The value of post-exchange enquiries

In today’s fiercely competitive residential conveyancing market, the cost of a purchaser’s post-exchange statutory enquiries makes up a significant proportion of the overall legal spend. While it may be tempting for clients to cut costs by narrowing the range of enquiries, practitioners need to remind purchasers of the potential risks.

We recently acted for a couple purchasing a house. Contracts were exchanged with a cooling off period and the cooling off period duly expired without incident.

Immediately after expiry of the cooling off period, we ordered our firm’s usual set of purchaser’s enquiries. One of those is a certificate under Section 121ZP of the Environmental Planning and Assessment Act. This is commonly known as an “Outstanding Orders” certificate and it states whether or not there are any outstanding Notices or Orders issued by the Council in respect of the property, for example an Order to carry out demolition or other works to the improvements.

In our experience, it is unusual for such a certificate to reveal the existence of any outstanding Notice or Order, particularly where no Order or Notice is disclosed in the contract. Yet these were precisely the circumstances in this case. The certificate issued by the Council stated that there was an outstanding Order requiring the owner to:

  • Demolish the carport at the front of the dwelling;
  • Demolish the awning at the rear of the dwelling; and
  • Restore the room depicted as a “proposed hobby room” [on specified DA drawings] to the approved form as a garage. This will involve removal of internal linings on the external walls, removal of floor framing and re-instating a roller door or similar to allow a vehicle to enter the garage.

The Council’s reasons for issuing the Order were: the relevant alterations were carried out without approval; parts of the alterations encroached on to an easement affecting the property; and there was no evidence that the garage conversion complied with habitable construction requirements.

The contract for sale did not mention these matters. However it transpired that both the vendor and the vendor’s agent were aware that the relevant structures had earlier been found to be non-compliant. Two years ago, the agent had assisted the vendor to lodge “an application” with Council to remedy the non-compliance, which was presumably either an application for a building certificate or a DA. When questioned, the agent explained that when he subsequently marketed the property for sale, he simply assumed that the non-compliance had been remedied and he did not follow this up with the vendor.

We advised our clients that, if they would not have bought the property had they known of these matters, they were entitled to rescind the contract for breach of the purchaser’s statutory warranty, pursuant to Clause 16 of the Conveyancing (Sale of Land) Regulation 2010. Our clients assured us that they would not have bought the property had they known.
The vendor offered to delay settlement while he attempted to remedy the non-compliance, but it appeared likely that the issues with Council would take at least several months to resolve, and even then there was no guarantee of a satisfactory outcome.

Alternatively, the vendor offered to complete immediately, with part of the sale proceeds held aside on trust, to be used if necessary by our clients in attempting to remedy the non-compliance themselves.

Our client decided that neither alternative was satisfactory, and they elected to rescind the contract. The vendor did not dispute the rescission.

If we had not obtained the certificate for the purchasers, then our client would have completed the contract, only to later discover the Order had been issued. In those circumstances, our clients could perhaps have sought to sue the vendor, or more usefully the vendor’s agent, based on misleading or deceptive conduct. Although it is arguable that the relevant consumer protection legislation does not apply to a vendor in a private residential sale, it would no doubt apply to the vendor’s agent.

Just as likely however, would be a claim by our client against us, their solicitors, for failing to obtain the certificate.

This case highlights the risks involved, to purchasers and their legal representatives, in not ordering this particular post-exchange enquiry. This is something for purchasers and practitioners to keep in mind when clients query whether they need to incur the cost of the outstanding orders search.