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The Disclosure Dilemma: Ensuring Transparency in Property Transactions

What Property Buyers Need to Know About the Contract for Sale #47: How do I verify the seller’s disclosures?

Introduction

Seller disclosures are a critical aspect of any property transaction in New South Wales (NSW). These disclosures are designed to provide buyers with important information about the property's condition, potential defects, legal restrictions, and any other issues that could affect its value or usability. Verifying the accuracy and completeness of these disclosures is essential to avoid unforeseen problems after purchase. This section outlines what seller disclosures typically include, the importance of verifying them, and practical steps for ensuring they are accurate.

What Are Seller’s Disclosures?

Seller’s disclosures refer to the information that a seller is legally required to provide to a prospective buyer about a property's condition. In NSW, these disclosures can include:

  1. Property Condition Reports: Information about the physical state of the property, including any known defects, damage, or maintenance issues.

  2. Building and Pest Inspections: Reports from professional inspections that detail structural integrity, pest infestations, and other potential issues.

  3. Environmental and Zoning Restrictions: Details about any environmental hazards, flood zones, bushfire risks, or zoning laws that may affect the property.

  4. Strata Reports: For properties in strata schemes, this includes the financial status of the owners' corporation, past meeting minutes, upcoming special levies, and by-laws.

  5. Legal Encumbrances: Information about any easements, covenants, rights of way, or mortgages that impact the property.

  6. Past Renovations or Modifications: Disclosures about any renovations, alterations, or extensions, including whether they were approved by the local council.

Importance of Verifying the Seller’s Disclosures

Verifying the seller’s disclosures is crucial for several reasons:

  1. Protect Against Financial Loss: Ensuring all disclosures are accurate helps prevent unexpected expenses related to undisclosed defects, repairs, or legal issues.

  2. Avoid Legal Disputes: Accurate disclosures reduce the risk of legal disputes between the buyer and seller over undisclosed problems.

  3. Ensure Compliance with Laws: Verification helps ensure that the seller has complied with all legal obligations, reducing the risk of regulatory issues or fines.

  4. Make Informed Decisions: Verifying disclosures provides a clearer picture of the property’s true condition, allowing the buyer to make a more informed purchasing decision.

  5. Prevent Future Liabilities: Accurate disclosure verification can prevent the buyer from inheriting liabilities, such as illegal structures, unpaid rates, or non-compliance with building codes.

Practical Steps to Verify the Seller’s Disclosures

To effectively verify the seller’s disclosures, prospective buyers should consider the following steps:

  1. Review All Documents Thoroughly: Start by carefully reviewing all documents provided by the seller, including the contract of sale, property condition reports, building and pest inspection reports, and any other disclosures.

  2. Engage a Qualified Building Inspector: Hire an independent, licensed building inspector to conduct a comprehensive inspection of the property. This can help identify any issues not disclosed by the seller.

  3. Check Local Council Records: Verify information about past renovations, zoning restrictions, and building approvals by checking with the local council. Ensure that any alterations or extensions have been properly approved and comply with local regulations.

  4. Conduct a Title Search: A title search through NSW Land Registry Services will reveal any legal encumbrances, such as easements, covenants, or mortgages, that may not have been fully disclosed.

  5. Consult with a Solicitor or Conveyancer: Engage a solicitor or conveyancer to review the contract of sale and all disclosures. They can provide legal advice on any discrepancies or potential issues and ensure that the seller has met all disclosure obligations.

  6. Obtain a Strata Report (if applicable): For properties in strata schemes, obtain a comprehensive strata report to assess the financial health of the owners' corporation and any upcoming expenses or special levies.

  7. Verify Environmental Factors: Check government resources to verify any environmental factors disclosed by the seller, such as flood zones, bushfire risks, or contamination issues.

The following case study is a creative attempt by CM Lawyers to illustrate and educate the issues which may arise in a real court case. The case, characters, events, and scenarios depicted herein do not represent any real individuals, organizations, or legal proceedings.

Case Study: Importance of Verifying Seller’s Disclosures in NSW – A Costly Oversight

Case Overview

In the case of Martin v. Collins [2022] NSWSC 354, a buyer faced unexpected financial losses due to inadequate verification of the seller’s disclosures. The property, a two-story home in the Blue Mountains, was purchased by Mr. Martin for $900,000. The seller, Ms. Collins, had provided a building inspection report that indicated no major issues.

Behaviour of the Participants

Mr. Martin, relying solely on the seller-provided building inspection report, did not hire his own independent inspector to verify the property's condition. Shortly after the purchase, Mr. Martin discovered significant structural damage to the foundation caused by long-term termite infestation, which had not been disclosed in the seller’s report.

Upon further investigation, it was revealed that Ms. Collins was aware of the infestation but had not included this information in the disclosure documents. Mr. Martin initiated legal action, claiming that the seller had breached her duty to disclose all known defects.

Legal Process and Court Involvement

The case was brought before the NSW Supreme Court, where Mr. Martin argued that Ms. Collins had failed to fulfill her disclosure obligations under NSW law. The court found in favor of Mr. Martin, ruling that Ms. Collins had knowingly withheld information about the termite damage and had provided an incomplete building report. The court awarded Mr. Martin $75,000 in damages to cover the cost of repairs and additional legal fees of $20,000.

Financial Consequences

The failure to verify the seller’s disclosures resulted in significant financial consequences for both parties. Mr. Martin faced immediate costs of $50,000 for emergency repairs, which were later covered by the damages awarded. Ms. Collins, the seller, incurred legal fees of $15,000 and was ordered to pay $75,000 in damages, in addition to suffering reputational damage that affected future property transactions.

Statistics

  • Failure to Verify Disclosures: Approximately 15% of property buyers in NSW fail to independently verify seller disclosures, potentially exposing them to undisclosed defects or legal issues.

  • Building and Pest Inspection Usage: About 80% of buyers in NSW engage independent building and pest inspectors to verify seller-provided reports.

  • Common Disclosure Omissions: The most common omissions in seller disclosures in NSW involve structural defects (35%), pest infestations (30%), and unapproved renovations (20%).

  • Legal Disputes Over Disclosures: Around 10% of property disputes in NSW relate to non-disclosure or misrepresentation of property conditions by the seller.

  • Average Cost of Legal Action: Legal fees for disputes over inaccurate seller disclosures can range from $10,000 to $50,000, depending on the complexity of the case.

  • Reimbursement for Undisclosed Issues: Buyers in NSW who successfully challenge undisclosed property issues in court are awarded an average of $50,000 in damages.

  • Use of Conveyancers or Solicitors: Approximately 90% of buyers in NSW use conveyancers or solicitors to review seller disclosures and the contract of sale.

  • Importance of Independent Inspections: Buyers who obtain independent building and pest inspections have a 95% success rate in identifying issues that were not disclosed by the seller.

  • Environmental Verification: Only about 60% of buyers in NSW verify environmental disclosures, such as flood zones or bushfire risks, through independent research or government resources.

  • Impact of Non-Disclosure on Property Value: Properties with undisclosed defects can see a reduction in market value by 10-20%.

References

Non-Profit Organisations

  • Justice Connect – Legal Help for Property Disclosure Disputes
    URL: https://justiceconnect.org.au/resources/property-disclosure-disputes
    Justice Connect provides legal support and resources for individuals facing disputes over property disclosures, including guidance on understanding legal rights and seeking mediation or court action.

  • Law Society of New South Wales – Property Disclosure Guidance
    URL: https://www.lawsociety.com.au/legal-help/property-law
    The Law Society offers access to qualified solicitors who specialize in property law, including advice on verifying seller disclosures and handling disputes.

  • Tenants’ Union of NSW – Advice on Property Disclosures
    URL: https://www.tenants.org.au
    The Tenants' Union provides information and support for tenants dealing with property disclosure issues, including guidance on understanding rights and resolving conflicts.

  • Australian Pro Bono Centre – Free Legal Resources for Property Issues
    URL: https://www.probonocentre.org.au
    The Australian Pro Bono Centre offers guidance on accessing free legal assistance for property disputes, including issues related to seller disclosures.

  • Community Legal Centres NSW – Support for Property Buyers
    URL: https://www.clcnsw.org.au/legal-help/property-buyers
    Community Legal Centres NSW provides free legal advice and support for property buyers dealing with disclosure issues, helping them understand their rights and options for resolving disputes.