Buying Property – a practical guide

Buying Property – a practical guide

Buying property seems to be one of those things that is ingrained in Australian culture. Buy, invest, build, repeat – the road to building a property portfolio. Even with the current property slump, my clients are not overly worried. They are focussing on the upside of potentially buying at a discount.

So what do buyers need to know from a legal perspective when buying property? This practical guide should help. A quick note before you read on though: this guide is written with Victorian property buyers in mind. Whilst many of the general points will apply equally to other states within Australia, the specifics of this guide only take into account Victorian laws and practices.

Buyer beware

The first thing you should know when buying property in Victoria is that the entire transaction is subject to the legal principle known as “caveat emptor” – or “buyer beware”. This means that the vendor is under no obligation to disclose any defects that may exist with the property. Therefore, you buy the property in the condition it was in on the day that you signed the contract. The vendor will not be liable for any building defects that come to light after the contract is signed. For example, you might discover rot in the footings after the auction but before settlement. In that scenario, you will not be able to:

  • withdraw from the contract;
  • delay settlement; or
  • make a claim against the vendor for the cost of having the house re-stumped (which could be substantial).

So, how do you protect yourself against these risks? Here are a few tips:

Building and Pest inspection

A building and pest inspection is essential. It must also be carried out prior to you signing the contract or attending an auction. A building and pest inspection should identify any defects or termite infestation in the property before you sign anything. While you can buy property “subject to a building inspection”, those provisions can be inadequate. Often, you can only allow withdraw from the contract in the event of a “major structural defect”. For this reason, you are better off conducting your inspection prior to signing the contract.

Condition of goods

You should also check that all installed appliances and utilities are in working order (e.g. ovens, stove, lights, air-conditioners and ducted heating). If an item was faulty on auction day, it does not have to be repaired or replaced before settlement.

Also request to see garage remote controls, air-conditioning remotes and keys to the doors and windows. These small items often “go missing” before settlement, requiring you to replace them after settlement.

Measurements

With established properties, it is common for fences to ‘creep’ over time, and not exactly align with title boundaries. Therefore, it is imperative that you take measurements to ensure that the property boundaries align closely with the title boundaries. A legal principle known as ‘adverse possession’ can result in you losing portions of your land. This occurs if someone has encroached on the title over a prolonged period of time.

Building approvals

It’s important to ascertain whether any structures have been built without a building permit or final inspection. If an illegal structure on the property, council can make you demolish it at your sole cost. 

For example, if a previous owner erected a pergola without obtaining the appropriate approval or permit from council and this comes to light after the auction but before settlement, you will not be able to withdraw from the purchase or delay or refuse to settle if council serves a notice requiring the pergola to be demolished.  In that event, all demolition costs will be your sole liability.

Easements

An easement is a restriction on title, which reserves certain rights to third parties. The most common easements are those reserved for sewerage and drainage pipes which may run beneath the property. The key issue with easements is determining where they are and whether anything is constructed over the easement. If an authority needs to access the easement it may demolish impeding structures. The replacement of that structure will be at your cost.

Contractual Matters

There are other things to think about when buying property, regardless of the property that you are considering. The following contractual matters will be relevant:

Cooling off

In Victoria, you have a right to cool off within 3 business days of signing the contract. However, this right does not apply if:

  • You buy the property at an auction, or within 3 days of an auction;
  • The property is acquired in the name of a company; or
  • The property is commercial or industrial in nature  (or large farming land).

If you do cool off, you will forfeit the higher of $100, or 0.2% of the purchase price.

Default

If you fail to settle on the agreed settlement date, the vendor is entitled to charge penalty interest on each day that you are late in settlement (with the amount usually varying between 10% – 16% per annum).  The vendor can also pass onto you all other costs and expenses incurred as a result of your failure to settle on the agreed date (e.g. legal fees, mortgage interest and the like).  Therefore, it is imperative that you prioritise your finance arrangements and sign all finance documents as soon as they are provided to ensure that your financier is ready to settle by the agreed date (especially if that date is close to Easter or Christmas, which is a very busy period for financiers).

If you are not able to settle on time, the vendor also has the option of serving a notice on you giving you fourteen days to effect settlement. If you are notable to settle in that time, the vendor may rescind the contract, keep the deposit and recover any loss on the resale from you.

Goods

Any goods that you believe form part of the sale (e.g. dishwasher, pot plants etc) should be specifically listed in the contract.  The rule of thumb is this: if anything can be removed from the property without causing damage, that item does not form part of the sale. 

Purchasing entity

Think about who is to own the property in light of your future financial goals and asset protection. Should the property be in your name, your spouse’s name or both? If you are unsure at the time of signing, insert your own name and the words “and/or nominee”. This will ensure that you can nominate a substitute or additional purchaser later on.

If you purchase in the name of a company, the vendor will require the directors to sign a guarantee. Each director will then be personally liable for the performance of the company’s obligations under the contract. If the company defaults the vendor will be able to pursue each director individually for the whole amount of any outstanding money and for the total damages suffered by the vendor.

Planning and environment

Each property will be affected by certain issues that are usually outside of your control. These are the key factors to consider:

Zoning

The zoning of a property will affect what you are permitted to do with that land. This may affect:

  • whether you are able to operate a home business;
  • the type of building that you can construct; and/or
  • your ability to further develop the land.

If you have a particular use in mind for a property, check the zoning before you buy. You can obtain a free property report from land.vic.gov.au that will disclose key planning and zoning information about any property.

Local development

Do you want to move in to your dream home only to find out that there will be construction of 6 units next door for the next 2 years? Of course not. If any development/building works in the area may impact on your decision to proceed with the purchase, then you should call the local council to find out whether any permit applications have been lodged in the area.

Environment

An extract can be obtained from the Environmental Protection Agency to determine whether the property has been affected by contamination or is close to a contaminated site.

Roads

A certificate is also available to determine whether any road projects are proposed which may affect the property. If such a proposal is in place, the government may compulsorily acquire some or all of your land to complete that project. This will be particularly relevant if purchasing in a growth area.

Next steps

In Victoria, a vendor must give you a section 32 statement which covers off some (but not all) of the above issues. This is ordinarily attached to the  contract of sale and handed out in the lead up to a sale or auction. Get your hands on that document as soon as you can, have a read and get in touch with any queries.