ACT - Unapproved Structures in Investment Property

Hi all,

Anyone bought a property with unapproved structures? Found an IP property I'm interested in which has been extensively renovated over the past few years, when reading through the building report found it had the following unapproved structures:

Carport - Owners applied for a DA but was refused, but they build anyway
Fence (build out from property lines)
Pergola
Decking

I know in Canberra its quite common for carports to be refused as they set a precedent for the suburb and people use get approval then fill them in and use them as a garage.

My concerns:
- Property is being auctioned and legally the new owner takes responsibility for these items. They are declared in the building report
- If council knows the structure went ahead, they could order a demolishment (unlikely - but either way they could fine + ask for another round of DA)
- Legal liability - Insurance I can't imagine will cover an unapproved structure. Even if the structure is solid and sound. This concerns me most, if house is tenanted out and something happens to tenants I imagine there wont be coverage (need to confirm this)
- Finance lending - If the bank valuation encompasses these items - could they value the property for less and therefore trigger a lower higher LVR.

Has anyone encountered this before? I'm starting to think its too many red flags to be comfortable, but wonder am I over analysing due diligence?

 

My experience living in Canberra my whole life and owning different properties, some with unapproved structures is:

- if you buy this you will settle and everything will stay the same. The ACT govt won’t suddenly turn up and ask you to demolish it. However if somebody officially complains (neighbour, local) then the govt will probably turn up (because they have to follow up on complaint) and then might ask you to demolish or rectify or issue a fineS There are lots of unapproved structures in Canberra that have been there for many years and if nobody complains they will stay there for many more.
- get a Canberra based insurance broker to check re liability for you
- ask a Canberra based mortgage broker for their opinion on the finance. Jamie Moore regularly posts on this website may be able to help.

If it is for an IP I would steer clear from this property as there are plenty more and why bother with these problems if it’s not your PPOR. Don’t get emotional with an IP. There are plenty of new properties coming on market each week without unapproved structures!

 

Perhaps check out title insurance
First Title Insurance
Stewart Title Australia

 

Insurance isn't going to cover you if you are aware of the issue/risk.

 

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What you wrote resonated with me. Going head over heart. We reviewed the risk as too high with those factors.

The public liability insurance non-coverage and no protection with Title Insurance (it's clearly stated and known in the sale contract) raised too many red flags for an IP.

 

Seek legal advice. If you buy a property with unapproved works you become liable for removal and rectification and cant use a defence that you didnt build it. You inherit the potential for penalties but only for failing to act on a order not retrospective penalties in most instances. Council may order demolition and reinstatement to the pergola, carport and decking. Then permit you to reapply and rebuild it as approved. If you fail to demo fines of $10,000+ can be imposed. Perhaps for each structure too. I know of several in this position. One was ordered to demolish the whole structure and then had a new setback imposed. Another had to gut 3 neighbouring renovated properties rending them valueless. Council cancelled occupancy certs too. Another was a fully completed new childcare that was unapproved. They had to remove all down to frames and reapply. Its before council now who are considering refusing and want the building width reduced which may mean demo is required. $300K loss is likely. And no deductibility is available since property is not capable of producing rent.

Insurance may also be compromised. Insurers wont pay for unapproved structures and can access DA systems to see if approval was given and even check plans.

Once you know the risk it may assist making a fair offer that considers the costs that could be involved. Your solicitor may recommend a specific inspection of the extent of non-compliance and potential for remedial rectification. eg If the decking is structurally unsound it may cost more than replacement. Carport removal may be simple etc