32K of the Sale of Land Act provides the right for purchasers to rescind a contract of sale after signing but before the settlement date in certain circumstances where the vendor provided false disclosure or failed to provide disclosure of a matter affecting the land being sold.

However, this is not an automatic right to rescission for any non-disclosure, but rather applies to material fact non-disclosures. This word ‘material’ is important as it relates to matters which would have reasonably influenced a purchaser’s decision to purchase the property, including for that same purchase price, or a matter which affects the value, use or enjoyment of the land. Therefore, you cannot merely rescind the contract for ‘minor’ errors where there is likely no actual or potential loss to you as the purchaser as a result of the non-disclosure. Section 32K(4) of the Sale of Land Act makes it clear that rescission is not available where the purchaser is substantially in as good a position as if all the relevant disclosure had been complied with.

Prior to Settlement

It is important to seek legal advice immediately and prior to settlement if you do find yourself in the position where material matters affecting the land or property you are set to purchase were not disclosed to you and would have impacted your decision had you known about these issues prior to signing the contract. A solicitor may advise you of your right to rescind the contract in your particular circumstance, or negotiate for a reduced purchase price in proportion to the effect that the non-disclosure has on the value or use of the land.

After Settlement

Alternatively, if you find yourself in a position where settlement has occurred and you have become the owner of the land, and subsequently discover a matter affecting the land which was present at the time of the sale but which was not disclosed in the sale process, you should immediately seek legal advice as you may be entitled to a claim against the vendor (and in some circumstances, even their agent or an expert who prepared a report) for compensation for your losses caused you having to rectify undisclosed issues where the failure to disclose was so material that it would have influenced you in the sale process (i.e. you would have paid less or not proceeded at all).

Key Tips for Purchasers

Similarly to our tips for vendors, here are some quick tips for purchasers when buying land or property:

1. Get legal advice on your contract of sale before you sign it – don’t try to make sense of the Vendor’s Statement and all of the likely certificates attached to it on your own;
2. Ask questions about the property and keep a written record the responses;
3. Most contracts are conditional upon a building and pest report. This means that you may have a specified number of days after signing the contract to obtain a building and pest report by an expert, and even have grounds to terminate the contract if any report reveals serious findings affecting the land which were not previously disclosed. We recommend that you do obtain these reports within the timeframe provided;
4. You are entitled to a pre-purchase inspection of the land or property, and we highly recommend that you do attend and make enquiries of the vendor or their agents if anything you observe raises a ‘red flag’ – trust your gut;
5. And finally, if your heart is set on the property even after you have become aware of a failed disclosure, negotiate on the purchase price so that it represents any further works or the value of those works which you will be inheriting with it.

How Sharrock Pitman Legal can help?

No matter what side of the fence you’re on - vendor or purchaser – you’ll likely be wanting the transaction to go as smoothly as possible. Disclosure, for the seller and due diligence, for the buyer, will save time and money, and avoid the risk, and expense, of litigation.

If you find yourself in a similar situation to anything described above, please do not hesitate to contact our litigation team on 1300 205 506 or email sp@sharrockpitman.com.au.

The information contained in this article is intended to be of a general nature only and should not be relied upon as legal advice. For advice tailored to your specific circumstances, please consult one of our qualified lawyers.

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