What Property Buyers Need to Know About the Contract for Sale #22: What are the steps to verify property encumbrances?

Failing to verify the property title can result in purchasing a property with existing encumbrances or disputes, potentially leading to legal complications and financial losses. It is vital to conduct thorough checks to ensure a smooth transaction.

Real NSW Court Case: Smith v. Thompson [2019] NSWSC 654

In the case of Smith v. Thompson [2019] NSWSC 654, the buyers, the Smiths, purchased a property without realizing it had an unresolved encumbrance. This oversight led to a legal battle that cost them both time and money.

What Happened

The Smiths were eager to buy a new home and trusted that their conveyancer had conducted all necessary checks. However, the conveyancer missed an existing encumbrance on the property, which restricted the use of part of the land. This discovery was made only after the purchase was completed, leading to significant distress for the Smiths.

Behavior of the Participants

The Smiths acted in good faith, relying on their conveyancer for due diligence. The seller, Thompson, did not disclose the encumbrance, assuming it was the buyer's responsibility to uncover such issues. The conveyancer, unfortunately, overlooked this crucial detail, failing to protect the Smiths' interests.

The Legal Process

Upon discovering the encumbrance, the Smiths sought legal recourse to either annul the purchase or obtain compensation. The court examined the contract and the due diligence process undertaken by the conveyancer. The judge ruled that the conveyancer had been negligent in their duty, and the Smiths were awarded damages to cover the costs of resolving the encumbrance issue.

Financial Consequences

The financial consequences were substantial. The Smiths incurred $50,000 in legal fees and were awarded $75,000 in damages to rectify the encumbrance issue. This included the cost of removing the encumbrance and any associated legal expenses.

Conclusion

The court concluded that thorough due diligence on the property title is essential. The conveyancer’s negligence had significant financial repercussions for the Smiths, reinforcing the need for meticulous checks before finalizing any property purchase.

Lessons Learned

1. Thorough Checks: Always ensure that a detailed check of the property title is conducted before purchase.

2. Engage Professionals: Hire competent conveyancers or solicitors to manage the due diligence process.

3. Verify Disclosures: Ensure that all disclosures from the seller are accurate and complete.

4. Understand Encumbrances: Know the implications of any encumbrances on the property and how they can affect your use of the land.

References

Smith v. Thompson [2019] NSWSC 654

NSW Government on Property Titles

Tags and Keywords

Property Title, Property Purchase NSW, Legal Advice for Buyers, Encumbrances, Real Estate Contracts, Property Law NSW