The term ‘Buyer Beware’ is well known in the conveyancing world, but how often have you heard the term ‘Seller Beware’ being raised? It is a warning that perhaps should be considered more often by Real Estate agents when acting for sellers.
In relation to the sale of land, the modern position reflects the historical position that discovering faults in a property rests with the Buyer, hence the term ‘Buyer Beware’.
In Australia, this has been the initial position for many years. For example, in the 1987 case of Kadissi v Jankovic, the Buyer uncovered significant cracking in the external walls of a dwelling.
As a result of the cracking, the buyer attempted to terminate the contract and have their deposit returned. Unfortunately, relief was not granted to them by the Court even though extensive engineering work which had been carried out on the property to stop the foundation movement had not been disclosed by the Seller.
In Queensland, the REIQ Contract for Houses and Residential Land (‘Contract’) has somewhat reduced the harshness of ‘Buyer Beware’ on Buyers through its inclusion of seller disclosure obligations.
Clause 7.2 of the standard Contract provides that the land being sold is “sold free of all Encumbrances other than the Title Encumbrances and Tenancies”. ‘Encumbrances’ is defined in Clause 1.1(2)(j) of the Contract as “including unregistered and statutory encumbrances“.
What happens if there is an unregistered encumbrance and the Seller has no knowledge of it?
This is where ‘Seller Beware’ becomes relevant. Recently a Seller failed to disclose in the Contract an unregistered encumbrance over the property. The encumbrance consisted of sewerage pipes along two sides of the property. The seller had no knowledge of the sewerage pipes and they were not disclosed on the Title Search. It was the Buyers who discovered the pipes. Upon an inspection of the property they also uncovered a manhole. They subsequently alleged that the Seller had failed to disclose the encumbrance and threatened to terminate the contract.
Notwithstanding the Seller had no knowledge of the unregistered encumbrance, the Courts have treated such non-disclosure as a breach of contract, giving rise to the right of a Buyer to terminate the Contract and claim damages arising directly from the breach.
In a more recent case of Aughton v Wilkie, the Judge found that the Seller’s non-disclosure of an encumbrance on a property had caused the Buyer to enter into a Contract of Sale and suffer loss to the amount of $280,000. The Court here found in favour of the Buyer for the recovery of his investment in the sum of $280,000.
There have been many cases which highlights that where an essential term of a Contract has been breached by one party, the remedy is likely to be damages and the right to end the contract. The quantum of such damages appears to depend on the direct or foreseeable loss as a result of the breach.
‘Seller Beware’ stands as a warning to sellers to ensure that they are fully cognisant of their property including what lies beneath it, even where there is nothing showing on the Title or plan.
This does not mean that Buyers should become careless. Buyers should still take care and ensure that the necessary property searches are conducted otherwise they may still find themselves facing the maxim ‘Buyer Beware’.
If you are contemplating selling your property, and do not know if there are any unregistered encumbrances on the property which might provide a Buyer the ability to terminate the contract, or alternatively if you are a Buyer who has entered into a contract for the purchase of a property and require advice in relation to unregistered encumbrances, please telephone one of our friendly Gold Coast Lawyers on 5563 8970 to arrange an initial consultation, free of charge.