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Unusual conditions - advice please

Discussion in 'Legal Issues' started by Lenny, 11th May, 2016.

  1. Lenny

    Lenny Well-Known Member

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    Hi,

    We are in the process of buying another investment property and the sellers solicitors have included 2 additional conditions. We have legal council but we are after any advice here too please.

    Point 5 is pretty standard but Point 6 scares us. Is this something to seriously be concerned about and how should we proceed, if at all...?

    Thanks in advance,
    Lenny

    5. Due Diligence
    This contract is subject to and conditional upon the buyer conducting its own diligence enquiries in relation to the Lot within 14 days from the contract date. Should the buyer not be satisfied with its due diligence enquiries, in the buyers absolute discretion, then the buyer may elect to terminate this contract and any monies paid by way of deposit shall be refunded in full without delay.

    We further request that current special condition A (listed below) be amended to special condition 6 and to include the following words at the start of the special condition:

    6. Upon expiration or satisfaction of special condition 5, the buyer agrees to accept the property will all title encumbrances whether registered or unregistered..."
     
    Last edited: 11th May, 2016
  2. wobbycarly

    wobbycarly Well-Known Member

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    As I read it (not a lawyer), #6 just says that if you meet the diligence enquiries BEFORE 14 days, then the contract is unconditional. No need to wait for the 14 days to elapse.
     
  3. willair

    willair Well-Known Member Premium Member

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    With no "6",it may pay to check the title if there are any encumbrances registered or listed on the certificate of title,might be nothing at all,or it could be a problem..imho..
     
  4. Azazel

    Azazel Well-Known Member

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    If this is an extra one, I have no idea what it means.
    But it sounds scary.
    What does your solicitor/conveyancer say?
     
  5. Lenny

    Lenny Well-Known Member

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    Sorry that's what our solicitor changed it to!

    It originally had the following condition:

    Special Condition A: The buyer agrees to accept to property with all title encumbrances whether registered or unregistered with the exception of any mortgage, writ, or caveat (which must be released at or by settlement). The buyer warrants that it has satisfied itself as to any such encumbrance (including any administrative advice or notice) and will make no objection or claim against the sellers or any relation to any such encumbrance (or administrative advice).
     
    Last edited: 11th May, 2016
  6. Lenny

    Lenny Well-Known Member

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    If I break this down my understanding is that typical types of encumbrances include things like easements, memorials, restrictive covenants (eg. to ensure uniformity or a "common theme". I think we can conduct searches to cover most of this...?

    What about types of encumbrances that aren't registered? Should we be scared about this?
     
  7. Scott No Mates

    Scott No Mates Well-Known Member

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    Water pipes, retaining walls, rock anchors, private sewer/stormwater, water courses etc
     
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  8. Lenny

    Lenny Well-Known Member

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    "An encumbrance is an interest in the land held by a person who does not own the land. The most common examples are mortgages and easements (e.g. an access easement where a non-owner has the right to use a driveway on an owner's land). Another term for encumbrance is defect in title."

    Our solicitor told us that the sellers solicitor is including the above Special Condition A because buyers have taken legal action against them in the past for encumbrances showing up post settlement.

    The main thing that concerns us is that our solicitors have never seen this before. I feel the sellers solicitor is being unreasonable and it may leave us exposed. We have bought and sold several properties and never used this clause.
     
  9. Lenny

    Lenny Well-Known Member

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    Would a surveyor be the best specialist to confirm this? If so what do they cost approx?
     
  10. Lenny

    Lenny Well-Known Member

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    This a great article that I think everyone should read:

    BUYER BEWARE OR SELLER BEWARE? - Affinity Lawyers - Gold Coast

    ( and content below incase the website is ever removed...)

    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".

    (so it seems their special clause A is attempting to negate this standard clause - shifting the protection from buyer to seller)


    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.
     
  11. Greyghost

    Greyghost Well-Known Member

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    Normally this is a condition YOUR solicitor would put into the contract as a "get out of jail free card"..... So if anything they are doing you a favour by inserting it.. Wouldn't want them acting as my solicitor if I was the seller haha.

    I have put #5 in all of the purchase contracts for our 3 properties in QLD recently. Handy to have as some solicitors may overlook it but not like the look of a finance clause....
     
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  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Not sure why you solicitor would be trying to insert this no 6 on a property you are buying. How would you benefit from it? - ask them that.
     
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  13. Azazel

    Azazel Well-Known Member

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    Yeah right, I thought you meant the other party added it in there.
     
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  14. RPI

    RPI Property Lawyer, Town Planner Business Member

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    DD is normal

    go to 1100.com.au
    register
    do a search for the purpose of excavation
    You will get emails with any underground services.

    In Brisbane the Sewer Main is normally not covered by an easement. A Service running through your property constitutes a statutory or unregistered encumbrance (Court did not declare which as it did not matter) and if not disclosed by seller at the time of contract the buyer may terminate right up to settlement.
     
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  15. Lenny

    Lenny Well-Known Member

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    Hi, thanks everyone. Sorry for the confusion. The sellers solicitor originally has Special Condition A above (in my second post above) and ours countered with Special Conditions 5 and 6 (in my first post) to give us time to do our DD.

    I did the DBYD/1100 searches last night which only showed a main sewer manhole (is that politically correct?) on the neighbours property towards the rear of our block.

    I've discussed with our solicitors and in addition to the standard searches we will do:
    - sewerage / drainage search
    - a Telco search
    - and possibly surveyor. Does anyone know of one we could use?
     
  16. Lenny

    Lenny Well-Known Member

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    As above Terry, this is what our solicitors countered with in response to the sellers Special Condition A.

    I tried to delete the thread and report but couldn't.
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    But you are giving up too much ground. What if there is an adverse possession dispute in place, or a second mortgage which is unregistered now, but registered 1 hour after settlement.
    Has your lawyer suggest you lodge a caveat?
     
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  18. RPI

    RPI Property Lawyer, Town Planner Business Member

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    DDBYD would show both Telco and sewer so wasting money ordering.

    John Dawson Surveyor (07) 3841 2674
     
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  19. Lenny

    Lenny Well-Known Member

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    No Terry they haven't but ask them about the scenarios you mentioned.

    The whole thing doesn't sit well with me.
     
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  20. Lenny

    Lenny Well-Known Member

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    @Terry_w - we decided not to proceed based on multiple things we felt were issues - their unusual conditions being one of the main ones.

    Thanks for everyone's feedback.
     
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