FAQ - Property and Finance

1. Are records to be kept for a strata scheme consisting of two lots?

2. What are the legal requirements for Owner Building Works to be carried out on a property?

3. Is it the Purchasers responsibility to investigate the legality of improvements/structures on the land? If so, how is this done?

4. What is a caveat and how can it benefit a Purchaser?

5. What legal issues should a Purchaser consider before buying ‘off the plan’?

1. Are records to be kept for a strata scheme consisting of two lots?

Yes, regardless of the number of lots within a strata scheme, the Strata Schemes Management Act 1996 (NSW) requires all strata schemes to be properly managed and records maintained.

Upon the registration of a strata plan for a strata scheme, there is established an Owners Corporation for that strata scheme. An Owners Corporation has the principal responsibility for the management of the scheme.

Generally, the Owners of each Lot together form the Owners Corporation. The Owners Corporation may elect (by a unanimous vote) to either appoint a Strata Manager or self manage the scheme.

It is imperative the by-laws for the Strata Scheme (whether set out in legislation or adopted by the scheme) are complied with and in particular appropriate strata insurances are obtained.

2. What are the legal requirements for Owner Building Works to be carried out on a property?

Firstly, what is ‘owner building works’?

Section 29 of the Home Building Act 1989 states: 'owner-builder work' means residential building work:

the reasonable market cost of the labour and materials involved in which exceeds the prescribed amount (being $5,000.00), and
that relates to a single dwelling-house or a dual occupancy:

that may not be carried out on the land concerned except with development consent under Part 4 of the Environmental Planning and Assessment Act 1979, or
that is complying development within the meaning of that Act.’

An ‘owner’ for the purposes of the Act is any person (or entity) that has a freehold interest in the land, or has a leasehold interest in the land in perpetuity, for life, or for a term exceeding 3 years. If land is owned by a company that is wholly owned by individuals, the land is to be taken to be owned by those individuals.

It is the responsibility of an owner to:-

obtain an owner builder permit;
ensure that any contractors to the owner is a holder of a contractor licence to do the required work;
arrange for Home Owners Warranty Insurance (pursuant to section 95 of the Home Building Act 1989).
If the property has had done on it owner builder work within the last six years before it is to be sold, a certificate of Home Owners Warranty Insurance is required to be annexed to the Contract.

3. Is it the Purchasers responsibility to investigate the legality of improvements/structures on the land? If so, how is this done?

Whilst there is a requirement for Vendor disclosure in a Contract, it is strongly recommended Purchasers should investigate the legality of improvements/structures on the land.

A Purchaser may arrange for an identification Survey Report to be obtained at the purchaser’s cost to ensure the position of the improvements on the property comply with the requirements of the Local Government Act 1919 and to ascertain whether there are any encroachments by or upon the property. This should be done before exchange of contracts or during any ‘cooling off period’ that may apply.

In addition, a Purchaser may obtain a building certificate from the Local Council. (Please note, in many Council regions, a building certificate cannot be obtained unless a survey report is provided with the application to the Council).

Upon receipt of an application for a building certificate, the Council will advise whether it requires the demolition or upgrading of illegal or non-complying buildings. If not, a building certificate may issue and remains valid for a period of 7 years.

However, when making an application for a building certificate the council may require work to be done as a precondition to the issue of the building certificate.

The standard form of Contract for Sale of Land (unless amended by special condition) generally states ‘the vendor must by completion comply with a work order made on or before the contract date and if the contract is completed the purchaser must comply with any other work order’.

However, a regulation was introduced on 1 January 1999. As a result of this regulation, all vendors are taken to have warranted there is no matter in relation to the property that could justify the making of any demolition or upgrade order by the Local Council. This warranty has been introduced to protect purchasers. A breach of this warranty entitles a purchaser to rescind the contract before completion. However the purchaser cannot rescind the contract if the Local Council has issued a building certificate.

Whilst not supported by this firm, an alternative to obtaining a Survey Report and/or Building Certificate and conducting standard property enquiries, is for Purchasers to limit their exposure when purchasing property by obtaining Title Insurance. A once off premium is payable upon application of Title Insurance. This type of insurance is, also, not accepted by many mortgage lenders.

The concept behind Title Insurance is that a purchaser passes the risk of the property having any illegal structures, encroachments and the like to the insurer despite not having investigated any legal issues during the purchase process. That is, should an issue arise with respect to illegal structures, encroachments, property resumptions, etc, (and provided the Purchaser did not have any knowledge of same) the insurance may cover the Purchaser appropriately.

The caution with Title Insurance is whether the insurer will be in a capacity to support any claims 10 or 20 + years in the future should the need arise? Also, purchasers may prefer to be aware of any issues that may result in a potential claim under Title Insurance before purchasing the property. If a purchaser is/becomes aware of any issues (for example, by disclosure in the Contract by the Vendor) then that issue may not be covered (even though it may have been covered if the Purchaser was otherwise unaware of that issue).

4. What is a caveat and how can it benefit a Purchaser?

A caveat is a legal mechanism used to prevent dealings being registered over the title of a property without a caveator’s consent (being the consent of the applicant/purchaser). A caveat can only be registered on a title where there is an equitable interest in the land either by instrument or fact.

By entry into a Contract for Sale of Land, a Purchaser legally has an equitable interest in the land.

Upon registration of a caveat, a Purchaser’s interest in the land becomes a ‘registered interest’. A registered interest in land will take priority over an equitable interest in land and is only subject to the rules of priority of other pre-existing encumbrances (for example, first registered mortgagees, etc).

Whilst the lodging of a caveat by a Purchaser over the title of land being purchased is not considered by most to be standard conveyancing practice, it is recommended that Purchasers consider their position under the terms of the Contract and the nature of the Vendor when considering whether to lodge a caveat. For example, in a scenario where the Vendor is a developer company and has requested the release of deposit (subject to the terms of the Contract), given the release of the deposit would be considered a charge in favour of the Purchaser, a caveat should be lodged.

There are many other instances where caveats may be lodged and it is strongly recommended that Purchasers evaluate their risk/exposure under a Contract when considering the lodgement of a caveat.

5. What legal issues should a Purchaser consider before buying ‘off the plan’?

A Purchaser should consider various legal issues before buying ‘off the plan’:

Will the ‘end product’ be what is promised to the Purchaser? Often developers publish marketing materials and/or have scaled models depicting how the end product is to appear and/or its anticipated size. However, it is common for developers to include in their contracts the developers right to alter, vary, amend and/or substitute plans, easements, rights, fittings and finishes, etc without the Purchasers’ consent. It is also quite possible that the quality of the ‘end product’ may not be as high as a purchaser might wish.

Should this right exist in the contract, a Purchaser
Is the builder the vendor? Has the developer sufficient funds to pay the builder (or if the builder is the vendor are there sufficient funds) in order to complete the construction to the standard depicted in the marketing materials? It would be prudent for a Purchaser to conduct some background research into the vendor, developer and builder. This may be done through the ASIC register, viewing previous developments, speaking with owners within a building constructed by or on behalf of the Vendor or its associated companies.
Legislation requires developers of certain strata buildings to obtain Home Owners Warranty Insurance. However, Purchasers should be warned that developers are exempt from obtaining Home Owners Warranty Insurance if the development consists of a multi-storey building that has a rise in storeys (excluding vehicle parking spaces) of more than 3 and contains two or more separate dwellings. Thus, if any issues arise with the construction of the building, owners will not have the benefit of a legislative insurance due to the exemption for multi-storey buildings.
The time period anticipated for completion of the development is usually long drawn. Sunset Dates are often introduced into Contracts enabling the Vendor to rescind the Contract should the Vendor not complete the construction and obtain registration of a Strata Plan within a given time period. It is recommended that Purchasers ensure they too have a reciprocal right to rescind the Contract requiring the Vendor to refund the deposit. If the development is not completed by the sunset date, it may be appropriate to have the contract provide that the deposit be invested in a bank so that some interest may be earned on it.
Appliances and general fittings/finishes may vary from the marketing materials and to that which are actually installed into the property. This is, commercially, an issue for Vendors and they usually include a right in the Contract for them to substitute appliances and general fittings/finishes with other models/brands. It is recommended that a Purchaser ensures this right in favour of the Vendor is controlled by insisting any substitution is to be with a product of equal of higher quality than that which was in the marketing materials.
Disputes often occur where Purchasers are dissatisfied with the ‘end product’. The dispute resolution methods to be applied are usually dictated in the Contract. Purchasers should satisfy themselves as to whether the method to be applied in accordance with the Contract is acceptable and likely to achieve a desired outcome. The liability for the cost of any dispute resolution method is also to be considered.
With an ‘off the plan purchase’ only, Stamp Duty must be paid within 3 months from the date which is the earlier of
1. completion of the agreement, or
2. the assignment of the whole or any part of the purchaser's interest under the agreement, or
3. the expiration of 12 months after the date of the agreement.

If a Purchaser intends to have advanced the sum required for payment of stamp duty through their loan funds that may be made available at the time of settlement of the Contract, penalties will accrue from the date the liability for stamp duty payment falls due up to and including the date of actual payment. This instance would occur if the Contract is not able to be completed within the time period required for payment of stamp duty (ie, within 12 + 3 months from the Contract Date as set out in sub-paragraph (iii) above).